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:
New details on the proposed Canada Emergency Wage Subsidy (“CEWS”) were announced on April 8, 2020, and we expect draft legislation to be released shortly.
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.
On March 27, 2020 the Government announced that a second 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 (named the “Canadian Emergency Wage Subsidy”) and on April 1, 2020 and April 8, 2020, Finance Minister Bill Morneau announced more details and the Department of Finance published information here.
Eligible employers will include individuals, taxable corporations, partnerships consisting of eligible employers, non-profit organizations, and registered charities.
Public bodies will not be eligible for this subsidy (this means municipalities and local governments, crown corporations, wholly owned municipal corporations, public universities, colleges, schools and hospitals, will not be eligible).
An eligible employee is an individual who is employed in Canada.
Eligibility for the CEWS will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6.
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.
For employers who are not able to maintain the pre-crisis earnings but who are able to pay 75% of the pre-crisis earnings (i.e. only the amount covered by the 75% subsidy) the full amount of the reduced remuneration may be eligible for the subsidy.
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.
Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. Eligible remuneration does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.
There is no cap on the total subsidy amount to be paid to an employer, and no restrictions on which size of business qualifies;
There is no cap on the number of employees eligible for the subsidy; all employees employed in Canada can qualify;
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 or do not pay their employees accordingly.
To qualify, the employer must have suffered a significant loss of revenue compared to a reference period (more details below). The revenue loss threshold is 15% for March, and 30% for April and May. The employer’s revenue for this purpose would be its revenue from its business carried on in Canada earned from arm’s-length sources. Revenues will be defined to exclude revenues from extraordinary items and amounts on account of capital.
Revenue would be calculated using either:
Employers would select an accounting method when first applying for the CEWS and would be required to use that method for the entire duration of the program
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|
Claiming period |
Required reduction in revenue |
Reference period for eligibility |
|
Period 1 |
March 15 to April 11 |
15% |
March 2020 compared to:
|
|
Period 2 |
April 12 to May 9 |
30% |
April 2020 compared to:
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|
Period 3 |
May 10 to June 6 |
30% |
May 2020 compared to:
|
Employers will need to apply each month for the subsidy. Applications will be made through an online portal via Canada Revenue Agency. The Government expects the subsidy to be paid to employers within six weeks of application;
Any amounts received under the Temporary Wage Subsidy will reduce entitlements under the Canada Emergency Wage Subsidy, so there will be no “double-dipping”.
Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed. There will be serious penalties for fraud and abuse of the subsidy program. The penalties may include fines and/or imprisonment for up to five years.
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.
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.
An eligible employer is:
To be eligible, the employer must:
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.
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.
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.
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.
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