Canada Emergency Wage Subsidy
On April 11, 2020 the Federal Government passed legislation, providing more definitive clarity on the Canada Emergency Wage Subsidy (the “CEWS”). The CEWS enables eligible Canadian employers whom have been impacted by COVID-19 to a subsidy of up to 75% of employee wages. While initially available for up to a 12 week period, spanning from March 15, 2020 to June 6, 2020, the Federal government has recently announced that the qualifying period for CEWS will now be extended beyond June.
Applying for CEWS
Applications for the CEWS will open on April 27, 2020. Employers may apply using the CRA’s My Business Account or a separate online application form.
The Government has now released an online resource, available here, which employers can use to determine their eligibility for the CEWS as well to obtain an estimate of the subsidy value which they may be entitled to.
To receive the wage subsidy, an employer must be an eligible employer, have experienced an eligible reduction in revenue, and have had a CRA payroll account on March 15, 2020.Eligible employers include:
- Individuals (including trusts)
- Taxable corporations
- persons that are exempt from
corporate tax (Part I of the Income Tax Act), other than public institutions:
- non-profit organizations
- agricultural organizations
- boards of trade
- chambers of commerce
- non-profit corporations for scientific research and experimental development
- labour organizations or societies
- benevolent or fraternal benefit societies or orders
- registered charities
- partnerships consisting of eligible employers
Public institutions, such as municipalities, local governments, Crown corporations, publicly funded universities, colleges, schools and hospitals, are not eligible for the subsidy.
Employees who have been laid off or furloughed can become retroactively eligible if the employer rehires them and their retroactive pay and status meet the eligibility criteria for the claim period. Employers must rehire and pay these employees before including them in the calculation for the subsidy.
Eligibility for employees is limited to individuals employed in Canada, and employees that have not been without remuneration for 14 or more consecutive days in the eligibility period. The eligibility periods currently include: March 15 to April 11, April 12 to May 9, and May 10 to June 6. The Federal government has announced that there will be further eligibility periods beyond June 6, 2020, although formal details concerning those periods have not yet been released.
In certain situations, an eligible employer may claim the wage subsidy in respect of an eligible employee who has received payments under the Canada Emergency Response Benefit (CERB). However, where an individual has not been paid any remuneration from the eligible employer in respect of a period of 14 or more consecutive days in a claim period, the individual will not qualify as an eligible employee for that period of employment, and the wage subsidy will not be available in respect of that employee for that claim period.
The onus is on the eligible employer to ensure that only eligible employees are included for each claim period.
Revenue Reduction Criteria
Only Employers whom have experienced an eligible decrease in revenue during the eligibility periods will be eligible for the CEWS during those periods.
Eligible revenue includes revenue earned in Canada from the selling of goods, the rendering of services, and others’ use of your goods and services.
Employers may opt to calculate revenue through either cash or accrual accounting. However, the same approach must be used for each eligibility period.
What time periods are compared to establish revenue loss?
Eligible employers who suffer a drop in gross revenues of at least 15% in March, and 30% in April or May, when compared to their “baseline revenue” for those same months. It is expected the same comparison method will be required for all months beyond May in which the CEWS program is made available, although full details have not yet been released.
To calculate “baseline revenue” for each period employers may choose to use:
- Revenue earned in the corresponding month in 2019; or
- the average of revenue earned in January and February 2020.
Once an employer chooses a method of revenue comparison, it cannot be changed for subsequent calculations in later claim periods.
Notably, if an employer qualifies for the CEWS for a claim period, they automatically qualify for the following claim period.
How much does it cover?
An employer’s entitlement will be based entirely on the salary or wages actually paid to employees. Eligible employers will be able to access the CEWS by applying through the Canada Revenue Agency’s My Business Account online portal, and are required to keep records demonstrating their reduction in arm’s length revenues and remuneration paid to employees.
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. There is no overall limit on the subsidy amount that an eligible employer may claim.
For employees that do not deal at arm’s length with the employer, the maximum weekly subsidy is the lesser of 100% of their weekly gross pay during the claim period; 75% of their average weekly pay from the period of January 1 to March 15, 2020; or the maximum benefit of $847 per week The subsidy would only be available in respect of non-arm’s length employees employed prior to March 15, 2020.
Those organizations that do not qualify for the CEWS may continue to qualify for the previously announced temporary wage subsidy of 10% of remuneration from March 18 to June 19, 2020, up to a maximum subsidy of $1375 per employee and $25,000 per employer. See below for more information.
If an employer is eligible for both the CEWS and the 10% wage subsidy for a period, any benefit from the 10% temporary wage subsidy for remuneration paid in a specific period should be expected to generally reduce the amount available under the CEWS in the same period. Similarly, if an employer is utilizing a Work-Sharing program, the EI benefits received through that program will reduce the benefit that the employer is entitled to receive under CEWS.
The Federal Government indicated that it hoped these developments would help employers re-hire workers who had previously been laid off, and encouraged employers utilizing the program pay employees the remaining 25% of wages not covered by the subsidy and ensuring all funds through the program go directly to employees. It appears that businesses taking advantage of the subsidy do not need to pay the remaining 25% if unable to do so, as a condition of eligibility, but are expected to make best efforts to bring employees’ wages to their pre-crisis levels.
The pre-crisis remuneration for an employee would be based on the average weekly remuneration paid between January 1 and March 15 exclusively, excluding any seven-day periods where the employee did not receive remuneration. Eligible employers will also be able to apply for the subsidy for new employees.
Employers eligible for the CEWS may be entitled to a 100% refund for certain employer-paid contributions to the Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Place. This refund would be applicable to the entire amount of employer-paid contributions in respect of remuneration paid to employees while the employer is eligible for the CEWS.
