Canadians: What Changes Can You Expect on Your 2021 Small Business Tax Return?

The effects of COVID-19 on small businesses in Canada are as varied as its symptoms. Here's how to make sense of how government relief measures will impact your income tax return this year.


For most Canadian businesses, 2020 was an irregular year at best.

In a January 2021 survey, the Canadian Federation of Independent Businesses found that one in six—or about 181,000—Canadian small businesses are considering closing for good.

Other businesses experienced disruptions or a lower volume of work throughout 2020, while some entrepreneurs, particularly those who serve the tech industry, may have had record-breaking years.

No matter what the pandemic did to your business in 2020, this year’s income tax returns might look a little different. As a small business owner, you may be left wondering how the government will tax financial relief measures that were made available this past year.

Etel Igreda, business tax expert, director, and founder of Blossom CPA, says she’s already fielding questions from confused clients who are uncertain about what their tax obligations are this season.

“This year has been a challenge. Small businesses are wondering how to record things like the CEBA (Canada Emergency Benefit Account) loans, and how and when to pay it back. There’s been a lot going on in the last few months and we really don’t see an end in sight.”

Here’s a breakdown of the changes you can expect to see on your tax return this year, including updated tax deadlines.

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What’s New This Tax Season

The federal government introduced a number of relief programs to help businesses and employees cope with the economic effects of the pandemic. Here’s a list of the programs small business owners and the self-employed are eligible for, as well as the business tax implications that come with them.

Canada Emergency Wage Subsidy (CEWS)

What Is It?

The Canada Revenue Agency (CRA) introduced CEWS to help Canadian employers who have seen a drop in revenue during the pandemic continue to pay their employees. The benefits program covers a portion of their employee wages, retroactive to March 15, 2020. The subsidy is intended to enable businesses “to re-hire workers, help prevent further job losses, and ease your business back into normal operations.”

CEWS covers claims in 4-week increments and does not automatically renew. Businesses must reapply for the benefit every four weeks and submit revenue losses. Subsidy rates vary depending on how much revenue is lost by each business.

What Are the Tax Filing Implications?

CEWS is considered taxable so it does need to be reported, whether you’re filing a T1 return (personal income tax) or a T2 corporation return.

Temporary Wage Subsidy (TWS)

What Is It?

The TWS was a 3-month measure that allowed eligible employers to reduce the amount of payroll deductions they need to remit to the CRA. “The subsidy is equal to 10% of the remuneration you pay from March 18 to June 19, 2020, up to $1,375 for each eligible employee. The maximum total is $25,000 for each eligible employee,” according to Canada.ca.

Employers did not need to apply for this benefit. The CRA automatically calculated eligibility.

What Are the Tax Filing Implications?

“This benefit was simply trying to save employers cash for those three months (March-June 2020),” said Igreda.

“If you didn’t claim it but you were eligible, the Canada Revenue Agency will award you that difference as a refund or credit after you file your taxes. This will be after they do the balancing of the T4s, payroll amounts remitted, plus what you should have deducted from your employees.”

Canada Emergency Business Account (CEBA)

What Is It?

CEBA is a CRA program that provides an interest-free loan of up to $60,000 to small businesses, the self-employed, and nonprofit organizations to help cover operating costs and avoid closures. All applicants have until March 31, 2021 to apply for the loan. Businesses that already received a $40,000 loan (the limit of the original program, before December 2020), may apply to have it expanded to $60,000 by the same deadline.

What Are the Tax Filing Implications?

If a business pays back the loan before Dec. 31, 2022, 33% (up to $20,000) will be forgiven.

“This loan program was administered by different banks across Canada which has caused some confusion and differences. The rules for how you qualify and spend the money is all over the place. However, it’s basically treated as a liability and if you don’t want to pay interest, pay the right rate by December 31, 2022,” said Igreda.

Luckily, this interest-free loan is not something you have to worry about on your 2020 tax return.



Canada Emergency Commercial Rent Assistance (CECRA)

What Is It?

This program was designed for small business owners who were having trouble managing their operating costs, such as commercial rent, in 2020. It helped reduce rent by at least 75% from April 2020 to September 2020. So long as the tenant paid 25%, the property owner forgave another 25%, and the CECRA paid the remaining 50%.

What Are the Tax Filing Implications?

If your commercial landlord took advantage of the CECRA, it’s important to report the reduced rent amount on your small business tax return, not the rent you would have paid without the benefit program.

“This benefit was all in the hands of the landlords so it should have no tax implications for small businesses. Your rent expenses may have gone down in 2020 as a result, that’s it,” said Igreda.

Canada Emergency Rent Subsidy (CERS)

What Is It?

The CRA replaced the CECRA with the CERS in September 2020. The new program provided Canadian business owners, nonprofits or charities who saw a drop in revenue during the pandemic with a subsidy to cover part of their commercial rent or property expenses. This program runs through June 2021. Businesses can apply directly for the program without their landlord’s approval and funds go directly to business owners, not landlords.

