In response to COVID-19, the Government of Canada has introduced various programs to help businesses manage the disruption to their business activity.
At SPLLP, our partners were hard at work during the months of April and May in helping our clients navigate through these new programs. Now that our clients are beginning to receive funds from these programs, they are asking important questions relating to accounting for these subsidies and loans. Under Accounting Standards for Private Enterprises (ASPE), Section 3800 discusses government assistance and concludes that the argument for using the income approach, rather than the capital approach, is more persuasive and should be used.
Canada Emergency Wage Subsidy (CEWS) and Temporary Wage Subsidy for Employers (TWSE)
At the time of writing this article, the CEWS program provided a wage subsidy to employers from March 15 to August 29, 2020 and the TWSE program provided a wage subsidy to employers from March 18, 2020 to June 19, 2020. Therefore, these subsidies relate to an entity’s current expenses. In accordance with Section 3800 government assistance relating to current expenses can be shown:
Net of expense
As a deduction from aggregate expenses
As revenue.
With specific application to CEWS and TWSE, the employer can choose between recording the subsidies as a reduction of salaries and benefits or as revenues. Whichever method is chosen, there are disclosure requirements, including disclosing the accounting policy, the amount received or receivable, and the terms and conditions applicable to the particular subsidy.
Canada Emergency Business Account (CEBA) interest-free loans
CEBA is a loan program of up to $40,000 for which 25% of the loan is forgivable if the loan is repaid on or before December 31, 2022. Section 3800 has specific guidance on forgivable loans which stipulates that “the loan shall be recognized as a grant when the enterprise becomes entitled to receive it and not at the time such loans are forgiven”. In applying this to CEBA, the entity would be entitled to the granted portion at the time that the balance of 75% of the initial loan is repaid or at the time they have reasonable assurance that they will be able to repay the loan before the December 31, 2022 deadline. At this time, the entity should record the forgiven amount as grant revenue. The portion of the loan to be forgiven should initially be presented as deferred government assistance and disclosure must include the terms and conditions relating to the forgiveness.
The above programs discussed represent only two features of Canada’s COVID-19 Economic Response Plan for businesses. Our team of professionals is available to answer any questions regarding other programs and to discuss your unique circumstances.
Links for programs:
CEWS
TWSE
CEBA
