An additional update has been announced and is reflected below.
Content as of MAY 21st.
Most recent update is noted in italics.
On May 15, 2020, Finance Minister Bill Morneau announced that the Government of Canada will extend the Canada Emergency Wage Subsidy (CEWS) by an additional 12 weeks to August 29, 2020.
Since the introduction of the CEWS, we are now on to the 4th round of amendments to this government program with the most recent announcement being the “approval of regulations to extend eligibility” of the CEWS program to the following groups retroactively to the start of the program:
- Partnerships that are up to 50% owned by non-eligible members;
- Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;
- Registered Canadian Amateur Athletic Associations;
- Registered Journalism Organizations; and
- Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools
The Government also stated that the 30% required “revenue decline threshold” is currently being reviewed with “key business and labour representatives” to not hinder growth as the economy reopens.
Lastly, the Government also stated that it intends to propose legislative amendments to ensure that the CEWS continues to meet its objectives. These proposed technical amendments would:
Provide flexibility for employers of existing employees who were not regularly employed in early 2020, such as seasonal employees. This includes a proposal that an option would be added to calculate baseline remuneration as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019;
Ensure that the CEWS applies appropriately to corporations formed on the amalgamation of two predecessor corporations; and
Better align the treatment of trusts and corporations for the purpose of determining CEWS eligibility.
The following provides further commentary outlining the CEWS program, eligibility criteria, etc.
On April 11th, tax legislation was passed into law to provide additional rules for the operation of the CEWS previously announced by the Canadian government. This subsidy is aimed at providing financial support to businesses who have seen a substantial decline in their revenues amid the current COVID-19 crisis.
You can access information on this program published by the Government of Canada here. The webpage has recently been updated to make it easier to understand.
A total of 35 FAQs have currently been posted by the government to help clarify aspects to the program.
Several examples and scenarios have been added to the FAQs, including details on how the CEWS and CERB interact. Further clarifications on that topic are still forthcoming.
Because this is administered through the Income Tax Act, the rules are complex, require detailed calculations, and an understanding of certain terms commonly used in the income tax legislation.
The application process will open on April 27th.
Businesses need to incur the costs first (assuming the cash flow is available) and then rely on the ability to apply for the refund.
What can you do now? You can start working on the eligibility calculations in preparation for the opening of the program.
The Canadian government has released an online calculator to help you calculate the subsidy. Click here to access the tool.
Before jumping into some of the eligibility criteria, here are some key things to keep in mind:
- The subsidy is available to employees that you are currently paying and to those that you may have laid off. The decision to rehire may not be that straightforward.
- The subsidy is taxable
- Hiring back laid off employees will still impact your bottom line.
- However, consider the non-financial benefits of retaining your employees who you will need back when the economy opens up.
- You likely have fixed costs that you are paying that can offset the income inclusion.
- The pros and cons for the employee to participate in CERB vs. your wage subsidy offer:
- Employment income creates RRSP contribution room, CERB doesn’t.
- Their ability to continue to participate in your benefit plans.
- The employee must still pay into EI and CPP under the subsidy program.
- The employer share of EI and CPP is refunded through the subsidy program.
- The employee may have less take home pay under the subsidy vs. the CERB.
- If you offer the subsidy to an employee, will the employee get to choose? The government says more information is pending on how the CERB and CEWS will interact.
- See below for important rules for which employees qualify. For the employee to qualify, you would want them to be re-hired at the beginning of the qualifying period and not the end due to the 14 consecutive day requirement.
- Ability to pre-fund the costs until the subsidy is available.
- If you apply for the CEWS, the government has the right to make your name public.
- There are stiff penalties if the government determines that you engaged in activities to defraud the system.
- You need a Business Number on March 15, 2020 to qualify.
- The government still needs to provide additional guidance on this program.
The following is an attempt to break down the technical eligibility requirements into digestible pieces. You will need to work with an accountant to help you determine or validate any eligibility criteria. You don’t want to be on the wrong side of the penalty rules because they were misunderstood.
Who is a Qualifying Employer?
- A corporation
- An individual (self-employed business owner)
- A registered charity or not-for-profit
- A partnership where all the partners qualify
Public institutions (hospitals, schools etc.) are not eligible.
It is important to understand the “Qualifying Periods” for this program and how the tests are applied to those periods.
|March 2020||March 15 – April 11||15%|
|April 2020||April 12 – May 9||30%|
|May 2020||May 10 – June 6||30%|
*The percentage is determined by comparing the 2020 month over the 2019 month OR comparing the 2020 month over the average of January and February 2020 revenues.
- The 2020 month means the month in which the qualifying period starts. So, March 2020 Qualifying period = the calendar month of March for revenue testing purposes.
- You can choose whether to use the prior year month or the January/February average to measure your testing against; however, you must stay consistent for all periods.
- If you qualify for one period, you automatically qualify for the next period.
- We are already into the second qualifying period and the program isn’t active yet!
How do you Measure Revenues?
- You can choose to measure based on the cash or accrual method of accounting BUT you must be consistent throughout all qualifying periods.
- You must adjust for extra-ordinary items.
- Only revenues from your ordinary business qualify from sales of goods or services.
- If you are a charity, you can choose to exclude funding or revenue received from a related party in your calculations, but again you must be consistent for all qualifying periods.
- Special rules apply where 90% or more of your revenues are received from a related person or entity. Speak with your accountant to understand who qualifies as a related person or entity (non-arm’s length). This is defined in the Income Tax Act.
- Special rules apply if your business is part of a consolidated group of companies or a joint venture.
How is the Subsidy Calculated?
First, the subsidy is only available to eligible employees. What is an eligible employee?
- A person who is employed in the qualifying period (see above).
- Any employee who did not receive pay for 14 or more consecutive days in the qualifying period IS NOT eligible. They could be eligible in the following period if employment maintained.
- The person must be employed in Canada.
Next, you must determine each employee’s baseline remuneration. Remuneration is wages plus taxable benefits. There are several other forms of remuneration that are excluded (e.g. severance pay). Baseline remuneration is the employee’s average weekly remuneration paid between January 1, 2020 and March 15, 2020 but you must exclude from the average calculation 7 or more days where the employee was not paid.
You can see how this is quickly becoming complicated and complex.
Generalizing the formula, the weekly subsidy for a non-family member employee is determined by factoring in 75% of wages paid, the cap of $847 per week, total wages paid and 75% of the employee’s baseline remuneration (see above).
Special limits apply for employees that are family members.
It is unfortunate that the program is as complicated as it is for certain business owners, most likely requiring you to incur professional fees to determine eligibility. Your Wellington-Altus Private Wealth advisor can work with you and your accountant to help you through this decision-making process.