April 14, 2020

COVID-19 UPDATE: Updates on the Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (CEWS) recently received Royal Assent, and more details were released. Here’s what we know: Reminder of what it is: A subsidy to help employers keep […]

The Canada Emergency Wage Subsidy (CEWS) recently received Royal Assent, and more details were released.

Here’s what we know:

Reminder of what it is: A subsidy to help employers keep and return workers to their payroll even with the challenges posed by the COVID-19 pandemic. This would provide a 75-per-cent wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.

Eligibility now Includes:

  • A corporation that is neither tax-exempt nor a public institution (unless described elsewhere);
  • An individual;
  • A registered charity that is not a public institution;
  • An agricultural organization, a board of trade or chamber of commerce, a scientific research corporation, a labour organization or a not-for-profit organization, other than a public institution;
  • A partnership, all of the members of which are eligible entities; or
  • Any other entity prescribed by regulation

Basically, employers of all sizes and across all sectors qualify, except public bodies.

  • The subsidy is only available to non-arm’s length employees employed before March 15, 2020. An employer cannot be subsidized for remuneration paid to non-arm’s length employees hired after the crisis began. This means that non-arm’s length employees had to have been on the business payroll prior to March 16, 2020 so as to have “baseline remuneration”. This can take a lot of owner managers out of the subsidy if they didn’t receive wage compensation between January 1 and March 15. Dividends don’t count for these purposes.
  • The subsidy will be available to eligible employers that see a drop of at least 15 per cent of their revenue in March 2020 and 30 per cent for the following months.
  • Employers will now be allowed to compare their revenue using an average of their revenue earned in January and February 2020. Employers would select the general year-over-year approach or this alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program.

Calculating:

  • An employer’s revenue for this purpose would be its revenue in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method, and would exclude revenues from extraordinary items and amounts on account of capital. It’s somewhat mystifying that only Canadian sourced revenues are examined in order to determine eligibility.
  • The government has clarified that employers would be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers would select an accounting method when first applying for the CEWS and would be required to use that method for the entire duration of the program.

Update to Refund for Certain Payroll Contributions

The Government is proposing to expand the CEWS by introducing a new 100 per cent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100 per cent of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.  Again, this is a bit quizzical because it would appear to encourage an employer to fully lay employees off but keep paying them rather than have them move into an alternative work arrangement.

How to Apply:

Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal as well as a web-based application that will be created by the CRA. Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.

Once an employer is found to be eligible for a specific period, the employer will automatically qualify for the next period. This will also allow the entity to recover during the next period without losing the subsidy. This was a change from the initial proposals in that employers were originally being asked to apply for the subsidy each period.

Source for Image: Finance Canada

More information on the application process is coming, but it could take up to a month.

How it interacts with the 10% wage subsidy:

For employers that are eligible for both the CEWS and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.

Ensuring Compliance:

Employers would be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements. Penalties may apply in cases of fraudulent claims. The penalties may include fines or even imprisonment.

Please reach out if you have any questions to inquire@thecatalystgroup.ca