Similar to the CEWS, businesses will need to submit claims based on 4-week periods. You will need to prove a decrease in revenue for the period you’re applying for, compared to the previous period.

The base subsidy provides up to 65% of eligible rent expenses. If you had to temporarily close your small business because it was in a high-risk location, you can also apply for an additional 25% lockdown support. Here’s a calculator to determine how much you’d get.

What Are the Tax Filing Implications?

CERS is taxable. You must include the amount of CERS you received on your tax return when calculating your taxable income.

Canada Emergency Response Benefit (CERB)

What Is It?

As one of the first financial relief measures, CERB provided support to employed and self-employed Canadians who were directly affected by COVID-19 between March 15, 2020 and September 26, 2020. Eligible individuals received $500 per week for up to 28 weeks, to a maximum of $14,000.

You were eligible to receive the benefit if your business closed due to the pandemic. Independent contractors and self-employed individuals were also eligible if COVID-19 affected their ability to work.

When the CERB program ended in September, the government transitioned to a simplified Employment Insurance program and introduced three new recovery benefits, which are available between September 27, 2020 and September 25, 2021.

Sole proprietors and employees of all businesses may be eligible for the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit, and the Canada Recovery Sickness Benefit.

What Are the Tax Filing Implications?

The CRA reminds applicants that CERB is taxable: “You will be expected to report it as income when you file your income tax for the 2020 tax year.”

According to Igreda, when the program was originally put into place, all funds went directly to eligible participants and no taxes were deducted:

“It’s important to remember that individuals will get a T4A form and will pay taxes on the original CERB program, since it was not taxed at the source. With the new programs, they are withholding some taxes at the source with the hopes that it won’t hit taxpayers too much when they have to pay taxes later on.”

Igreda cautions self-employed people who may have claimed the original CERB: “If your employment income for 2020 was more than $38,000, you will pay 50% tax on the dollars received on CERB above that amount.”

Deducting Home Office Expenses on This Year’s Tax Return

When the pandemic first hit Canada last March, nearly 5 million Canadians who typically conducted their work at an official workplace were instantly made to work from home.

Thankfully, in December 2020, the CRA made the home office expenses deduction available to more Canadians and simplified the way employees can claim these expenses on their personal income tax return for the 2020 tax year.

The two methods to claim these expenses are:

Temporary Flat Rate

Eligible employees can claim a deduction of $2 for each day they worked at home (for more than 50% of the day over a period of at least four consecutive weeks in 2020), plus any other days they worked from home in 2020 due to COVID-19, up to a maximum of $400.

Under this method, employees will not need to get Form T2200 or Form 2200S completed and signed by their employer. They do not need to perform workspace calculations or keep receipts.

Detailed Method

Employees who feel they invested more into their home office setup and have eligible business expenses may choose to use the detailed method to claim more deductions on their tax return.

This is the usual way that most small business owners who work from home fill out their income tax returns. It allows you to claim actual amounts paid. Check out the detailed calculations required. And here’s a list of all eligible business expenses.

If you have employees who want to claim a home office expense deduction using the detailed method, you will need to sign a T2200S (declaration of conditions of employment for working at home due to the pandemic) or T2200 (declaration of conditions of employment).

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New Income Tax Deadline Extensions

The filing deadline for your tax return differs depending on how your small business is structured. This year, the CRA issued some extensions due to the pandemic.

“The deadline to file your return and pay your taxes is April 30, 2021. If you’re self-employed or have a spouse or common-law partner who is self-employed, the deadline to file your taxes is June 15, 2021. All taxes owed must be paid by April 30, 2021,” according to Canada.ca.

If you are incorporated, your business must file no later than six months after the relevant tax year ends.

Last year, Canadians were given an extension to file their 2019 returns until June 1, 2020 (payments were due Sept. 1, 2020), but there is no word yet if there will be an extension for this year. CPA Canada is in discussions with the CRA about this, so keep your eye out for any announcements.

Igreda provides her own updates: “Individuals with a taxable income of $75,000 or less in 2020 will not be required to pay interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022, if they have received income support in 2020 through one or more of the following: CERB, CESB, CRB, CRCB, CRSB, EI benefits, or similar provincial emergency benefits. Interest relief will be automatically applied.”

Ready to File? Check Out These Tax Filing Resources

Looking for more information—and even some assistance—with filing your small business tax return in 2021?

FreshBooks’ Accounting Professionals Program connects innovative accountant firms with the FreshBooks platform and our small business customers to create a collaborative accounting approach. When you sign up, you’ll be paired with a FreshBooks accountant professional to help you sort through your unique needs. Get started here.

Much like 2020, the 2021 tax season may come with some confusion. The best bet for small business owners is to learn as much as you can from articles like these, and seek the support you need from tax professionals.



about the author

Freelancer & FreshBooks Customer Heather Hudson has been a freelance writer for more than 17 years. As a small business owner, she understands the triumphs and challenges of life as an entrepreneur. And as a longtime FreshBooks customer, she’s always looking for ways to work smarter, not harder. You can learn more about her work at heatherhudson.ca.