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This article was published on June 1, 2020 and UPDATED on June 18, 2020.

The Canadian Emergency Business Account ("CEBA") program was launched on April 9, 2020. The program provides $40,000 interest free loan to eligible small and midsize businesses, $10,000 of which is forgivable if $30,000 if repaid before December 31, 2022. CEBA was introduced to assist businesses that have experienced diminished revenues due to COVID-19, but face ongoing non-deferrable costs such as rent, utilities, insurance, taxes, and employment costs.

Amendments to the program's eligibility criteria were announced on April 16, 2020 and on May 19, 2020.

On June 19, 2020, the amended CEBA application becomes available.

The purpose of this post is to clarify the recent changes in the CEBA eligibility criteria, especially as they apply to sole proprietors and dividend earners.

On April 9, 2020, when CEBA launched, eligible businesses had to have payroll between $50,000 and $1,000,000 in 2019 in order to qualify. A week later, on April 16, 2020, the government increased the payroll eligibility range to between $20,000 and $1,500,000.

It meant that sole proprietors (like Proprietor Peter in our previous case study), dividend earners (like Dividend David), and T4A payers were not eligible for the CEBA, regardless of how badly they were affected.

These flaws of the program drew a lot of criticism from small business advocates, including yours truly. In my earlier post The Flaws of the CEBA Program and How to Fix Them I argued that the 2020 current non-deferrable operational expenses should be considered for the CEBA eligibility instead of the 2019 payroll amount. I also argued that business owners should receive the same access to CEBA regardless of their business structure. My case study chart featured by CBC also highlighted CEBA inequalities.

For over 5 weeks since the program launch, we encouraged our clients and followers to speak up, call their MPs, share their stories. Thousands of struggling business owners across the country kept fighting, and I am happy to report that our voices were heard.

On May 19, 2020, more than 6 weeks after the original CEBA announcement, the Prime Minister announced the extension to the eligibility criteria for the CEBA loan. The new eligibility criteria are as follows:

  • The business must be a Canadian business in operation as of March 1, 2020;

  • The business must have a federal tax registration with the Canada Revenue Agency;

  • The business’ total employment income paid in the 2019 calendar year was between $20,000 and $1,500,000 OR, if a business has less than $20,000 in 2019 payroll, the business must have filed a 2018 or 2019 tax return and has eligible non-deferrable expenses between $40,000 and $1,500,000;

  • The business must have an active business chequing/operating account with a designated primary financial institution opened on or prior to March 1, 2020. The account cannot be in arrears on existing borrowing facilities by 90 days or more as at March 1, 2020;

  • The business has not previously used the CEBA Program and will not apply for support under the CEBA Program at any other financial institution;

  • The business must acknowledge its intention to continue to operate its business or to resume operations;

  • The business must agrees to participate in post-funding surveys conducted by the Government of Canada or any of its agents;

Even though the announcement was made weeks ago, we find that a lot of business owners are still confused and lost track of all the changes. The following are frequently asked questions we still get from clients and followers:

I already asked my CPA and he told me I didn't qualify for CEBA because I was a sole proprietor/dividend earner.

You probably spoke to your CPA before the May 19, 2020 announcements. If your current eligible non-deferrable expenses are between $40,000 and $1,500,000, you may qualify. Give your CPA another call.

I work with independent contractors and issue T4As and not T4s. Do I qualify?

You may qualify if you meet the criteria set out in the May 19 announcement.

What counts as eligible non-deferrable expenses?

The announcement includes the following list of non-deferrable expenses.

  • Wages and other employment expenses to independent (arm’s length) third parties;

  • Rent or lease payments for real estate used for business purposes;

  • Rent or lease payments for capital equipment used for business purposes;

  • Payments incurred for insurance related costs;

  • Payments incurred for property taxes;

  • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;

  • Payments for regularly scheduled debt service;

  • 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.

What does not count as eligible non-deferrable expenses?

Although not specifically discussed in the announcement, we expect that any non-urgent by nature expenditures would not count towards the $40,000 eligible expenses requirement. In each case, the CRA may question whether an expense was non-deferrable (ex. partitions to comply with new anti-COVID safety regulations) or deferrable (ex. want trendier office design).

