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Covid Assistance

I just looked at the update GIFI guidlines for 2020 and came across this section on Covid related assistance. I am wondering how everyone is handling these payments. If it is added as additional income on the S1 and not to be put into 8242 on the gifi how are we to handle this.

"*8242 Subsidies and grants government assistance and subsidy payments (for
non-fishing corporations), federal, provincial, territorial, or municipal grants received

  • Corporations, including non-profit organizations, can use this item to report federal, provincial, territorial, or municipal grants received.

If COVID-19 related assistance is received, report the amount on line 295 of T2SCH1, Net Income (Loss) for Income Tax Purposes. Do not include it under item 8242."

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4088/general-index-financial-information-gifi.html

These “guidelines” so to speak must be written by people who have little understanding of double entry accounting, real life situations, or just can’t think far enough in advance to determine how their policies will actually affect things. If they really wanted to handle this properly they would have spent some time and effort while “working from home” to come up with a design to properly report things such as covid assistance or how the reduced source deductions due to TWS and PD27 would flow into the T4 Summary.

The problem you get into with simply putting an amount on line 295 (general dumping ground for other additions to income) is how would you account for this in the financial statements without it causing more problems? If the assistance is monetary (a deposit to your bank account) what would be the offsetting entry? How would you balance the schedule 100 and schedule 125 for this “covid assistance”? If you account for it as income in the financial statements you are also going to need to take some type of deduction for this amount on the Schedule 1. Now you will end up with an addition on line 295 for Covid subsidies and what? a deduction on line 395 for the same amount of Covid subsidy because it was reported in the financial statements?

If not income on the financial statements or the Schedule 125 I’m sure the CRA wouldn’t be terribly impressed if the journal entry for Covid payments was a debit to bank and a credit to shareholder’s loan. As far as the schedule 125 goes… in my limited experience with this schedule… as far as I know, the only source of income you can report on the Schedule 125 that doesn’t show up as taxable income is something like 9980.

Although incorrect according to the instructions on the T2-GIFI that @Don-Murray pointed out… I can’t see any way that isn’t messy to account for the money ending up in the corporation’s bank account.

If they are going to suggest something like this they need to think things through and actually provide realistic guidance on the entire reporting process of these payments.

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I agree totally. CRA must be looking for a quick and easy way to see if taxpayers are reporting the assistance as an income item; however, as you noted, if that income is already in the financial statements, you can’t just add the amount to Schedule 1 without deducting it somewhere else! Then you risk having CRA ask you about your deduction.

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You are correct… this is likely the same type of “self auditing” that we are seeing on the 2020 T4 slips whereby new boxes were added to assist the CRA in easily catching people who collected CERB benefits while working. I see many of the big box accounting firms still don’t complete a full set of GIFI on the Schedule 100 and 125, but are still getting away with just reporting totals (Total Sales, Cost of Sales, Total Operating Expenses etc) without any breakdown. Individual lines (such as 8242) do not get reported separately on the Schedule 125… so I suppose the only way to make sure the Covid subsidies are being reported is to have them as a separate line on the schedule 1.

Interestingly enough… I do have a couple of T2 returns here that were prepared by large firms… one with over $300k in CEWS. Not a mention of any covid assistance whatsoever on the Schedule 1… it was all reported through accounting income and included on the s125. :slightly_smiling_face:

… anyway… to stop my Friday rant and contribute constructively to the conversation… assuming we are required to go the line 295 schedule 1 route and want to figure out a decent way to accomplish that …

What about using line 3744 on the Schedule 100 balance sheet for the offsetting credit? Obviously, this would cause the T2 financial statements to be misaligned with the accounting financial statements if accounting for the Covid-19 subsidies as revenue for accounting purposes… but it seems like it would get the job done. Still a little messy though…

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I think I am going to go by ASPE on this one. CEWS and TWS will be netted with wage expense. CEBA forgivable portion recognized as other income as government grant. I can only find reference to this S1 requirement in the GIFI guidlines and no where else. 3744 looks like would work but it is a little messy. Thank you for the feedback.

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Or ignore their request, report it on GIFI 8242 and tell them that when they call?

At least that aligns with the accounting side.

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A self-employed hair dresser received CERB in 2020 unaware of the “net” eligibility requirement. She received a letter from CRA saying that they think she “may not be eligible” (2019 net income was $4200) and say they will look at her 2020 return to assess eligibility. In 2020 she received $10,000. of CERB which they instruct is to be recorded on line 13000 (other income) and included in the net income total which will then effectively give her the $5,000 CERB criteria in and of itself. This makes no sense. I see nothing saying that CERB funds do not count in determining CERB eligibility. Does anyone have any input on this? The concern is if CERB is recorded as instructed on line 13000 and then disallowed in determining eligibility, she will be in a repayment situation.

CERB is not income from employment or self employment.

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With CRA stipulating that CERB is to be recorded on line 13000, it then results in CERB money inclusion in total net income. Since CRA is basing CERB eligibility on net income it is, in effect, allowing CERB funds to increase net income to meet the 5k eligibility component. If not, shouldn’t CRA be instructing the recording of CERB money elsewhere?

