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Vince84
April 6, 2021
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How do I correct my CEBA entry to reflect the taxable income?

  • April 6, 2021
  • 1 reply
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So I just discovered that the CEBA forgivable $10,000 is taxable while attempting to do my T2.  In QBO, I had set up a liabilities account and moved the $40,000 bank deposit into it last year. What are the steps for me to correctly show the liability AND the $10,000 forgivable loan on my Income Statement?  

Best answer by LeithG

Hi Vince

 

Based on the instruction from the CRA, and the linked document from CIBC, it appears that this is the correct treatment; that is to say, it's really only considered a $30,000 loan, and $10,000 of income or reduced expenses, based on the assumption that most people will try to take advantage of the forgivable portion.  Should you not be able to, or opt not to repay the loan such that the $10,000 becomes forgivable, there is a credit process that occurs, again, outlined in the linked document from CIBC.

I totally get where your accountant friend is coming from and I share their interpretation, but the government and banks are giving some detailed information on this since it is so outside the norm / non-intuitive.

1 reply

LeithG
LeithG
April 6, 2021

Hi Vince

 

I found this great description from the CIBC (https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/ceba-tax-en.pdf), quoting the relevant part:

  • The CRA has indicated that the amount that is forgivable is taxable in the year that the loan is received.
    For instance, if a business receives a $40,000 CEBA loan in 2020, $10,000 must be included in income
    in 2020. Alternatively, a business could elect to not include the $10,000 in income, and instead to reduce $10,000 of non-deferable operational expenses in respect of which the CEBA loan was received.
    $10,000 of non-deferable operational expenses in respect of which the CEBA loan was received.

Upon recording the initial loan, you are to assume that you will repay the loan within the designated timeline and record the forgiveable portion (10,000) as revenue instead of the loan, or as a reduction on expenses.

 

Probably the easiest way to do this is as follows:

Record a deposit to your bank account in the total of the $40,000, consisting of 

  • Loan (Liability): $30,000
  • Extraordinary Revenue: $10,000

Because this 'revenue' is a non-recurring item, associated with something other than the mainline of your business, creating and recording it as an extraordinary item will show it 'below the line' (under gross profit) and not muck up your normal income on your profit and loss.

Hope this helps!

    V
    Vince84Author
    April 6, 2021

    Thanks for the suggestion.  In fact, I was thinking along the same lines as you. 

     

    However, I was having a casual conversation with an accountant friend (who has not needed to touch CEBA) and he was suggesting that by doing it this way, it does not capture the full liability which is really the $40,000. Although I have all the confidence in paying back the $30,000, the question arose about what happens if I don't? How do I add $10,000 back to the loan liability? Or is this a case of "cross that bridge when you get there"? 

     

    Right now, by doing it your suggested (and my original thought) way will show that my liability is only $30,000 and the $10,000 is assumed forgiven in 2020.  Does that make sense? Is that ok? If not ok, how do I make it right in QBO?

     

    LeithG
    LeithGAnswer
    April 6, 2021

    Hi Vince

     

    Based on the instruction from the CRA, and the linked document from CIBC, it appears that this is the correct treatment; that is to say, it's really only considered a $30,000 loan, and $10,000 of income or reduced expenses, based on the assumption that most people will try to take advantage of the forgivable portion.  Should you not be able to, or opt not to repay the loan such that the $10,000 becomes forgivable, there is a credit process that occurs, again, outlined in the linked document from CIBC.

    I totally get where your accountant friend is coming from and I share their interpretation, but the government and banks are giving some detailed information on this since it is so outside the norm / non-intuitive.

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