proprietorship Archives - Ira SmithTrustee & Receiver Inc.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

Statistics Canada says the annual cost of living rate went negative in April as the economy came to a standstill in the very first full month of the pandemic. The agency says the consumer price index for April fell 0.2 percent compared with a year ago as energy rates did a nosedive. It was the very first year-over-year decline in the CPI since September 2009. As a result, on May 15, Prime Minister Justin Trudeau announced some amendments to existing Federal government support programs, including the Canada Emergency Wage Subsidy program, to help during this COVID-19 pandemic.

Millions of Canadians have actually lost their jobs due to the COVID-19 pandemic. As our economic recovery gradually begins, any place feasible to do so securely, Canadians need to return to work. Businesses opening up again safely will bring life back into the Canadian economic climate. That is exactly why the federal government generated the Canada Emergency Wage Subsidy (CEWS) (initially called the Canada Emergency Response Benefit) in March.

Canada Emergency Wage Subsidy extended

I have previously written about the federal government assistance programs to help both workers and employers. The overall umbrella name for all the programs is the COVID-19 Economic Response Plan. When the CEWS program was launched, critics quickly pointed out that it did not cover all types of businesses. They also wondered if the original program, scheduled to end June 30, was long enough to really help the economy.

On May 15, PM Trudeau introduced amendments to the program to help businesses get ready for reopening. These companies need to be able to rehire workers and with any luck perhaps hire even more than they had when the state of an emergency shutdown was declared. So, the CEWS is extended for 3 extra months to August 29. The CEWS covers 75% of an employee’s salaries– up to $847 per week – for eligible employers. For those able to additionally benefit from the Temporary 10% Wage Subsidy for a period, any credits taken under that program for a pay period will decrease the amount available to be claimed under the CEWS for that exact same time period.

The 1 part of your business your customers are most worried about

So businesses currently have some runway to get restarted. This is a good thing as businesses will certainly need funding to reactivate. Specific businesses might need a few extra staff members than they had before the shutdown. I just read this morning an article about what restaurants and other businesses may have to do to make customers feel at ease about returning.

The one area of the business that people might fear is the washroom. The article raises the following questions that should be answered before reopening:

How many people can be in there at one time?
Is every other urinal in the men’s room going to have to be sealed off?
Are the barriers between stalls and urinals sufficient?
Do the sinks have automatic taps or will patrons have to use the handles to turn on the water?

So a new job category that really hasn’t been seen much since the early 1960s might just come back – the washroom attendant. The business will have to make sure they can prove to their customers and clients that the washrooms are being cleaned on a very regular basis. Someone will have to make sure that there are only a limited number of people in a washroom at one time so that social distancing can be maintained. This could lead to new jobs!

Other amendments to the CEWS

The CEWS will ideally keep encouraging companies to rehire staff and even broaden where possible. The federal government has actually pledged, for moving forward, that it will work with company and labour stakeholders on any other changes that might be required.

Among the important things, they will certainly be looking at the 30% income drop limit for eligibility. As companies start-up, satisfying that revenue test should not be an obstacle to growth. Although all businesses require aid, certain ones could not fulfill the revenue decline test. There are two main factors. The revenue decline examination is on a monthly basis. Considering that the first half of March businesses were operating normally, many could not meet the test for that month. Startup companies probably couldn’t either.

Other businesses did not qualify not because of the revenue decline test, but because their business did not meet the original definition. So, Justin Trudeau announced broadened eligibility for the CEWS benefit. Previously, only corporations and charitable organizations were eligible employers for this wage subsidy benefit. Now the list has been expanded.

The eligible employer list has now been expanded and includes:

individuals (including trusts)
taxable corporations
persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:
non-profit organizations
agricultural organizations
boards of trade
chambers of commerce
non-profit corporations for scientific research and experimental development
labour organizations or societies
benevolent or fraternal benefit societies or orders
registered charities
partnerships consisting of eligible employers

Public institutions continue to not be eligible for the subsidy. This includes municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.

Canadian Emergency Business Account (CEBA)

In my April 13 blog, COVID 19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW, I described the CEBA in detail, as the program then existed. On May 15, at the same time, he was announcing the extension and changes to the CEWS, PM Trudeau also announced an expansion of the CEBA program. The expansion is meant to include an important part of the Canadian economy that was previously excluded. I think the exclusion was inadvertent, in the government’s rush to get the program out. So Justin Trudeau announced that the CEBA program will also now include:

Sole proprietorships/partnerships.
Any other form of owner-operated businesses.
Businesses that hire contractors but not employees, so they do not have a payroll account with the Canada Revenue Agency.
Family-owned businesses where remuneration is paid via dividends, not salary.
Businesses where the proprietor uses a personal bank account for business purposes rather than a business operating account.
Newly created businesses.

This should go a long way to removing previous inequities in the CEBA program.

So now, the list of ineligible businesses is relatively narrow, being:

A government organization or body, or an entity owned by a government organization or body.
A union, charitable, religious or fraternal organization or an entity owned by such an organization or if it is, it is a registered T2 or T3010 corporation that generates a portion of its revenue from the sales of goods or services.
A business owned by any Federal Member of Parliament or Senator.
One that promotes violence, incites hatred or discriminates on the basis of sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, contrary to applicable laws.

Summary

I hope you found this Canada Emergency Wage Subsidy Brandon’s Blog helpful. It should be of particular interest to contractors, developers and builders in Ontario.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Can you file personal and corporate bankruptcy: Introduction

Can you file personal and corporate bankruptcy is a question all small business owners ask us when they come to our office for a free consultation. We discuss local business bankruptcy with entrepreneurs in our office. Their personal and business lives are intertwined. There’s very little distinction between the individual their small business.

