COVID-19: Canada Emergency Wage Subsidy update
The government has provided new details on the Canada Emergency Wage Subsidy (“the subsidy”). All of what we know so far is summarized below.
What employers are eligible?
Eligible employers include: individuals, taxable corporations, partnerships consisting of eligible employers, non-profits, and registered charities. Thus, there is no restriction on the basis of size or sector. Unlike for the other 10% wage subsidy, there is no restriction where a corporation is controlled by a non-resident, is not a private corporation, or has taxable capital exceeding $15 million. However, public bodies, which include municipalities, local governments, Crown corporations, public educational institutions, and hospitals, are not eligible for the subsidy. In order to qualify for the 75% subsidy, an eligible employer must attest that it has experienced at least a 30% drop in gross revenue in March, April, or May, when compared to the same month in 2019. Eligibility is determined on a month-to-month basis.
An employer's revenue for the purpose of the subsidy is its revenue from its business carried on in Canada earned from arm's length sources computed in accordance with its normal accounting method. Revenue will exclude revenue that is from extraordinary items and amounts on account of capital. Revenue will also exclude the amount of the wage subsidy received.
Where an employer does not qualify for the 75% subsidy, they can still potentially qualify for the 10% wage subsidy that was enacted by Bill C-13. This subsidy is 10% of remuneration paid from March 18 to June 20, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
The government is consulting with non-profit and charity sector to determine a definition of revenue that is appropriate in their circumstances. The government is also considering additional support for non-profits and charities that are involved in the front-line response to COVID-19.
How much will employers receive?
On a per employee basis, the amount of the subsidy for eligible remuneration paid between March 15 and June 6 is the greater of:
- 75% of the remuneration paid, up to a maximum benefit of $847 per week; and
- the lesser of the total amount of remuneration paid, up to a maximum benefit of $847 per week, or 75% of the employee's pre-crisis weekly remuneration.
There is no overall limit to the total subsidy amount that an eligible employer may receive.
It is important to note that since the wage subsidy is considered government assistance for the purposes of the Income Tax Act, the amount of assistance received will be included in the employer's taxable income.
Since the goal of the program is to encourage employers to retain its staff and/or rehire workers it recently laid off, an employer’s entitlement to the subsidy is dependent on salary or wages actually paid to its employees. With the help of this subsidy, employers are expected to make their best efforts to top-up their employees' salaries to pre-crisis levels.
Eligible remuneration includes salary, wages, and other remuneration. Essentially, these are amounts from which an employer is generally required to withhold and remit taxes. Eligible remuneration does not include severance pay, stock option benefits, or taxable benefits for personal use of a corporate vehicle.
Where an employee does not deal at arm's length with his or her employer, a special rule will limit the subsidy to the non-arm's length employee to the eligible remuneration paid in any pay period between March 15 and June 6, up to a maximum of $847 per week or 75% of the employee's pre-crisis weekly remuneration.
Additional guidance on how to compute an employee's pre-crisis remuneration will be available in the coming days.
There are three separate periods in which an employer might be eligible for the subsidy:
- Period 1: March 15 - April 11
- Period 2: April 12 - May 9
- Period 3: May 10 - June 6
As stated earlier, eligibility for a given period is determined on the basis of the change of the employer's year-over-year revenue for the calendar month in which the period began. For example, for Period 1, an employer should compare its revenue for March 2020 to that of March 2019 to assess whether at least a 30% decline has occurred. If at least a 30% drop did occur, the employer is eligible for the subsidy for eligible remuneration paid from March 15 to April 11.
Where an employer did not exist before March 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark.
Interactions with other measures
If an employer is eligible for both the 10% and 75% subsidies in a period, any benefit from the 10% subsidy will reduce the amount that can be claimed for the 75% in the same period.
Assistance received under either subsidy will reduce the amount of remuneration expenses eligible for other federal tax credits that are computed on the basis of the same remuneration.
If an employee is eligible for the Canadian Emergency Response Benefit ("CERB"), an employer is not eligible to claim the wage subsidy for remuneration paid to that employee throughout a four-week period in which the employee is eligible for the CERB.
Eligible employers will need to retain records that demonstrate their revenue reduction and remuneration paid to employees.
Being certain of eligibility is important because if an employer does it meet the eligibility requirements, it will have to repay all of the government subsidies and will also be expected to pay its employees.
Both the Prime Minister and Minister of Finance have sternly warned the public not to abuse this subsidy. Anti-abuse rules will be introduced to prevent taxpayers from inappropriately accessing the subsidy. Penalties may apply to fraudulent claims. The government is also considering introducing new offences for providing false or misleading information to access the benefit, or for misusing funds obtained under the program. The penalty for such an offence could include fines or imprisonment.
This new COVID-19 response measure will cost an estimated $71 billion. Minister of Finance Bill Morneau stated that the CRA portal to apply for the subsidy will be available in 3-6 weeks. The portal will be accessible through the CRA's My Business Account or a web-based application.
Further administrative details regarding the application process will become available in the near future, and hopefully some more specific proposed legislation too.