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COVID-19

BC Brothers put out a hit video “Stay Home”

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If you haven’t seen this yet you’ll want to take the next 60 seconds to see these amazing brothers from Ladner, BC.

Here’s Toby, Finn and Rory with their new hit song “Stay Home”

Wayne Gretzky leads all star lineup in COVID-19 “Prevent The Spread” video

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COVID-19

Coronavirus invasion of major league baseball was bound to happen sooner or later

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Well, we knew something like this coronavirus invasion of major league baseball was bound to happen sooner or later. Now, all we can do is hope that other sports organizations do not go through similar messes.

But don’t bet against it happening somewhere else, and soon.

My guess from the beginning was that baseball would be first on the list of pending and potential disasters. Operating without the semblance of a safety “bubble” was accurately described as  either arrogant or foolhardy — of course all players would avoid mingling in the public or attending places where individuals sing or dance or cavort in nameless ways.

Hockey, so far, owns the biggest safety record: thousands of tests and no positive findings. In addition, few of the NHL’s players have openly elected to step away from the test, quarantine and isolate-when-necessary philosophy introduced by commissioner Gary Bettman, whose political instincts have ranked him among the least popular and most effective leaders in the sport’s history.

In a Bettman-directed universe, favoured hockey stories would all be politically correct, linked only to hard-fought victories, lovable team pets, young children and well-publicized contributions to charity by league, franchise or a smiling individual.

Today, it is obviously unfair to take offence at his quiet-at-all-cost stance. As long as occasional players choose to come forward when COVID-19 affects them, much of the media, and therefore most of the dedicated, banner-waving outsiders will be content with whatever information becomes public.

No such refuge is possible for baseball, despite the good fortune provided when Canadian decision-makers ruled against the possibility that U.S teams could cross a mostly-locked border and fly freely through our land for as long as necessary to complete a 60-game season and possible playoff games. Try to imagine the fuss that would be brewing at this moment if anyone who had been within reach of the Miami Marlins was scheduled to land at Pearson Airport in Toronto any time in the near future!

On Tuesday, it was reported that four more Marlins had been found with the infection, bringing the team total to 17; two coaches and 11 players were infected previously. At least half-a-dozen games have been cancelled or postponed, with more schedule changes expected.

Predictably, players who first objected to the baseball plan to operate without clear protection spoke out quickly. Los Angeles Dodgers lefthander David Price was among the first to remove himself from the season.

“Now we’ll really get to see if baseball is going to put players’ health first,” he said. “Part of the reason I’m at home right now is because players’ health hasn’t been put first.”

Washington manager Dave Martinez, whose Nationals are in a four-game home-and-home series with the Toronto Blue Jays, also commented: “My level of concern has gone from an eight to about a 12. I’m going to be honest with you: I’m scared.”

“Cheer up, things could be worse.” So, we cheered up. Things got worse.

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Business

CEWS 2.0 – Why I see it as another attack on the small business owner

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July 18, 2017 – The Minister of Finance announces draft legislation of the Tax on Split Income (TOSI) rule changes that would have far reaching impact into the small business community and although some changes were made, the rules have negatively impacted small businesses ever since and will continue for years to come.

Three years later, July 17, 2020 – The same Minister of Finance tables legislation of the changes to the Canada Emergency Wage Subsidy (CEWS), what I like to call CEWS 2.0 which will also continue for years to come.

Before you try to correct me and say that the subsidy is only for 2020, please read on.

While many media and politician soundbites like to give the impression of how CEWS 2.0 will help small business, I cannot help but see this as an opposite approach.

Do not get me wrong, money is money, and businesses will take all the help they can get, and if my business qualifies, I will take full advantage of it, but I personally don’t have to pay a tax specialist to figure it out.

There are two new calculations to CEWS 2.0.

  1. a baseline amount based on the percentage of revenue decline in the month compared to either the same month in 2019, or the January-February 2020 average revenue amount.
  2. a top-up amount based on the three-previous month revenue decline where it exceeds 50%.

Instead of an all or nothing at a 30% decline, even a 1% decline will get you a pro-rated payout, although the costs of figuring out your eligible amount might outweigh the benefit.

In fact, you could have an increase in revenue compared to this time last year and still get a payout. Make sense?

If the previous three months were greater than a 50% decline you qualify for the top-up amount regardless of the result for the current month.

The complexity of the CEWS design will reward those that have experts in their corner compared to those that do not.

Consider the following scenario:

A large public corporation that has employees making more than $1,129 a week will be able to not only have a simple calculation, they will not have anyone “related” to the corporation that they have to do extra baseline remuneration calculations for. Just like CEWS 1.0, in CEWS 2.0 every employee including the CEO will be subsidized in a public corporation, with no clawback mechanism (as recommended in my earlier article, the Keep it Simple S…ubsidy).

