UPDATE: 75% Temporary Wage Subsidy and Health Care Professionals
April 1, 2020
I am fielding a lot of questions from clients about the revised temporary wage subsidy. This update is intended to provide clarity to those grappling with whether or not this program is of benefit to them.
Yesterday’s conversation with a dentist client illustrates the quandary that some are facing. In her instance, she has no choice but to remain closed due to COVID-19 restrictions. All staff have been currently laid off. In order for her to qualify for the 75% subsidy (assuming all other criteria were to be met), she would be obligated to pay 25% of the employees’ wages just to access the 75% subsidy. She would be out of pocket the 25% at a time when preserving cash is critical to her survival. This wouldn’t make business sense. Now, if this client were to decide to pay only her receptionist to cover the office remotely, the subsidy would save the dentist money. (All other staff would remain laid off for the duration of the closure.)
Details continue to emerge about this revamped program, but here is what is known at present:
On March 27, 2020, the federal government increased the 10% wage subsidy for small and medium-sized enterprises adversely affected by COVID-19 to 75% for qualifying applicants. The original “10%” wage subsidy, first announced on March 19, 2020, had not attracted much interest from employers, which prompted the government’s most recent announcement. (I mention this because I spoke to a client yesterday who was of the impression that they could withhold 10% from their next source deduction remittance. This is no longer the case.)
As with the previous version, this enhanced subsidy will be retroactive and effective March 15 to June 19, 2020.
Details of how the wage subsidy will work are slowly emerging, although at the time of writing, details of the original version continue to populate the government’s COVID-19 subsidy webpage. Eligibility criteria will include a requirement that revenues of those applying must have decreased by at least 30% due to the COVID-19 pandemic.
In its latest incarnation, the subsidy will cover up to 75% of wages on the first $58,700 that an employee earns, up to a maximum of $847 a week for a three-month period.
“Eligible employers” can include a Canadian-controlled private corporation (“CCPC”) (such as a health care professional corporation) eligible for the small business deduction that pays salary, wages or taxable benefits to employees. These eligible employers can reduce payroll remittances of federal, provincial or territorial income tax by the amount of the subsidy. This measure is only applicable to remittances made to the CRA.
The original “10%” subsidy did not require an application be made for approval. It is uncertain if this remains the case under the new 75% employer wage subsidy regime. Stay tuned for further details. Rather, the subsidy was deducted from monthly employee income tax remittances made to the CRA. (CPP and EI contributions are excluded from the subsidy calculation. CPP and EI premiums must continue to be paid.) The subsidy must be calculated manually; CRA will not automatically calculate the allowable subsidy.
For more information, see Frequently Asked Questions – Temporary Wage Subsidy for Employers. Many questions remain unanswered, including whether a CCPC having no small business deduction is eligible for this temporary employer wage subsidy. Another question: Are there any restrictions to the subsidy where shareholder wages are included as part of payroll, or does the subsidy only apply to arm’s-length staff?
Call Jonathan for further guidance as to whether this program may be of assistance to you.
Jonathan A. Tucker
CPA, CA, LPA
P: 905.601.5659 x101