CEWS: Government extends, expands, and clarifies
On May 15, 2020, the federal government announced that it plans to extend the CEWS, expand it so that additional types of employers are eligible, and make a few clarifying amendments.
First, though originally applicable for the 12-week period from March 15 to June 6, the CEWS will be extended for another 12 weeks to August 29, 2020. The government will also consult with stakeholders with respect to any adjustments that could be made with a view to incentivize growth and job creation. The only potential adjustment that the Department of Finance’s backgrounder mentions is an unspecific adjustment to the requirement that the revenue of a business decline by 30%.
Second, the government has prescribed additional types of employers that qualify for the CEWS by enacting new regulations. The new types of eligible entities are:
- Partnerships that are up to 50-per-cent owned by non-eligible members;
- Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;
- Registered Canadian Amateur Athletic Associations;
- Registered Journalism Organizations; and
- Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.
And third, the government proposes to make a few technical changes to the existing CEWS rules to ensure that the CEWS meets its objectives. Each change is briefly discussed below.
Seasonal staff and employees returning from leave
The CEWS for a specific employee is limited to 75% of their weekly pre-crisis remuneration. Pre-crisis remuneration is the weekly average remuneration of an employee that was paid between January 1 and March 15, but it excludes any 7-day periods in respect of which the employee was not remunerated. An unfortunate result of this computation is that certain employees may not qualify for the CEWS because they had insufficient pre-crisis remuneration. More specifically, the government is concerned for employees who work on a seasonal basis or who are returning from parental, disability, or unpaid leave. To prevent an unintended outcome, employers can alternatively compute an employee’s baseline remuneration using the average weekly remuneration paid between March 1, 2019 and May 31, 2019. Therefore, an employer can calculate baseline remuneration using the average weekly remuneration from either January 1 to March 15 of 2020, or from March 1 to May 31 of 2019. An employer can choose whichever period to use on an employee-by-employee basis. This change will apply retroactive to the first qualifying period that began on March 15.
A corporation formed by the amalgamation of two or more predecessor corporations (an Amalco) might not qualify for the CEWS by virtue of not having benchmark revenues to compare to in order to determine if the corporation has realized a 30% decline in revenue. To fix this potential issue, the government proposes to allow an Amalco to determine its qualifying revenue using the combined revenue of the predecessor corporations, unless it is reasonable to consider that one of the main purposes of the amalgamation (or a winding-up) was to qualify for the CEWS. This change will apply retroactive to the first qualifying period that began on March 15.
Tighting rules for trusts
To better align the tax treatment of trusts to that of corporations (at least in respect to the CEWS), the government intends to add the following exceptions:
- Where the trust is a tax-exempt entity (other than a public institution), it would qualify for the CEWS only if it is a registered charity or one of the other types of eligible tax-exempt entities.
- Where the trust is a public institution, it qualifies only if it is a prescribed organization.
This change will apply in respect of the third qualifying period (May 10 to June 6) and the periods thereafter.