An Update to Yesterday’s Update! The Canada Emergency Wage Subsidy
April 2, 2020
Remember yesterday’s update on the government’s 75% Temporary Wage Subsidy? Well, all that’s changed now!
Yesterday, (April Fool’s Day!) Department of Finance Canada released further details about this program. (By the way, the subsidy is now officially called the Canada Emergency Wage Subsidy (“CEWS”). (Sounds a lot like the Canada Emergency Relief Benefit.) Information released included the following details:
- defining employers who would be eligible for the subsidy
- establishing the benchmark to be used when measuring decreased revenues
- the maximum benefit an employee would be entitled to under CEWS
- the months eligible for CEWS
- how to apply for CEWS
- enforcement and penalties
- CEWS and the 10% Wage Subsidy
- the tax treatment for CEWS and the 10% Wage Subsidy
- an example calculation involving CEWS
Explanation of the details above are set out below.
Defining Employers Who Would be Eligible for the Subsidy
Under CEWS, eligible employers would include health care professionals operating as sole proprietors, professional corporations and partnerships consisting of eligible employers.
CEWS would be available to applicants who have experienced a decrease in revenues of at least 30% over 2019 revenues for the same month. In applying for the subsidy, employers would be required to attest to the decline in revenue.
Establishing the Benchmark to be Used When Measuring Decreased Revenues
Revenues would be defined as revenue from practices carried on in Canada and earned from arm’s-length sources. (“Arm’s-length” means revenue from a corporation related to the applicant would be excluded from the calculation. For example, rent billed from a holding company to a professional corporation, both owned by the same dentist, would not be counted in the revenue calculation.)
Also, revenue must be calculated using the same accounting method as in the previous year.
Maximum Benefit an Employee Would be Entitled to Under CEWS
The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020, would be the greater of:
- 75% of actual remuneration paid, to a weekly maximum benefit of $847, 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.
(Further guidance on “pre-crisis weekly remuneration” for a given employee to be provided.)
(“Eligible remuneration” does not include severance pay or certain other benefits such as the personal use of a corporate vehicle.)
A special rule will apply to non-arm’s-length employees, such as a physician operating through their professional corporation. The subsidy amount for such employees 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 $847 per week or 75% of the employee’s pre-crisis weekly remuneration.
There would be no overall limit on the subsidy amount that an eligible employer may claim, as there was with the March 18 announcement–specifically, $1,375 per employee to a limit of $25,000. (Incidentally, any benefit received from the 10% wage subsidy would generally reduce the amount available to be claimed under the 75% Canada Emergency Wage Subsidy in that same period.)
Employers must make their “best effort” to top up employees’ salaries to bring them to pre-crisis levels.
Months Eligible for CEWS
Eligibility would generally be determined by the change in monthly revenues, year-over-year, for the calendar month in which the period began (ignoring any COVID-19 wage subsidy received, of course). For example, if March 2020 revenues decreased 50% over those of March 2019, the applicant would receive CEWS on remuneration paid to staff between March 15 and April 11, 2020.
How to Apply for CEWS
Instead of reducing source deduction payments as the original subsidy had proposed, applicants will now need to apply for CEWS through the Canada Revenue Agency’s My Business Account portal. (There is also a web-based application which may be used.)
A subsidy application will need to be submitted monthly to qualify for each month’s subsidy. It is possible, for example, that revenue decreases experienced in March were not sufficiently dire (i.e. less than 30%) to qualify for March’s subsidy. In this example, an employer would bear the full cost of payroll for March without subsidy relief and only qualify for April and May’s subsidy or some variation thereof.
Records in support of revenue calculations as well as remuneration paid to employees must be kept.
More details about the application process will be made available shortly.
Enforcement and Penalties
Amounts received under CEWS would be repaid if they do not meet the eligibility requirements and/or employees are not paid accordingly. Penalties may apply in cases of fraudulent claims. Anti-abuse rules will be proposed to ensure that the subsidy is not inappropriately obtained and that employees are paid the amounts they are owed. New offences are being considered that would apply to individuals, employers or business administrators for false or misleading information given to obtain funds under the program. The penalties may include fines or even imprisonment.
Draft legislation has not yet been released for this program. As with previous announcements, the draft legislation will often make some changes to the program from the original announcements.
CEWS and the 10% Wage Subsidy
For employers that are eligible for both CEWS and the 10% Wage Subsidy (announced March 18, 2020), any benefit from the 10% Wage Subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under CEWS in that same period. In other words, double-dipping is not permitted.
Interaction with the Canadian Emergency Response Benefit
An employer would not be permitted to claim the Canada Emergency Wage Subsidy (CEWS) for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit (CERB).
Employers who are not eligible for CEWS would still be able to furlough employees who will receive up to $2,000 a month from the CERB program.
The Tax Treatment for CEWS and the 10% Wage Subsidy
The usual treatment of tax credits and other benefits provided by the government would apply. Any CEWS received would be considered government assistance and therefore taxable.
Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration. So, for example, wages included in a SR&ED claim would be reduced by amounts received under either CEWS or the 10% Wage Subsidy.
How Businesses Will Benefit from CEWS
Bruno and Tisha run a floral shop in Burnaby, British Columbia. They have four full-time employees, each earning $800 per week, and 6 part-time employees, each earning $400 per week, for a total weekly payroll of $5,600. Bruno and Tisha have closed their shop and are only fulfilling online orders during this challenging period. They are keeping all of their employees on the payroll, paying them their full regular wages, despite their revenues being down by 30%. Bruno and Tisha would be eligible for a weekly wage subsidy of $4,200 ($600 for each of their full-time employees and $300 for each of their part-time employees).
A Concluding Comment
What seemed at the time of the government’s March 18, 2020, announcement like a simple and expedient means of putting (or preserving) cash in the hands of businesses faced with an immediate cash flow crisis has been effectively reversed. With yesterday’s “update,” cash is now no longer immediately available as it was originally intended to be. Now, employers once again face an immediate cash flow crisis. They will now need to apply to the government monthly for the subsidy. And qualified applicants will have a six-week funding delay as they wait to be reimbursed.
Also, as explained in yesterday’s update, these subsidies may be of no benefit where a practice has had to close down due to the recommendations of licensing bodies. Either program may be of limited use where a receptionist or administrative staff member, for example, continues to perform limited duties. However, for remaining staff unable to work, CERB would provide financial assistance to staff laid off and would relieve the practice of this financial burden.
Call Jonathan for further guidance as to whether this program may be of assistance to you.
Jonathan A. Tucker
CPA, CA, LPA