Government of Canada Announces COVID-19 Economic Response

The Government of Canada has announced a sweeping package of relief and liquidity support for Canadian businesses in response to the COVID-19 pandemic.

A number of details regarding implementation remain outstanding. While most business liquidity programs will be effective immediately, certain programs will require legislative changes and may be delayed until early April.

A summary of key programs and announcements is set out below.

• Income Tax Deferrals: Individual income tax return filing deadlines are extended to June 1, 2020; deadlines for trusts with a December 31, 2019, year end are extended to May 1, 2020. Income tax payment deadlines for all taxpayers are extended until after August 31, 2020, for amounts that are or become owing before September 2020.

• Canada Account: The Minister of Finance will be able to adjust upwards the limit of the Canada Account administered by Export Development Canada (EDC). This account is used by the government to support exporters when deemed to be in the national interest. This support could be made to any Canadian business (in theoretically any amount) in the form of loans, guarantees or insurance policies. This support is likely to be used for larger enterprises that do not qualify for the programs for small- and medium-sized businesses noted below.

• Small Business Employee Subsidy: Eligible small business employers will receive a temporary wage subsidy for a period of three months equal to 10 per cent of remuneration paid during that period, up to a maximum subsidy of C$1,375 per employee and C$25,000 per employer. This subsidy is paid by way of set-off; the employer simply reduces their remittances of income tax withheld on their employees’ remuneration.

• Business Credit Availability Program (BCAP): This is a C$10-billion program to allow the Business Development Bank of Canada (BDC) and EDC to provide credit. It will be delivered through private sector lenders, likely in many cases through existing arrangements by which BDC and EDC provide private sector loans. This program is largely targeted to small- and medium-sized businesses. Priority sectors for this program include oil and gas, air transportation and tourism.

• Farm Credit Canada: The near-term credit available to farmers and the agri-food sector will be increased. Details of this support are outstanding.

• Bank Lending: The Office of the Superintendent of Financial Institutions (OSFI) is lowering the Domestic Stability Buffer by 1.25 per cent of risk-weighted assets, effective immediately. The buffer is a layer of additional capital that the banks are required to build up during good economic times for the specific purpose of accessing it during times of distress. The government advises that the reduction of the buffer will allow Canadian banks to inject C$300-billion of additional lending into the economy. We note, however, that some or much of this additional capacity may go towards funding of drawdowns on existing commitments, and so only a portion of this is likely to be represented by new corporate credit facilities.

• Bank of Canada: Interest rates have been cut to 0.75 per cent, with room for additional rate cuts in the future, should they be required.

• Insured Mortgage Purchase Program (IMPP): The Canada Mortgage and Housing Corporation (CMHC) will purchase up to C$50-billion of insured mortgage pools, to add liquidity to the mortgage market. Details of the terms of the purchase operations will be provided to lenders by CMHC later this week.

• Mortgage Deferrals and Defaults: CMHC will be providing financial institutions with increased flexibility regarding payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements. CMHC will permit lenders to allow payment deferral beginning immediately in appropriate circumstances. In addition, on a case-by-case basis where hardship calls for it—such as due to pay disruption, childcare disruption, or illness—Canada’s financial institutions will allow payment deferral for mortgages, in certain cases for up to six months.

• Bank of Canada Eligible Collateral: The Bank of Canada will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, with the exception of the non-mortgage loan portfolio. This will provide financial institutions with a backstop to regular private funding.

• Canada Mortgage Bonds (CMB) Buyback: Bank of Canada is looking at purchases of CMB in the secondary market to support market liquidity and price discovery.

In addition to the above, there are a range of measures aimed at individuals, including a six-month interest-free moratorium on the repayment of Canada student loans, reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25 per cent for 2020 and special payments under both the GST credit and Canada Child Benefit for low- and modest-income families.
 
For additional information, please reach out to your usual Blakes contact.

Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.