This is especially true if their business in unincorporated and is being operated as a proprietorship. Our role is to first understand them as a person and as a business separately. This way we can give the best possible advice. If the business is a proprietorship, then we are only talking personal bankruptcy, or alternatives to avoid bankruptcy, such as a consumer proposal or restructuring proposal.

Can you file personal and corporate bankruptcy: Better to be separate legal entities

If their business legal form is that of a corporation, then we look at both the corporate and personal issues separately. The reason for this is because in the eyes of the law, the corporation and the individual are separate people. Many times it is not necessary for both the corporation and the individual to each file an insolvency process. Maybe only one has to.

Separating your business and personal assets and liabilities is a great reason for incorporating your business. When discussing bankrupting an incorporated company, we also need to consider if there are any Director liabilities. We must also consider the owner’s personal situation. This is so we can make sure they do not do themselves more personal harm than good. We also first look to see if there is a way to restructure and save the corporation.

Can you file personal and corporate bankruptcy: What is bankruptcy

Bankruptcy is a lawful method for the honest but unfortunate company or person to get a remedy from the burden of the financial debts that cannot be repaid. When an assignment in bankruptcy is submitted a “stay of proceedings” is invoked.

What the stay of proceedings means

The stay of proceedings results in stopping creditors from beginning or continuing with litigation against the company or person. The stay of proceedings also stops an unsecured creditor who has obtained a judgement. It stops them from garnishing funds from a bank account or part of the person’s wages.

For unsecured creditors, the stay of proceedings also calls a timeout to make sure that one unsecured creditor does not get a benefit over others in regards to the settlement of financial obligations. Keep in mind that the bankruptcy process could also be started by one or more unsecured creditors. They must be owed at least $1,000 in total.

can you file personal and corporate bankruptcy

Can creditors push you into bankruptcy?

The unsecured creditor(s) could file a motion with the Court requesting that a Bankruptcy Order be issued against the company or person. The method of bankrupting a corporation in Canada is the same as that of a person. In addition to being able to prove that the company or person owes this unsecured creditor or group at least $1,000, they also need to prove that at least one act of bankruptcy has been committed in the 6 months prior to the filing of the motion.

The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) identifies the various acts of bankruptcy. The most common one is “ceases to meet his liabilities generally as they become due”.

Secured creditors are generally not impacted by bankruptcy. They can realize upon the assets of the company or person covered by the security. In return for the original loan, the lender required that the borrower put up the security as a condition of the loan. The reason for this was so that if insolvency happens, the lender could sell the assets to try to repay the loan, interest and costs.

The secured creditor only really takes part in the bankruptcy process if after they have sold all the assets covered by their security, they are still owed money. The balance they are still owed is an unsecured debt.

Personal bankruptcy

If an individual’s business is a single proprietorship or a partnership, but not a corporation, legally, the person or people are also the business. So when they deal with the possibility of bankruptcy, all their assets are included, subject to provincial exemptions. Simply put, the assets of the business are not held different from their individual assets, so a small business bankruptcy of this kind is personal bankruptcy.

Where does Canada Revenue Agency fit in?

There are generally 3 types of claims that Canada Revenue Agency (CRA) has against a business. It does not matter if the business is incorporated or is a sole proprietorship.

The 3 kinds of CRA claims generally are:

Unremitted source deductions from employee payroll
Net HST owing
Unpaid income tax from profitable years

Both the HST liability and income tax, in a bankruptcy, is an unsecured claim. However, the HST liability is also a personal claim against the Director(s) of a corporation. Unremitted source deductions are both a deemed trust claim against the bankrupt’s assets and in the case of a corporation, a personal claim against the Director(s) of the company.

When we do our first consultation with a business owner, when the business is run in a corporation, whenever unremitted source deductions or HST is involved, this always leads to a talk about the person’s situation in the event CRA would make a claim against the Director.

Some bankruptcy statistics

According to the Office of the Superintendent of Bankruptcy Canada, for the 12 months ending September 30, 2017, there were 125,912 insolvencies in Canada. This is a decrease of 3% over the same time period a year earlier. Consumer insolvency filings were 122,296 or 97.1% of total filings. The consumer filings were split into 59,192 bankruptcies and 63,104 consumer proposals – roughly half and half.

Business insolvency filings for the same time period in all of Canada totalled 3,616, a decrease of 8.1% from the 12 month period one year earlier. Business insolvency filings were split into 2,719 bankruptcies and 897 proposals. These statistics do not include filings by very large corporations under the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36).

As you can see, for a country the size of Canada, there were not a lot of business insolvencies during the first 9 months of 2017. The consumer filings were split roughly even between bankruptcy and a consumer proposal, the best consumer bankruptcy alternative.

Alternatives to Declaring Bankruptcy

A consumer proposal entails paying back a part of your financial debts in return for your unsecured creditors forgiving the remaining balance owing. A consumer proposal provides a significant benefit for a proprietor or partner in an unincorporated business. Unlike in a bankruptcy, your assets are not available for seizure by the licensed insolvency trustee (LIT).

You can take up to 60 months to pay off your consumer proposal. How much you will have to offer your creditors depends on what the unsecured creditors could expect in your bankruptcy. Working with a LIT, you work out that amount through discussion and analysis. A LIT can explain the entire process to you.

From a financial viewpoint, a consumer proposal is better than your bankruptcy because it permits the unsecured creditors to recoup a larger part of the debt than they would receive in your bankruptcy.

What is best for you and your business?

If you find you or your business is in a financial danger zone, contact Ira Smith Trustee & Receiver Inc. We’re full-service insolvency and financial restructuring practice serving companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now.

Your financial problems can be solved with immediate action and the right plan. Give us a call today.

can you file personal and corporate bankruptcy