Cost of inventory (COGS) was not specifically included or excluded as an eligible or non-eligible in the announcements. Arguably, a business is not forced to buy inventory and, as such, the expenses may be deferrable. On the other hand, purchasing inventory is necessary to re-start a business - the very purpose of the COVID-19 financial incentive package, including CEBA.

We will update our followers as soon as we receive the CRA's guidance on the COGS issue.

I don't have $40,000 in eligible non-deferrable expenses, but I paid over $20,000 in salaries in 2019. Do I qualify?

You may qualify if you meet all other criteria. The requirement to have $40,000 in non-deferrable expenses only applies to businesses who paid less than $20,000 in 2019.

My business has been doing well financially despite the COVID-19 lockdown. We did not experience any drops in revenues. In fact, the business is performing better than ever. Do I still qualify for the $40,000 loan, $10,000 of which is forgivable?

Yes, you can qualify if you meet all other eligibility criteria. There are no requirements for a drop in revenues for the CEBA loan.

My business has been seriously affected as a result of COVID but I used my personal bank account for my banking. Do I qualify?

Unfortunately, no.

When can I apply?

If you paid over $20,000 in payroll in 2019, the application was available on your bank's website since April 2020.

The expanded eligibility CEBA application (i.e. the application for businesses who did not have $20,000 payroll in 2019) will become available through your bank's website on Friday, June 19, 2020.

How do I apply and what kind of documents do I need to provide?

The applications are being/will be processed by your financial institution.

Starting from June 19, 2020, there will two streams available to apply for the CEBA loan: the so-called Payroll Stream and the Non-Deferrable Expenses Stream.

The applications under the Non-Deferrable Expenses Stream is a two-step process and you must provide supporting documents. In contrast, there is only 1 step and no requirement for supporting documents under the Payroll Stream.

Payroll Stream: for businesses with total employment income paid to employees in 2019 greater than $20,000 and less than $1,500,000.

CEBA applications under the Payroll Stream will be completed directly through the financial institution in which your business holds its primary business chequing / operating account. Financial institutions provide application information to the Government of Canada to confirm eligibility.

Non-Deferrable Expenses Stream: for businesses with total employment income paid to employees in 2019 of $20,000 or less and 2020 eligible non-deferrable expenses (subject to adjustments for support or subsidies under other Government of Canada COVID response programs) greater than $40,000 and less than $1,500,000.

CEBA applications under the 2020 Eligible Non-Deferrable Expenses Stream will follow a two-step process:

Step 1: Businesses will initiate applications directly at their primary financial institution where they hold their primary business chequing / operating account. The financial institution will then direct applicants to Step 2 of the application process.

Step 2: Following the initial application through your financial institution, applicants will be directed to a CEBA website to provide supporting documentation of the 2020 eligible non-deferrable expenses and to complete the application. As such, you will need electronic or paper copies of receipts / invoices / agreements to be uploaded as evidence of your 2020 eligible non-deferrable expenses.

How long will it take to receive the funds?

10-15 days after the Government receives your application along with any required supporting documents.

Are there any limitations on how I can use the CEBA funds?

CEBA funds cannot be used to repay or refinance an existing indebtedness.

CEBA funds cannot be used for payments of dividends, distributions and increases in management compensation. It means that, as a shareholder, you may continue paying yourself a salary if you have done so prior to March 1, 2020, but you cannot increase your existing salary or start paying yourself a salary.

What are the penalties for misrepresentation on a CEBA application?

We do not know for certain. At the very least you will face the consequences arising from a breach of your contract with your bank. We do know, however, that the CRA has invested significant resources to protect the integrity of the COVID-19 support measures. We strongly encourage everyone to be truthful on their applications and to update their bank on any changes that would affect their entitlement to the CEBA loan.

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I have had a small business account for 19 years. My bank sent me a CEBA app last April. I applied & received the 40K. Now The bank & EDC want an RP number. I am a self-employed. For 2019 I had $25k of business expenses and netted $60k which I reported as my payroll. I have a BN & RT number but no RP# (Payroll). Does the 60K pay to myself count as payroll? EDC are saying no? Say I need an RP number.


Josh Schaefer
Josh Schaefer
Jun 08, 2021

The below information has since changed with the CRA and should be updated here. Businesses are still eligible provided they open a business account now. A business account in needed to receive the loan, but is not needed to have been used through the year of 2020.

My business has been seriously affected as a result of COVID but I used my personal bank account for my banking. Do I qualify?

Unfortunately, no.

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