The Federal Government has created two new programs to provide a subsidy to employers to help them to avoid layoffs or reduced employment during the current crisis:
- The Temporary Payroll Subsidy; and
- The Canada Emergency Wage Subsidy:
The Canada Emergency Wage Subsidy is far more generous that the Temporary Payroll Subsidy. Employers who do not qualify for the Canada Emergency Wage Subsidy can still be entitled to the Temporary Payroll Subsidy.
The Temporary Payroll Subsidy
The Temporary Wage Subsidy for Employers was enacted into law by Bill C-13: An Act respecting certain measures in response to COVID-19 (“Bill C-13”) which was passed by the House of Commons and the Senate, and received Royal Assent, on March 25, 2020.
Who is Eligible for the Subsidy?
An eligible employer is:
- a non-profit organization;
- registered charity;
- an individual;
- a Canadian-controlled private corporation (a “CCPC”) that was eligible for the small business deduction (assuming that the passive investment income grind to the small business deduction did not exist); or
- a partnership all the members of which are registered charities, individuals, or CCPCs eligible for the small business deduction.
To be eligible, the employer must:
- 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 one or more individuals employed in Canada during the relevant time period.
If you do not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 19, 2020, you cannot receive the subsidy, even if you are an eligible employer.
When Does this Subsidy Start?
You can start to reduce your employer payroll source deductions remittance for the first remittance period that includes remuneration paid between March 18, 2020, and June 19, 2020. For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
How Much is the Subsidy?
The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 19, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer. Associated CCPCs are not required to share the maximum subsidy of $25,000 per employer.
For example, if an employer has five (5) employees, the maximum subsidy that employer can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
If you calculated a subsidy of $2,050 for the April 15th remittance, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum amount of $25,000, for all remuneration paid before June 20, 2020.
The subsidy is only for income tax withholdings. You cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums.
What if the Amount of Tax Withheld is Less than the Subsidy Available?
If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 19, 2020).
For example: If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 19, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 19, 2020.
The CRA has posted responses to frequently asked questions regarding the temporary wage subsidy here:
Note: If you use a payroll service provider, they may be able to handle the calculations of the subsidy amount, and the reduced remittance, on your behalf.
Canada Emergency Wage Subsidy
On March 27, 2020 the Government announced that a separate new subsidy (the “Canada Emergency Wage Subsidy”), to provide a subsidy of 75% of salaries and wages, would be created retroactive to March 15, 2020, but no additional details were released on that date. On March 30, 2020, Prime Minister Trudeau announced additional details about the program (now re-named the “Canadian Emergency Wage Subsidy”) and on April 1, 2020 Finance Minister Bill Morneau announced more details:
- The per-employee subsidy is 75% of the employee’s earnings (i.e. amounts actually paid to employees in the relevant time period) up to a maximum of $58,700 in annual earnings, which is $1,129 weekly.
- $1,129 per week * 75% is $847 per week per employee employed in Canada during the relevant time period;
- That means the maximum subsidy per employee over the twelve weeks will be ($847 * 12) $10,160.
- For a business with 10 employees, each of whom is paid $1,129 per week (or more), the total employer subsidy will be approximately $ 101,600.
- Employers who are not able to maintain the pre-crisis pay levels to their employees but who are able to pay 75% of the pre-crisis earnings (i.e. only the amount covered by the 75% subsidy) can still qualify.
- In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. A definition of “pre-crisis earnings” has yet to be provided.
- These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings. Employers will be required to attest that they are doing everything possible to pay the remaining 25% of the eligible salaries to their employees.
- Special rules will apply to employees that do not deal at arm’s length with the employer. This will prevent family members who were not employed in the past from being added to payroll during the crisis to obtain the subsidy.
- To qualify, the employer must have suffered a loss of revenue of 30% compared to the same month in the prior year. The employer’s revenue for this purpose would be its revenue from its business carried on in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method and would exclude revenues from extraordinary items and amounts on account of capital.
- For example, if an employer’s revenues for the month of April 2020 have declined by 30% or more when compared to the month of April 2019, the salary and wages paid in the relevant claiming period will be eligible for the 75% subsidy.
- The reference periods are:
||Claiming period for eligibility
||March 15 – April 11
||March 2020 over March 2019
||April 12 – May 9
||April 2020 over April 2019
||May 10 – June 6
||May 2020 over May 2019
- For non-profit organizations and registered charities similarly affected by a loss of revenue, the Government will continue to work with the sector to ensure the definition of revenue is appropriate to their circumstances.
- For eligible employers established after February 2019 (i.e. those with no reasonable prior period to compare), eligibility would be determined by comparing monthly revenues to an as yet undefined “reasonable benchmark”.
- There no cap on the total subsidy amount to be paid to an employer, and no restrictions on which size of business qualifies;
- Employers will need to apply each month for the subsidy. Applications will be made through Canada Revenue Agency’s “My Business Account” portal.
- The Government expects the subsidy to be paid to employers within six weeks of application;
- There is no cap on the number of employees eligible for the subsidy; all employees employed in Canada can qualify;
- Employers that are corporations, individuals, non-profit organizations, and partnerships, are all eligible, but public sector entities are not eligible;
- The subsidy is backdated to March 15, 2020 and will last three months (from March 15 to June 6, 2020);
- Employers will be required to repay amounts paid under the Canada Emergency Wage Subsidy if they do not meet the eligibility requirements and pay their employees accordingly.
- Any amounts received under the Temporary Payroll Subsidy will reduce entitlements under the Canada Emergency Wage Subsidy, so there will be no “double-dipping”.
- There will be serious penalties for fraud and abuse of the subsidy program. The penalties may include fines or even imprisonment.
We expect the Government to release draft legislation with more details, and for that legislation to be debated in Parliament in an emergency session, and we will advise once these details are released.