On April 11, 2020, the Canada Emergency Wage Subsidy (“CEWS”) was approved by the Canadian Parliament and Senate, making a 75% wage subsidy available for eligible employers for up to 12 weeks, retroactive to March 15, 2020.
The legislation, Bill C-14, A second Act respecting certain measures in response to COVID-19 (“Bill C-14”), implements the CEWS by amending the Income Tax Act (Canada) to deliver the CEWS as a refund from the Canada Revenue Agency (“CRA”).
In general, employers may qualify for a base refund of up to 75% of pre-crisis salaries and wages for existing employees or 75% of salaries and wages for new employees (in both cases up to a maximum benefit of $847 per week), plus certain employer-paid payroll contributions, during the program.
Does my business qualify for the CEWS?
To qualify for the CEWS, an employer must:
- be an eligible entity,
- have a revenue reduction of at least 15% in March 2020 and 30% in April and May 2020,
- have had a CRA payroll program account on March 15, 2020, and
- apply for the CEWS before October 1, 2020.
Eligible entity
An eligible entity includes any of the following types of entity:
- a corporation (other than a tax-exempt entity or “public institution”, such as a school or hospital) (note that this includes domestic as well as foreign (and foreign-controlled) corporations);
- an individual (note that this includes trusts);
- a registered charity (other than a public institution);
- a non-profit organization or other specified tax-exempt entity (other than a public institution); or
- a partnership each of whose members is an eligible entity as described above.
Revenue reduction
There are three claiming periods for the CEWS:
- March 15 to April 11, 2020;
- April 12 to May 9, 2020; and
- May 10 to June 6, 2020.
An employer must apply for each claiming period separately.
To qualify, an employer must have a revenue reduction of at least 15% in March 2020 and 30% in April and May 2020. There are two methods for comparing revenue:
- General method - comparing March/April/May 2020 revenues with March/April/May 2019 revenues; or
- Alternative method - instead of comparing March/April/May 2020 revenues with March/April/May 2019 revenues, comparing March/April/May 2020 revenues with an average of January and February 2020 (or the period in January and February 2020 in which the employer was carrying on business) revenues.
An employer may elect to use the alternative method, provided it does so for all claiming periods. An employer must use the alternative method if it did not carry on business in March 2019.
There is a special rule that deems an employer who meets the revenue reduction test for a claiming period to also meet it for the immediately following claiming period (e.g. an employer who meets the test for March 15 to April 11, 2020 is deemed to automatically meet it for April 12 to May 9, 2020, etc.).
The following table shows each claiming period, minimum revenue reduction, and eligibility reference period:
An employer’s revenue for these purposes is generally calculated as its gross revenue earned in Canada from arm’s length sources in the ordinary course of its activities as determined under its normal accounting practices, subject to certain special elections and rules, including the following:
- employers may elect to determine their revenue based on the cash method instead of the accrual method (provided they do so for all claiming periods);
- registered charities and non-profit organizations (and certain other tax-exempt entities) may elect to exclude government funding from their revenue (provided they do so throughout the program);
- affiliated groups may elect to determine their revenue on a consolidated basis to be used by each member; and
- there are special rules for determining revenue from non-arm’s length transactions.
There is an anti-avoidance rule that denies the CEWS where an employer has undertaken certain transactions designed to reduce revenue to qualify for the CEWS. Such transactions are also subject to a penalty of 25% of the amount of the CEWS claimed.
How much does my business qualify for under the CEWS?
The CEWS amount is the base subsidy amount, minus any benefit received by the employer under the temporary 10% wage subsidy (which provides a wage subsidy by way of reduced income tax remittances to a smaller subset of employers, such as Canadian-controlled private corporations, registered charities, and non-profit organizations) or by the employee under a work-sharing program (which provides income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers), plus the employer’s contributions to Employment Insurance, Canada Pension Plan, Quebec Pension Plan, and Quebec Parental Insurance Plan for eligible employees for each week throughout which the eligible employees are on leave with pay. An employee is generally considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund is not available for eligible employees that are on leave with pay for only a portion of a week.
The CEWS amount is deemed to be an overpayment by the employer on account of its income tax liability, which the CRA pays to the employer as a refund. The normal rules apply, so the CEWS amount is considered government assistance and included in the employer’s income, and reduces the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
Base subsidy amount
The base subsidy amount for an arm’s length eligible employee is the greater of the following two amounts:
- 75% of the amount of eligible remuneration paid, up to $847 per week; and
- the amount of eligible remuneration paid, up to $847 per week or 75% of the employee’s “baseline remuneration” (average weekly remuneration from January 1 to March 15, 2020, excluding any seven-day period where the employee received no remuneration), whichever is less.
The base subsidy amount for a non-arm’s length eligible employee is the amount of eligible remuneration paid, up to $847 per week or 75% of the employee’s baseline remuneration, whichever is less.
An eligible employee means any individual employed in Canada (other than an individual who is without remuneration for 14 or more consecutive days in the claiming period) (note that this includes resident and non-resident individuals).
Eligible remuneration generally means:
- salary, wages, or other remuneration (including most taxable benefits, but not including certain items, such as retiring allowances or stock option benefits), and
- fees, commissions, or other amounts for services.
There is an anti-avoidance rule that excludes certain amounts from eligible remuneration (e.g. amounts that can be returned to the employer or exceed the employee’s baseline remuneration if the employee will be paid less after the claiming period).
Employer top-up
Although the government webpage states that employers “are expected to make their best effort to top-up employees' salaries to bring them to pre-crisis levels”, this does not appear to be reflected in Bill C-14 (e.g. there is no requirement for employers to top-up employees’ salaries to pre-crisis levels).
What if my employee has already been laid off and is receiving Employment Insurance or the Canada Emergency Response Benefit?
The legislation does not allow an employer to receive the CEWS in respect of any employee who has been without remuneration by the employer for 14 or more consecutive days in the qualifying period. Accordingly, if the employee has been laid off without remuneration from the employer for 14 or more consecutive days in the qualifying period, the employer will not be eligible to receive the CEWS in respect of that employee.
However, the government webpage states: “To ensure that the Canada Emergency Response Benefit (CERB) applies as intended, we are considering implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.”
How does my business apply for the CEWS and when is it paid?
An employer must apply for the CEWS, for each claiming period, by submitting an application online on the CRA’s My Business Account portal after the corresponding claiming period and before October 1, 2020.
The legislation does not specify when the refund will be paid by. However, the government webpage says, in the case of an employer with direct deposits with the CRA, the employer will receive the refund “shortly after each application”. Unlike certain other types of refund, interest does not accrue on these refunds.
Finally, the government may communicate or otherwise make available to the public the name of any person or partnership who applies for the CEWS.
More information on the Canada Emergency Wage Subsidy is available on the government webpage.