Vinay Khosla
Following the announcement of the Canada Emergency Wage Subsidy (CEWS) extension to December 2020, the Federal Government has released detailed CEWS amendments impacting the programme for the remainder of the year. Many businesses that were not previously eligible to receive the CEWS may now receive a portion of CEWS.
In addition, businesses with severely impacted revenues may receive an additional Top-Up Subsidy.
Summary of Key Changes
- Subsidy extension to 19 December 2020, with these changes applying from 05 July to the period ending 21 November.
- Eligible employers that have experienced revenue declines of less than 30% may now qualify for CEWS, retroactive to 05 July.
- Financial support provided by CEWS applies on a sliding scale dependent on the extent of revenue decline.
- A Top-Up Subsidy has been introduced to potentially provide for the highest possible subsidy amount per employee of CAD 960 per week (calculated on a maximum remuneration per employee of CAD 1,129 per week).
- Companies now have the option to use the previous month’s revenue as a reference for revenue decline.
- Allowing the subsidy for employees that are without remuneration for 14 or more consecutive days in an eligibility period.
- A “Safe Harbour” provision that enables employers to receive the same subsidy amount for July and August (Periods 5 and 6) as they would have under the previous rules if the new rules result in a lower subsidy.
Sliding Scale Subsidy
CEWS will now apply on a sliding scale, dependent on the extent of the employer’s revenue decline. The amount of the subsidy will be reduced gradually throughout the remaining periods.
If an employer’s revenue decline is up to 49%, the employer will multiply the revenue decline with the appropriate factor to determine the percentage of its employees’ salaries which may be claimed under CEWS. Companies experiencing a revenue decline of 50% or greater will receive 60% of their employees’ salaries and may also be eligible for the Top-Up Subsidy. The same maximum subsidy amounts apply to this “base” subsidy on a per-employee basis, with this maximum subsidy amount being reduced gradually throughout the remaining periods.
The reference periods for the subsidy have also been broadened so that an employer may select the current or previous month as a revenue comparison to the same month in 2019 or the average of January and February in 2020. Employers may select either method for Period 5 regardless of which CEWS eligibility method they used in the first four CEWS periods. Whichever CEWS eligibility method is used for Period 5 must be used for the following periods as well.
Top-Up Subsidy
In addition to the standard wage subsidy, a Top-Up Subsidy will be available to employers who have experienced a three-month average revenue decline of more than 50%. The Top-Up Subsidy rate is equal to 1.25 times the average revenue decline in excess of 50%, to a maximum top-up rate of 25%.
As the Top-Up Subsidy uses a threemonth average to determine an employer’s revenue decline, it has distinct reference periods. It also has two comparison methods available, similar to the Sliding Scale Subsidy. The previous three months before the claim period can be compared to the same three months in the previous year or to January and February of 2020. The same comparison method utilised for Top-Up Subsidy purposes must be used for Periods 5 through 8.
Employee Eligibility Changes
- Employees who are without remuneration for 14 or more consecutive days in an eligibility period are eligible for CEWS effective 05 July 2020.
- The changes to the subsidy do not apply to furloughed employees for July and August but the subsidy will be adjusted for furloughed employees in September.
- For active arm’s length employees, the amount of remuneration is based solely on remuneration paid for the eligibility period and reference to the “pre-crisis” remuneration has been removed.
- For non-arm’s length employees, the calculation for “pre-crisis” remuneration has been expanded to include 01 March 2019 to 31 May 2019, or 01 March 2019 to 30 June 2019, when calculating average weekly remuneration for Period 4. For subsequent periods, average weekly remuneration from 01 January 2020 to 15 March 2020, or from 01 July 2019 to 31 December 2019, can be used as “pre-crisis” remuneration.
- The subsidy is only available for nonarm’s length employees that were employed before 16 March 2020.
Additional Changes
- There is an appeal process for the subsidy amount to the Tax Court of Canada.
- Eligible public institutions that are a registered charity or a nonprofit organisation can choose to exclude government-source revenue or not in revenue reduction calculations.
- Employers that use the cash method of accounting can use accrual-based accounting to compute their revenues.
- Corporations formed on an amalgamation can calculate their benchmark revenue using combined revenues, except where it is reasonable to consider that a main purpose for the amalgamation was to qualify for the subsidy or increase the amount of the subsidy.
- Certain tax-exempt trusts qualify for the subsidy.
While these legislative changes have made the CEWS accessible to a wider range of businesses, the CEWS programme has become considerably more complex. If you have any questions about how the new Wage Subsidy or Top-Up Subsidy may impact you or your business, please contact Bateman MacKay LLP.
XLNC MAGAZINE | No. 06 | October 2020