April 6, 2020
Last week the Prime Minister and Minister of Finance provided information on the proposed Canada Emergency Wage Subsidy (CEWS) to assist eligible employers affected by the impact of COVID-19.
I have received many questions from employers regarding the CEWS and I have summarized answers to many of those question in this email. The information is broadly divided into 5 key sections:
- Eligibility and Timing
- Mechanics
- Interaction with Other COVID-19 Benefits
- Taxation
- Compliance and Obligations
As of this writing, (April 6) draft legislation has not been released nor has a specific timeline been set for releasing draft legislation. All indications are that the final legislation will be very close to the announced plans, although some details may change.
CEWS Eligibility and Timing
What employers are eligible for CEWS?
The CEWS is available to employers that have seen a decrease in gross revenue of 30% or more due to the impact of COVID-19.
What constitutes a decrease in gross revenue by 30% or more?
The specific requirements have not yet been defined, however some guidance has been provided:
- An employer is an eligible employer where it can demonstrate that its monthly gross revenues for the particular month have decreased by 30% or more, as compared to its gross revenues for the same month in 2019.
- The subsidy must be applied for monthly and is available for March, April and May. (See table below for Claiming Periods)
- Gross revenue means the employer’s gross revenue from its business carried on in Canada earned from arm’s-length sources.
- Revenue is calculated using the employer’s normal accounting method, and excludes revenues from extraordinary items and amounts on account of capital.
- Where an employer did not have any activities in the relevant month in 2019 it can use some other reasonable basis for comparison, giving some flexibility. Some examples given of a reference period that could be reasonable in certain circumstances are the previous month or some other month the employer reasonably considers to be comparable.
- NOTE: The details of a ‘relevant month’ or reference period’ will presumably be outlined in the draft and final legislation.
My advice to you is to compile relevant information as completely as possible in order to be prepared for the final legislation. Should you need assistance in this regard I am happy to recommend experts from my legal and accounting network.
What size and types of employers and corporations are eligible?
Size/number of employees:
- no restrictions
Type of employers:
- individuals
- taxable corporations
- private or public partnerships consisting of eligible employers
- non-profit organizations and registered charities
For charities and non-profits, the government has stated it will work with the sector to ensure that gross revenue is defined in a way appropriate to their specific circumstances.
Country of ownership or control of employer:
- no restrictions
- Canadian owned/controlled or foreign owned/controlled
NOT ELIGIBLE: Public bodies are not eligible for this subsidy. Public bodies include municipalities and local governments, Crown corporations, public universities, colleges, schools, and hospitals.
What are the eligibility periods?
The Canada Emergency Wage Subsidy program will be in place for 12 weeks, from March 15 to June 6, 2020. In other words, wage subsidies will be retroactive to March 15, 2020.
The table below comes from the Government of Canada website and outlines each claiming period and the reference period for the gross revenue test.
| Claiming Period | Reference period for eligibility | |
| Period 1 | March 15 – April 11 | March 2020 over March 2019 |
| Period 2 | April 12 – May 9 | April 2020 over April 2019 |
| Period 3 | May 10 – June 6 | May 2020 over May 2019 |
Amount of wage subsidies available under CEWS
For a given employee receiving eligible remuneration paid between March 15 and June 6, 2020, eligible employers can receive a wage subsidy on the first $58,700 of an employee’s salary equal to the greater of:
- 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
- the lesser of the amount of remuneration paid, up to a maximum benefit of $847 per week, and 75% of the employee’s pre-crisis weekly remuneration.
NOTE: If you have previously reduced an employee’s remuneration from its pre-crisis level, it may be possible to obtain a subsidy calculated on the higher pre-crisis remuneration. Please contact me for advice.
How will an employee’s wages be calculated for the purpose of the 75% wage subsidy?
Eligible remuneration includes salary, wages, and other remuneration. These are amounts for which employers would generally be required to withhold or deduct amounts at source to remit to the Receiver General.
Severance pay or items such as stock option benefits or the personal use of a corporate vehicle are not deemed eligible remuneration. It is unclear at this point to what extent, if any, other non-monetary taxable benefits would be included. I will keep you informed of these details.
- NOTE: A special rule will apply to employees that do not deal at arm’s length with the employer.
- The subsidy will only be available if the employee was already an employee of the eligible employer on March 15, 2020.
- The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration.
Is a subsidy available for an employee’s salary that exceeds the $58,700 threshold?
At this writing it appears that a subsidy is available if an employee’s salary exceeds the $58,700 threshold. There would appear to be no cap on the aggregate subsidy that an eligible employer may claim.
