On April 4, 2020 I published a case study about three solo business owners - Salaried Sally, Proprietor Peter and Salaried Sally. We compared the businesses' entitlement to government assistance as a result of COVID-19 crisis and found that a sole proprietor (Proprietor Peter) and a business owner who only earns dividend income through his corporation (Dividend David) may not qualify for any government help.

Just two days later, on April 6, 2020, we have two important updates to the case study. Both represent good news: one for Dividend David and one for Proprietor Peter.

Good News for Dividend David

In the original case study, Dividend David was not eligible for any of the support programs even though his party entertainment business had to be completely shut down. This is because David earned dividends before the crisis, and not salary like Sally, or business income like Peter.

Following the publication, I received tens of messages from tax professional across the country who were concerned for their clients like Dividend David. The clients lost all their sources of income. Some were sick or had to care for someone who was sick. The tax professionals told me that they reached out to their MPs (Thank You!) and I did too.

At 6AM on April 6, 2020, just before the applications for the CERB became available on CRA My Account, the CRA amended its FAQ page for the CERB to include the following question and answer:

The overall wording of the statement on the CRA Website is less than clear but one message is - Dividend David can now be eligible for the CERB as his non-eligible dividends paid in 2019 and early 2020 can count towards the $5,000 pre-application income requirement.

The statement in the screenshot above can be misinterpreted to mean that David can continue receiving non-eligible dividends from DavidCo during the crisis and still be eligible for the CERB. I do not believe this to be the case, and I think the two sentences need to be read as one. I think this is a CRA website drafting error that will be fixed soon.

We currently do not have any further details on the regulations which would enable this interpretation. We will update our readers as soon as they become available.

Good News for Proprietor Peter

In the case study, Peter was not eligible for the CERB because he was still working and earning nominal income.

During his daily COVID update this afternoon (April 6, 2020), the Prime Minister announced that the CERB will become available to those who are working reduced hours - 10 hours/week or less (ex. gig workers, contract workers, volunteer firefighters).

CERB will also be extended to those who are working but making less than they would with the CERB benefits (ex. home-care workers or long-term care workers looking after vulnerable seniors).

Based on the announcement, Peter should qualify for the CERB. Details will follow.

As of 9PM April 6, 2020, Sally, Peter and David's chart looks like this.

There are definitely less red areas in today's chart for Dividend David and Proprietor Peter. It appears that the CERB eligibility rules are becoming more balanced and neutral as they are being developed.

The bottom portion of the chart, however, still looks all red for Peter and David and all green for Sally. If the three businesses are so similar in their size, tax liability, revenues and expenses, their eligibility for government support should also be similar.

Eligibility criteria for the wage subsidies and for the $40,000 interest free loan should be based on the businesses' overall survival needs (payroll, office cost, equipment rental, utilities etc.) in correlation to the the impact they have experienced as a result of COVID-19 (however difficult it is to determine). Businesses who were ordered to close their workplaces by the government, but continue incurring operating costs should receive additional support.

Stay tuned for #advotaxlawupdates about Sally, Peter and David.

To follow our COVID-19 updates, please subscribe to our tax blog and social media posts.

Nothing in this article constitutes legal advice and no solicitor-client relationship is created. If you require legal advice pertaining to your specific situation, please contact our tax lawyer. Please note that this post is only as current as its publishing date indicates, but the relevant rules change constantly.