Canada Emergency Business Account (CEBA) Program For Pharmacies

Effective April 9, 2020 the application for Canada Emergency Business Account (CEBA) became available and pharmacies have the ability to apply for Government relief online.

Effective June 26, 2020 additional measures have rolled out to allow for more pharmacies who previously didn’t qualify to now access this program.

Effective December 4, 2020 the Government has expanded the loan amount.

Here are the details to see if you qualify for it:

What is the CEBA Program?

The Canada Emergency Business Account is a government guaranteed loan of up to $40,000 that is interest-free until December 31, 2022.

NEW! As of December 4, 2020, the Government of Canada has officially expanded this amount to $60,000.

The loan is issued as a line of credit by your bank and is available to help pharmacies with operating costs during COVID-19.

If the loan is paid by December 31, 2022, $20,000 of the remaining balance is forgiven, meaning that you only have to pay back $40,000.

Starting January 1, 2023, any outstanding unpaid loan balance will be subject to an annual interest rate of 5% and must be repaid in full by December 31, 2025.

Does My Pharmacy Qualify?

To qualify, your pharmacy will need to meet the following requirements:

• Has an active CRA Business Number (BN) as of March 1, 2020.
• Has an active business bank account
• Has not previously used the CEBA loan
• Intends to continue to operate
• Has filed a 2018 or 2019 tax return

In addition, you have to meet one of two additional criteria:

1. Must have had between $20,000 to $1,500,000 in total payroll in 2019
2. Non-deferrable expenses between $40,000 and $1,500,000 in 2020

These two criteria is meant to include those who are not on payroll and to include “newer” businesses.

However, if you registered your corporation after March 1, 2020 unfortunately you do not qualify. 

What Are Valid Expenses?

Expenses will be subject to verification and audit by the Government of Canada so have that ready when applying.

“Eligible Non-Deferrable Expenses” means the following expenses (and only the following expenses) incurred or to be incurred in 2020 provided that they are not deferrable after 2020:

1. Wages and other employment expenses to independent (arm’s length) third parties;
2. Rent or lease payments for real estate used for business purposes;
3. Rent or lease payments for capital equipment used for business purposes;
4. Payments incurred for insurance related costs;
5. Payments incurred for property taxes;
6. Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;
7. Payments for regularly scheduled debt service;
8. Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower

The Government may or may not add additional categories.

The following expenses are not eligible and you cannot use the funds received to pay such expenses:

• Prepayment/refinancing of existing indebtedness
• Payments of dividends, distributions and increases in management compensation

Where To Apply For The CEBA Loan

Wherever you have your business bank account, that is where you apply.

The application for this CEBA loan is ONLY done online, it cannot be done at bank branches.

For example, if you bank with BMO, then you will apply for this CEBA loan through the BMO website. 

The following conditions apply:

• Not being delinquent on existing borrowing facilities for more than 90 days in March 1st, 2020
• Not previously used or applied to the Program at any other financial institution
• NEW: The Borrower acknowledges its intention to continue to operate its business or to resume operations
• NEW: The Borrower agrees to participate in post-funding surveys conducted by the Government of Canada or any of its agents

Click here for BMO CEBA Application

Click here for Scotiabank CEBA Application

Click here for RBC CEBA Application

Click here for CIBC CEBA Application

Click here for TD CEBA Application

Are There Restrictions On How I Can Use This Money?

Yes, the CEBA Loan is meant to help cover their operating costs during a period where their revenues have been temporarily reduced.

The requirements of the program, as set out by the Government of Canada, is that funds from this loan will only be used to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, regularly scheduled debt
service, insurance, subcontractors, and property tax.

It may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

Additionally, funds from this loan cannot be transferred from an operating account into a wealth/investment account.

What Information Do I Need To Apply?

You will need to have the following information available when they are ready to start the application:

• 2019 T4 summary document to verify payroll eligibility
• Your Business Account number and transit number

For pharmacies with $20,000 CAD or less in total payroll paid in the 2019 calendar year will need to have the following information available when they are ready to start the application:

• Have a Canada Revenue Agency business number
• Have filed a 2018 or 2019 tax return
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD in 2020

Clients will need to keep these documents on file for audit purposes.

How Is the CEBA Loan Implemented?

The CEBA loan is issued in the form of a line of credit.

Monthly statements will be issued providing CEBA program loan account number and repayment information.

There is no minimum payment required on or before Dec 31, 2022.