In the large public corporation, the bookkeeping, payroll, and accounting function will be up to date and (I would hope) accurate because of internal controls. They also frequently have large accounting and I.T. departments to easily calculate the eligibility and amounts for such a subsidy.

But let us compare this to a small owner-managed business like a restaurant for example. The profit margins in restaurants are already sliced thinner than the meat on a charcuterie board. Add to this the extra costs of social distancing and safety precautions, as well as the inconsistency of regulations for being closed, re-opened, and closed again as we navigate the pandemic and restaurants seem like a lost cause for a business owner.

Assuming they are able to still successfully navigate the minefield that COVID19 has placed on their livelihoods, many restaurants have dozens of part-time staff, including family members.

So right away we have a glaring difference: relatives.

The rules in CEWS 2.0 has not reduced any of the requirements for calculations to be made with respect to relatives working in the business. Relatives must have been being paid as a wage employee during one of a few optional calculation periods prior to March 15, 2020 to be eligible for any of the CEWS.

Do you remember TOSI?

TOSI basically was designed so you could only income split dividends with related persons under a complex set of strict rules.  Even though restaurants are considered “food services”, the Canada Revenue Agency (CRA) and Finance have in Example 4B of their TOSI explanatory notes an example of a restaurant which would not be considered a service. In doing so, they sent the message to continue to pay yourselves in dividends if you run a family owned restaurant.

As a result, family owned restaurants continued to do just that.

Fast forward to 2020 and you now have family members working in a low margin business, with no support for their dividend remuneration under CEWS 1.0 or CEWS 2.0.

Even if the small business owner was one of the lucky fortune tellers that decided to pay themselves wages, they still have to do a baseline calculation (two different ways – weekly or bi-weekly – for each claim period) just to figure out how much they might be able to get.

Keep in mind the bi-weekly periods are the periods that were set by finance, not the period you may already be using for your payroll cutoff.

Now we have the part-time restaurant staff in my example. The family business now must calculate the average weekly earnings of each individual staff member during the claim period to figure out what the maximum amount of benefit is.

To make it better, the bookkeeping records better be pristine and accurate on a month to month basis, rather than on an annual basis like many, if not most, small businesses do.

Enter in that sale on the 1st of this month instead of the 31st of last month, and you could be looked at as “gaming the system”.

If you are a late-night pub restaurant, make sure that you are closing out the tills at 11:59pm on the 31st of the month – or your numbers would be inaccurate and you could be called a “tax cheat.”

I can’t wait for the Halloween pub crawls this year, when the weekly earnings of those late-night pub staff will have to also be cut off at midnight Saturday, October 31st. At least there will be plenty of mask wearing that night.

So, we now have increased the compliance costs for the small restaurants for monthly reporting, weekly payroll calculations, overnight cutoffs on month-ends, and special treatment for relatives of the business.

It doesn’t take a tax specialist, a cost-accounting CPA, or a PhD in mathematics to figure out that this is going to cost more per employee in overhead costs to the small family business in comparison to the large public corporation.

While I am more than happy to receive money from my clients for doing the immense research and calculations that will be required, the fact remains for the small business owner, is all of this extra work and compliance cost worth it in the end?

Sadly, you will not know if it is worth it, until after you have put in the work to calculate it.

If you happen to be one of the lucky ones that qualifies, you will then have to track the amount of CEWS you received for each employee separately.

This is because the CRA in question 29 of their Frequently Asked Questions on CEWS said that there will be a new box at the bottom of the T4 required to be filled in for the amount of CEWS received for that employee.

But what about my earlier statement that CEWS will impact businesses for years to come? With your calculation and compliance is going on until the end of February 2021 with the addition of the T4 box, does it end there?

February 2021 will just be the beginning. This will begin the audits of the CEWS claims (if they have not already started).

Since the CEWS is required to be reported on the 2020 T4 slips filed by the business in February 2021, would it be fair to say that the three-year tax compliance clock only begins at that time?

This means from now until February of 2024 you can expect to have a call from (likely the payroll audit division of) the CRA to take a look at:

  • your weekly employee wage calculations;
  • the monthly revenue calculations;
  • the monthly cut-offs;
  • the timing of your invoices;
  • the CEWS amounts allocated to individual staff members; and
  • the scrutiny of amounts paid to relatives;

All while you have the joy of having an internal debate with yourself on whether to pay your tax specialist to deal with them, or to try and go at it alone and confused.

July 2017 – TOSI

July 2020 – CEWS 2.0

I wonder what July 2023 will bring.

This article was originally published on July 23, 2020.

Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr is the founder of CGL Strategic Business & Tax Advisors (CGLtax.ca). Cory is an advocate for small business in his role as Alberta Governor for the Canadian Federation of Independent Business (CFIB); converts legislation into layman terms for fun; and provides Canadian tax advisory services to other CPA firms across Canada; opinions are his own.

Biography of Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr can be found here.

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