Employer will be required to repay amounts that have been paid out under CEWS if eligibility requirements are not met. Penalties may apply in cases of fraudulent claims, including fines or imprisonment. Additionally, anti-abuse rules would be put into place. Employers that engage in artificial transactions to reduce revenue for the purpose of claiming CEWS would be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to repaying the full subsidy.
We recommend employers consult with their accountants with respect to determining their eligibility to apply for the CEWS given the potential significant penalties contained in the legislation.
10% Temporary Wage Subsidy
The 10% Temporary Wage Subsidy is still available for three-month to eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency.
The subsidy, which is considered a taxable income, is equal to 10% of the remuneration you pay from March 18, 2020 to June 19, 2020, up to $1,375 for each eligible employee to a maximum of $25,000 total per employer. The subsidy calculation is based on the total number of eligible employee employed at any time during the three-month period. The CRA will not calculate the allowable subsidy, it is the responsibility of the employer or whoever is in control of payroll remittances to determine the amount. If eligible employers do not reduce their payroll remittances during the year, the subsidy can still be calculated for the same period, and at the end of the year the CRA will pay the amount to the employer or transfer it to the next year’s remittance.
Employers are eligible if they:
- are a(n)
- individual (excluding trusts),
- partnership (see note below),
- non-profit organization,
- registered charity, or
- Canadian-controlled private corporation (including a cooperative corporation) eligible for the small business deduction;
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses, or other remuneration to an eligible employee.
An eligible employee is an individual who is employed in Canada. Partnerships are only eligible for the subsidy if their members consist exclusively of individuals (excluding trusts), registered charities, or Canadian-controlled private corporations (CCPCs) eligible for the small business deduction.
The CRA is updating reporting requirements, more information will be released in the near future, however employers will need the following information to support their subsidy calculation:
- the total remuneration paid from March 18, 2020 to June 19, 2020;
- the federal, provincial, or territorial income tax that was deducted from that remuneration; and
- the number of eligible employees employed in that period.
No application is needed for the subsidy. The subsidy is calculated when remittances are made to the CRA. Once employers have calculated their allowable subsidy, they can reduce their current payroll remittance of federal, provincial, or territorial income tax that they send to the CRA by the amount of the subsidy. Employers can start reducing payroll remittances of federal, provincial or territorial tax in the first remittance period that includes remuneration paid from March 18, 2020 to June 19, 2020. However, payroll remittances are not subject to deferral as part of the tax measures to help support those affected by COVID-19, employers must continue remitting payroll deductions by their remittance due date.
Canada Emergency Response Benefit
On March 25, 2020, the Federal Government passed the Canada Emergency Response Benefit Act as part of the COVID-19 Emergency Response Plan which creates a new Canada Emergency Response Benefit. This benefit replaces the Emergency Care Benefit and Emergency Support Benefit which were previously announced on March 18, 2020 as part of the Federal Economic Response Plan.
The Canada Emergency Response Benefit (“CERB”) is an income support payment payable to eligible workers for up to four (4) months within the period falling between March 15, 2020 and October 3, 2020 for workers who have ceased work and are not receiving income as a result of COVID-19. Workers can apply no later than December 2, 2020, for payments retroactive to within that period. The Federal Government has announced that the amount of the benefit will be $2000 per month.
CERB is available to workers:
- residing in Canada, who are at least 15 years old;
- who have stopped working because of reasons related to COVID-19 or are eligible for Employment Insurance regular or sickness benefits or have exhausted their Employment Insurance regular benefits between December 29, 2019 and October 3, 2020;
- who had employment and/or self-employment income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and,
- who have not quit their job voluntarily.
A worker is not eligible for the CERB if they quit their employment voluntarily.
The CERB will not be payable to those who are in receipt of employment or self-employment income in excess of $1,000 for 14 or more consecutive days within the four-week benefit period of an initial claim. For subsequent claims, the CERB will not be available to individuals who earn more than $1,000 throughout the entire four week claim period.
Individuals can now apply for the Canada Emergency Response Benefit. Applicants can choose between receiving direct deposits or mailed cheques, though applicants who select direct deposits will be paid quicker. Furthermore, applicants are able to apply for the CERB retroactively to March 15, 2020. Benefits start within ten (10) days of an application being submitted.
The Federal Government also states that individuals who applied for Employment Insurance do not need to re-apply for the Canada Emergency Response Benefit. An individual who became eligible for EI before March 15th will have their claim dealt with under EI rules. However, an individual who became eligible for EI on March 15th and onward will automatically have their claim processed under the Canada Emergency Response Benefit. The Canada Revenue Agency (CRA) has also set up specific days for individuals to apply based upon their birth month:
- Individuals born in January, February or March should apply for CERB on Mondays (with the best day to apply being April 6);
- Individuals born in April, May or June should apply for CERB on Tuesdays (with the best day to apply being April 7);
- Individuals born in July, August or September should apply for CERB on Wednesdays (with the best day to apply being April 8);
- Individuals born in October, November or December should apply for CERB on Thursdays (with the best day to apply being April 9); and
- Individuals born in any month should apply on Fridays, Saturdays and Sundays.
The Federal Government will continue to review the CERB benefit, including making legislative changes to “fill the gaps”.
We will continue to update our clients with information as soon as it becomes available. If you have any questions about this topic, other COVID-19 related questions, or would like assistance with developing and/or reviewing pandemic plans, please do not hesitate to contact a Mathews Dinsdale lawyer, or refer to the Firm’s COVID-19 website resources.