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Not sure where you would have got that idea from, since CRA most definitely are not doing that.
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As Kevin already said above, CERB is not income from the following sources:

“(a) employment;
(b) self-employment;
(c ) benefits paid to the person under any of subsections 22(1), 23(1), 152.‍04(1) and 152.‍05(1) of the Employment Insurance Act; and
(d) allowances, money or other benefits paid to the person under a provincial plan because of pregnancy or in respect of the care by the person of one or more of their new-born children or one or more children placed with them for the purpose of adoption”

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ALSO
please note that this thread was about T2s.
New issues about T1s should be started in a new thread.
Things get very messy and confusing quickly for everyone when threads are hijacked.

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Benefit amounts on your T4A slip: CRA and COVID-19

https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-t4a.html

Jan 27, 2021 … (CRSB) Quebec residents will get both a T4A and RL-1 slip. The CRA will provide T4A slips starting in January 2021. You should receive your T4A slip before March 10, 2021. The COVID-19 benefit payment amounts on your T4A slip are taxable and must be reported as income on line 13000 of your 2020 income tax and benefit return.

" Benefit amounts on your T4A slip: CRA and COVID-19
https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-t4a.html
Jan 27, 2021 … (CRSB) Quebec residents will get both a T4A and RL-1 slip. The CRA will provide T4A slips starting in January 2021. You should receive your T4A slip before March 10, 2021. The COVID-19 benefit payment amounts on your T4A slip are taxable and must be reported as income on line 13000 of your 2020 income tax and benefit return."
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Sorry, I don’t see the relevance of your recent post to your issue.
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Also,
please start a new thread for your NEW T1 question, rather than continue hijacking this T2 thread.
Thanks!

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@Don_Murray @snoplowguy

I think the GIFI guideline is just reminding people that the COVID-19 relief is TAXABLE, whereas anything you put on GIFI 8242 gets DEDUCTED FROM taxable income.

I don’t think you need to put it on line 295 unless it isn’t reported as taxable income elsewhere. Or are they mistakenly referring to line 295 as Net Income for Tax Purposes?

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Line 295 on S1 adds the income to taxable income. If 8242 is deducted from taxable income then this would work but the cra are indicating that you are not to use 8242 and therefore you would be required to put it somewhere else to balance this out and also to avoid double income for the taxable income. I think this guideline is mistaken.

GIFI 8242 is an income item, not an expense. It’s under Other Income. I’m using CaseWare and am coding the forgivable portion of the CEBA as 8242, Subsidies & Grants. Line 295 on S1 is not a GIFI code. Not well thought through. Why am I not surprised?

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Anything you put on GIFI Line 8242 gets added to taxable income, not deducted from taxable income. This is essentially the dilemma @Nezzer. Accounting and bookkeeping has always been based on a convention of “double entry” and if you were to merely report the amount you received on line 295 of the T2 Schedule 1 (a general addition to taxable income) you are only recording one side of the entry…or half the transaction.

Line 8242 works well because you essentially credit Subsidies (8242) income on the Schedule 125 and debit bank account on the S100 balance sheet (or some receivable account for subsidies not received by the year end date). If you are going to report the income on line 295 as suggested by the CRA then your financial statements are going to be out of balance because the money went into the company bank account but the offsetting credit entry is being reported on Schedule 1 instead of in the financial statements. Unfortunately, there is no clean way of fitting half an entry into a set of financial statements.

@Don_Murray @jhd.hemeon @snoplowguy

Sorry! My bad. I tested this quickly earlier and I thought it was excluding GIFI 8242 from net income, but I just tested again and you are correct - GIFI 8242 is included in taxable income. Maybe the file I used earlier had a net loss and I didn’t notice the value was negative? Anyways, my apologies!

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I’m wondering if what CRA was thinking is this: most companies will have borrowed CEBA in 2020, but will not pay back until some future year. If so, the full $40K borrowed would remain on the B/S as a liability at (say) Dec 31, 2020. From an accounting perspective it’s not yet “forgivable” as it’s not yet repaid and there is no indication that it will be at that time. (Is there even a policy about that? I don’t recall seeing one, but haven’t looked either yet.)

From a tax perspective though, it’s income under S 12(1)(x) (IIRC) so inclusion under GIFI Line 295 would make sense in that situation.

For an organization that had already repaid the non-forgivable portion of the loan by Dec 31, the liability would be extinguished, and the forgivable portion recognized, and therefore (properly) show up on the GIFI at 8242.

Both would be fine bookkeeping-wise from a double-entry perspective and both would appropriately be recorded on b/s and i/s.

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That could be a possibility BmallBizGuy.

Lets say $30,000 of the $40,000 CEBA is paid back the following year… and the forgiven portion is accounted for in corporation’s income statement in that year. It is still going to be a bit messy trying to reconcile accounting income with taxable income, as you would need to take a 10,000 deduction somewhere on the T2.

How about:
Bank Deposit DR $40,000
Covid Loan CR $30,000
Subsidy Income CR $10,000

When loan repaid
COVID LOAN DR $30,000
BANK CR $30,000

OR

COVID LOAN DR $30,000
BANK CR $40,000
COVID BORROWING EXPENSE DR $10,000

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