Can you reduce your employee’s pay and continue to benefit from the 75% wage subsidy?
Under the guidance provided by the Minister of Finance, an employer may reduce an employee’s pay and continue to benefit from the 75% wage subsidy.
NOTE: Please contact me for advice if you are considering reducing an employee’s pay. It is important to consider that a salary reduction could give rise to other labour and employment considerations.
Mechanics
Applying for CEWS
Eligible employers will be able to apply for the Canada Emergency Wage Subsidy through the Canada Revenue Agency’s “My Business Account” portal, as well as through a web-based application to be made available within the next four to six weeks.
Employers must keep records demonstrating their reduction in arm’s-length revenues and the remuneration paid to employees. More details about the application process are expected shortly.
Who pays the employees – the eligible employer or the government?
Eligible employers pay employees. After paying employees, eligible employers will be responsible for submitting a claim with the Canada Revenue Agency using the portal described immediately above.
Eligible employers will be required to prove they paid an employee and the appropriate wage subsidy will be paid by the Receiver General to the eligible employer. Further details are expected as to when employers can expect to receive wage subsidy payments after paying their employees.
Interaction with other government COVID-19 Benefits
Can employers receive wage subsidies for employees who were laid off and are already being supported by employment insurance?
In order to seek wage subsidy benefits for an employee who has been laid off due to COVID-19 the employer must re-employ the employee. In this regard, the government urges eligible employers to make every possible effort to rehire all laid-off employees.
In the absence of re-employment, employers are not eligible to receive subsidies for employees who were laid off. Canada’s Emergency Wage Subsidy is intended to support employers for wages paid to employees they currently employ.
Employees who have been laid off:
- are eligible for Employment Insurance
- may, with the agreement of their employer, use their vacation time during a period of a temporary layoff to continue to receive pay.
Interaction with the 10% wage subsidy announced on March 18, 2020
On March 18, the Prime Minister announced a temporary 10% wage subsidy. For employers eligible for both the Canada Emergency Wage Subsidy and the 10% wage subsidy for a given period, any benefit from the 10% wage subsidy for remuneration paid in a specific period would generally reduce the subsidy available under the Canada Emergency Wage Subsidy for that same period.
Details about the 10% wage subsidy can be found here: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-subsidy-small-businesses.html
Interaction with the Canada Emergency Response Benefit announced on March 25, 2020
An eligible employer would not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a four-week period for which the employee is eligible for the Canadian Emergency Response Benefit (CERB). Employers not eligible for the Canada Emergency Wage Subsidy would still be able to furlough employees who will receive up to $2,000 a month.
Details about the CERB can be found here: https://www.canada.ca/en/services/benefits/ei/cerb-application.html
Taxation
Does the wage subsidy have an impact on payroll taxes?
No. Payroll taxes will continue to be calculated as provided under applicable legislation.
Total employer payroll will continue to be calculated in the same manner, even if a portion of the remuneration paid was effectively reimbursed to the employer through the subsidy.
Is the wage subsidy taxable?
Yes. The wage subsidy would normally be treated as government assistance and included in the income of the eligible employer, although this income inclusion would be offset by an equivalent deduction for the salary paid to employees, generally resulting in a “wash” or neutral effect.
It is worth noting, however, that this income inclusion can affect the entitlement to or amount of other tax incentives available to the eligible employer, including, for example, in determining the amount of qualified expenditures giving rise to scientific research and experimental development tax credits.
Compliance and Obligations
The government has indicated repeatedly that Canada’s wage subsidy program must be accessed in good faith and there would be serious consequences for those who abuse the program, or who act dishonestly or fraudulently. Every dollar from the wage subsidies must go to employees.
Are employers obligated to “top up” an employee’s salary to 100% after receiving wage subsidy benefits from the government?
Eligible employers must make their best efforts to top up employees’ salaries to 100% of pre-crisis levels.
It is unclear how the presence or absence of best efforts will be determined and whether there will be any sanction. As the legislation is debated and potentially amended it may become clear if and how an eligible employer would be required to demonstrate or prove to the government that they are/were financially unable to top up employees’ salaries.
Ensuring compliance with Canada’s Emergency Wage Subsidy program
To maintain the integrity of the program and ensure it helps Canadians keep their jobs, eligible 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.
Penalties may apply in cases of fraudulent claims. Anti‑abuse rules will also be proposed to ensure the subsidy is not inappropriately obtained and employees are paid the amounts they are owed.
The government is considering proposing new offences that will apply to individuals, employers or business administrators who provide false or misleading information to obtain access to the subsidy or who misuse any funds obtained under the program. The penalties may include fines or even imprisonment. These details have yet to be officially announced.