On May 8, 2020, Prime Minster Trudeau announced that the Canada Emergency Wage Subsidy (“CEWS”) will be extended beyond the current three qualifying periods. On May 15, the Department of Finance provided details of the additional of qualifying periods to August and of additional organizations that can qualify.
We have provided a summary of the program, and the likely impact of the extension, below.
Public bodies are not be eligible for this subsidy (this means municipalities and local governments, crown corporations, wholly owned municipal corporations, public universities, colleges, schools and hospitals, are not eligible).
Several types of organizations that do not meet the basic eligibility criteria have recently been retroactively prescribed as eligible for all periods:
An eligible employee is an individual who is employed in Canada.
An employee who has been without remuneration for more than 14 consecutive days in the of qualifying period is not eligible.
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.
In summary, the CEWS entitlement amount of each eligible employer is calculated as follows:
The net amount, which is capped at a maximum amount of $ 847 per week for each eligible employee, is a subsidy which will be paid to you in cash after your application is accepted.
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.
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, stock option benefits, or non-taxable benefits.
Special rules apply to employees that do not deal at arm’s length with the employer to limit their eligible earnings to the amount of their average earnings from January 1, 2020 to March 15, 2020 (their “baseline remuneration”. Non-arm’s length employees (such as shareholders, and family members of shareholders, of a corporation) are not eligible for the subsidy except to the extent of their baseline earnings.
Where employees (including both arm’s length and non-arm’s length employees) have seen a reduction in earnings when compared to their baseline earnings, the subsidy can be increased to as much as 100% of their remuneration. The original program terms calculated baseline remuneration from January 1, 2020 to March 15, 2020. However, that resulted in some unfairness for seasonal workers. To bridge these gaps, the government proposes to amend the CEWS to allow employers to choose one of two periods when calculating the baseline remuneration of their employees. Specifically, employers would be allowed to calculate baseline remuneration for an employee as the average weekly remuneration paid to the employee from January 1 to March 15 of 2020 or, alternatively, as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019, in both cases excluding any period of 7 or more consecutive days without remuneration. Employers would be able to choose which period to use on an employee-by-employee basis. This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.
Employers will be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements or do not pay their employees accordingly.
Employers can apply for an additional subsidy for eligible employees for employees who are on paid leave (i.e. not working but getting their salary and wages) for 100% of the employer portion of:
Employers must continue to collect and remit employer and employee contributions to each program as usual and apply for the refund when they apply for the CEWS.
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 is its revenue from its business carried on in Canada earned from arm’s-length sources. Revenues exclude revenues from extraordinary items, amounts on account of capital, and wage subsidies received under the current emergency measures.
Revenue is calculated using either:
Once you choose an accounting method for March 2020 (i.e. the accrual method or the cash method), you must use that same method for each subsequent qualifying period, and you cannot switch to the other method for any other qualifying period.
If you believe that your chance of being eligible for the maximum subsidy will increase by waiting until the end of July or the end of August (because at that time you will know which accounting method results in eligibility for the maximum number of qualifying periods) you should wait to make your application until June 2020 and select your accounting method at that time.
Applications under CEWS for each qualifying period can be made at any time until September 30, 2020. Applications will not be accepted after September 2020.
Corporations formed on the amalgamation of two or more predecessor corporations (or where one corporation is wound up into another) may not qualify for the CEWS since they would not have benchmark revenues to prove a revenue decline or their benchmark revenues may not provide a full picture of their pre-crisis revenues.
The government proposes to amend the CEWS to allow corporations formed on an amalgamation of two or more predecessor corporations (or where a corporation is wound up into another), to calculate benchmark revenue for the CEWS revenue-decline test using their combined revenues, unless it is reasonable to consider that one of the main purposes for the amalgamation (or the winding up) was to qualify for the CEWS.
This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.
The original eligible periods run from March 15 to June 6. However, with the new extensions, the program will run until at least August 29, 2020:
| Claiming period | Required reduction in revenue | Reference period for eligibility | |
| Period 1 | March 15 to April 11 | 15% | March 2020 compared to:
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| 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:
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| Period 4 | June 7 to July 4
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30% | June 2020 compared to:
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| Period 5 | July 5 to August 1
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30% | July 2020 compared to:
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| Period 6 | August 2 to August 29
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30% | August 2020 compared to:
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An employer who is eligible for the subsidy in the current qualifying period is deemed to be eligible for the following qualifying period, even if they do not meet the revenue loss test for that following period. The purpose of this deemed eligibility is to provide you with certainty so that you can continue to employ and remunerate your eligible employees throughout the next qualifying period with the benefit of the subsidy for that next qualifying period.
For example, if an employer meets the 15% revenue loss test for March but does not suffer any revenue loss for April, they are eligible for the CEWS for:
Employers must apply separately for each qualifying period for the subsidy. Applications can be made through Canada Revenue Agency’s online portal.
Any amounts received under the Temporary Wage Subsidy reduce an employer’s entitlements under CEWS, so there will be no “double-dipping”. Under the original terms of the CEWS, the amount of the 10% subsidy (whether actually claimed or not) reduced the CEWS; this forced employers to apply for both programs even though the total subsidy amount was the same (i.e. 10% + 65% is the same as 0% + 75%). The terms of the 10% subsidy have been changed such an employer can choose not to claim the 10% and only make one application under the CEWS.
Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS can 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 are serious penalties for fraud and abuse of the subsidy program. The penalties may include fines and/or imprisonment for up to five years.
The CEWS provisions contain a specific provision which allows the Minister of National Revenue to publicly name a person who makes an application. The CRA has stated they will create a public registry which will list the names of all applicants.
Employers will be required to report the amount of the wage subsidy that was used to pay each of their employees’ salaries by using a special code in the “Other information” area at the bottom of each employee’s T4 slips. More information on the T4 reporting requirements will be released before the end of the year.
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