Update: June 16, 2020 – Basic Wage Subsidy Update: The 10% Wage Subsidy is scheduled to end as of the last pay cycle June 19th.
Update: Beginning April 27, applications will be open for the Canada Emergency Wage Subsidy
What is the Eligibility Threshold for the CEWS?
- An employer will be eligible for subsidy if the employer can demonstrate a drop in qualifying revenue of 15% or more for March 2020, and 30% or more for April 2020 and May 2020. Employers will be required to attest to this revenue drop in their application.
- An employer may demonstrate the drop in qualifying revenue by comparing revenue in an eligible period to one of the following reference periods:
- A year-over-year comparator (i.e. comparing March 2020 to March 2019, April 2020 to April 2019, and May 2020 to May 2019); or
- An average of revenue earned in January and February 2020.
- Employers must select either the monthly year-over-year approach or the alternative January/February averaging approach when first applying for the CEWS and are required to use the same approach for the entire duration of the program.
How is “Qualifying Revenue” Calculated?
- An employer’s qualifying revenue is generally its inflow of cash, receivables or other consideration arising in the course of its ordinary activities
- The employer’s normal accounting methods, subject to certain exceptions, including special rules for registered charities and certain other tax-exempts.
- Employers are allowed to calculate revenues under the accrual method or the cash method, but not a combination of both. Employers must select an accounting method when first applying for the CEWS and use that method for the entire duration of the program. An election is required for employers seeking to use the cash method.
What is the Value of the Subsidy that the CEWS will Provide?
- In respect of most eligible employees, the Government will provide eligible employers with a subsidy equivalent to the greater of:
- 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week per employee; and
- the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less.
- Eligible remuneration will include salary, wages, and other remuneration like taxable benefits. It will not include severance pay or items such as stock option benefits or the personal use of a corporate vehicle.
- For employees that do not deal at arm’s length with the employer, the subsidy amount will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75% of the employee’s pre-crisis weekly remuneration. The subsidy will only be available in respect of non-arm’s length employees who were employed prior to March 15, 2020.
Is there a Maximum Cap on the CEWS Amount?
- There is no limit on the total aggregate subsidy amount an eligible employer may claim.
Do Employers Have to Re-Apply?
- To provide certainty, once an eligible employer is found eligible for a specific period, it will automatically qualify for the next period of the CEWS program. For example, an employer with a qualifying revenue drop of more than 15% in March would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9. Similarly, an employer with a qualifying revenue drop of 30% in April would qualify for the second and third periods of the program, covering remuneration paid between May 10 to June 6.
Are there any reductions for Payroll Remittances?
- In addition to the base subsidy, the CEWS will cover 100% of employer-paid contributions (i.e. contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan) for eligible employees who are on leave with pay (i.e. who are not performing any work for the employer in any particular week) and for whom the employer is eligible to receive the base CEWS subsidy. Note that this coverage of payroll remittances is not available if the employee is on leave with pay for only a portion of a week (i.e., if the employee works part of the week).
- Employers will be required to continue to collect and remit employer and employee contributions to each program as usual. However, employers will be able to apply for a refund at the same time that they apply for the base CEWS subsidy, and this refund will not be subject to the weekly maximum benefit of $847 per employee.
- There will also be no overall limit on the refund amount that an eligible employer may claim.
Is the CEWS Retroactive?
- Yes, the CEWS is retroactive to March 15, 2020.
How Long will the CEWS Remain in Place?
- Currently, the program will be available for 12 weeks from March 15 to June 6, 2020, with the possible extension by regulation to no later than September 30, 2020.
- The three current qualifying periods for remuneration are as follows:
- Period 1 (March 15 to April 11): An employer must show a reduction in revenue of 15% in March 2020 as compared to either March 2019 or an average of January and February 2020.
- Period 2 (April 12 to May 9): An employer must show a reduction in revenue of 30% in April 2020 as compared to either April 2019 or an average of January and February 2020.
- Period 3 (May 10 to June 6): An employer must show a reduction in revenue of 30% in May 2020 as compared to either May 2019 or an average of January and February 2020
If an Employer has Employees on Layoff Currently, Do They All Have to be Recalled?
- Employers are expected to make best efforts to recall or re-hire employees, but Bill C-14 does not require a full recall as a condition of eligibility for the CEWS.
- CEWS payments, however, will not be available in respect of employees who are without remuneration from their employer in respect of 14 or more consecutive days during a qualifying period.
How Do Employers Apply for the CEWS?
- Employers will be able to access the application through the CRA’s My Business Account online portal which will become available in the coming weeks.
- The CEWS application portal is expected to be available to employers within two to five weeks.
What Records are Employers Required to Keep?
- Employers should keep records demonstrating (a) their revenue calculations, and (b) the remuneration paid to employees.
When will Funds Become Available?
- No specific date has been provided, but the Government has suggested that funds will be available in approximately 6 weeks.
Will Employers be Taxed on the CEWS Monies?
- Any wage subsidies received by employers will be considered government assistance and included in the employer’s taxable income.
- Assistance received under the CEWS or the 10% wage subsidy available to eligible small businesses will reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
Are There Penalties for Misuse of the CEWS?
- The Government noted that this is a “high-trust” system, but that it is prepared to and will take decisive action against anyone who manipulates the CEWS.
- In order to maintain the integrity of the program, employers will be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements.
- Employers that engage in artificial transactions to reduce revenue for the purposes of claiming the CEWS will be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to being required to repay the full amount of the subsidy which was improperly claimed.
- Finally, under existing provisions of the Tax Act, persons making, or participating in making, a false or deceptive statement could be prosecuted with a summary or indictable offence. Anyone found guilty could be sentenced to prison for up to 5 years.