The program payment timelines are as follows:

• The CEBA loan is interest free until December 31, 2022
• If repaid by Dec. 31, 2022, $20,000 is forgiven meaning that you only have to pay back $40,000
• If the loan remains outstanding on Jan. 1, 2023, 5% annual interest starts
• The remaining balance is to be paid in full no later than Dec. 31, 2025

You can repay the loan at any time, in monthly installments or as a lump sum, it’s up to you.

I Have Multiple Pharmacies, Can I Apply For Each One?

Yes for each pharmacy that meets the CEBA qualification critieria.

I Don’t Have Payroll I Pay Myself Dividends, Can I Apply?

Assuming you don’t meet the payroll conditions for 2019, you can still qualify even if you pay yourself dividends if you:

• Have a Canada Revenue Agency business number as of March 1, 2020
• Have filed a 2018 or 2019 tax return
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD.

I Don’t Pay Myself Anything, Can I Still Apply?

Assuming you don’t meet the payroll conditions for 2019, you can still qualify even if you don’t pay yourself anything if you:

• Have a Canada Revenue Agency business number as of March 1, 2020
• Have filed a 2018 or 2019 tax return
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD in 2020

Do My Own Wages And/Or That of My Wife Count?

No, wages that count as non-deferrable expenses only count to independent (arm’s length) third parties.

So you can’t include your wages or that of any family members, including your wife and children, when calculating the minimum $40,000 of non-deferrable expenses. 

My Pharmacy Relies On Relief Pharmacists Who Invoice Me, Can I Still Apply?

If your relief pharmacists invoice you, those expenses qualify as eligible non-deferrable expenses, so you qualify as long as you meet the following conditions:

• Have a Canada Revenue Agency business number as of March 1, 2020
• Have filed a 2018 or 2019 tax return
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD.

I’m A New Pharmacy, Can I Apply?

If you don’t meet the payroll condition for 2019, then you qualify if:

• Have a Canada Revenue Agency business number as of March 1, 2020
• Have filed a 2019 tax return (even if it is a nil return)
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD in 2020

For corporations setup after March 1, 2020 unfortunately you do not qualify.

Does Inventory Count As A Non-Deferrable Expense?

It is our interpretation that inventory falls under the category “authorizations and permissions necessary to conduct business by the borrower.”

Why? Because McKesson has permission to draw from your bank account for inventory purchases. 

As well, inventory is not a deferrable expense. You can’t push that to 2021 or beyond because you need to fill prescriptions now.

I’m a Relief Pharmacist, Can I Apply?

The same qualification criteria apply for relief pharmacists.

Problem is, most relief pharmacists don’t have themselves on payroll.

If this is you, you can still qualify as long as you meet the following conditions:

• Have a Canada Revenue Agency business number as of March 1, 2020
• Have filed a 2018 or 2019 tax return
• Have documents with all eligible non-deferrable expenses between $40,000 and $1,500,000 CAD.
• You must have a business bank account

It does not matter if you are operating as a sole proprietor or corporation, the key distinction is that you must have a business bank account and not using your personal bank account. 

If you are using your personal bank account, you must first open a business bank account before applying. 

How Many Invoices Do I Need to Upload?

After you apply for the CEBA loan, your bank will direct you to upload your supporting documentation of non-deferrable expenses to the Government portal.

How many invoices do you need to upload?

Answer: as many as you need to show you have $40,000 in non-deferrable expenses for 2020.

Problem is, for each expense, the Government site only allows you to upload one file per expense.

So what to do?

For example, let’s say you have 10 invoices from relief pharmacists this year.

You can’t upload all 10 invoices separately, so merge them all into one PDF using a site like Small PDF and upload that to the Government site.

Conclusion

The CEBA loan can help your pharmacy manage the impact that COVID19 has had on pharmacy revenues and expenses.

This loan up to $60,000 will help provide much needed liquidity for many, with up $20,000 forgiven, so every pharmacy that qualifies should apply.

With the qualifications expanded in June and December, more pharmacies are now eligible to apply for this CEBA loan.

If I missed any of your questions, comment below and we’ll get it added to this Q&A.

Do you have additional questions or want to see if your pharmacy qualifies? Schedule a time to chat with us via Zoom. 

About the Author

Ricardo helps pharmacists like you pay less tax, grow your pharmacy, and grow your wealth.

Prior to starting Pharma Tax, Ricardo worked at another accounting & wealth management firm focused on dentists. Pharmacists were coming on as referrals and all said the same thing: what you guys are doing for dentists, we need that specialist for pharmacy. Hence, Pharma Tax was born.

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