Tax Measures Under Canada’s COVID-19 Economic Response Plan

To avoid taxpayers having to declare bankruptcy, the CRA[63] proposes a solution to assist taxpayers and Licensed Insolvency Trustees (“LITs”) in circumstances where the CRA is a creditor and the debtor is experiencing financial hardship. CRA is waiving the default pursuant to section 62.1 of the Bankruptcy and Insolvency Act (“BIA”), and is granting a deferral of payments to the estate up to September 1, 2020. This includes any amounts subject to section 60(1.1) of the BIA as per CRA’s existing Administrative Agreement policy with LITs for proposals that are tabled under Part I of the BIA. For consumer proposals under the BIA, the CRA is accepting an amended proposal deferring payments up to September 1, 2020.

New measures for consumer proposals[64] have been introduced in all provinces. As a result of these orders, debtors who have submitted consumer proposals will be able to “skip” three additional payments between March 13, 2020, and December 31, 2020, without defaulting on their proposal.

Taxpayers may deduct home office expenses under certain conditions. Additional information regarding this deduction can be found here[65].

The CRA has indicated[66] (and again here[67]) that, pending a review by the Department of Finance Canada, the CRA will not require an employer to terminate an individual’s deferred salary leave plan in the event that the individual defers their leave of absence beyond the six-year maximum deferral period. The CRA has noted that this administrative position will apply regardless of the reason for deferring the leave.

The CRA has indicated[68] that a health care spending account (“HCSA”) that qualifies as a private health services plan (“PHSP”) and which has unused credits expiring between March 15 and December 31, 2020, could temporarily permit the carry forward of those unused credits for a reasonable period to allow members to access services that were otherwise restricted during COVID-19. The CRA’s position is that a carry-forward period of up to six months would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a PHSP; however, it is the terms of the particular HCSA that will determine whether an employee can carry forward any unused credits.

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