Government adds flexibility to the Canada Emergency Wage Subsidy
Today (April 8, 2020) Minister of Finance Bill Morneau announced further details regarding the Canada Emergency Wage Subsidy (“CEWS”), many of which will provide flexibility to employers. The government also proposes to further enhance the CEWS by refunding EI, CPP, QPP, and QPIP premiums to eligible employers. In an earlier blog post we discussed everything we knew at the time about the CEWS, and all of today’s new developments are discussed below.
Added flexibility for decline in revenue test
First, for computing an employer’s decline in revenue for the purposes of determining an employer’s eligibility for the CEWS, employers can calculate their revenues under the accrual method or the cash method, but not a combination of both. An employer can select the appropriate method when first applying for the CEWS, but will be required to adhere to that method for the duration of the program. Also, registered charities and non-profit organizations can choose whether or not to include revenue from government sources in their revenue calculations.
Second, the government proposes to allow all employers to calculate their change in revenue using an alternative benchmark. Rather than comparing a month’s revenue to the revenue of the same month in 2019, an employer can instead compare a month’s revenue to the average revenue earned in January and February 2020. Employers must select one of the two approaches when applying for the CEWS and continue to use that approach for the duration of the program.
Third, recognizing that many businesses were not affected by the crisis until partway through last month, the revenue decline threshold for Period 1 (i.e., March 2020) has been reduced from 30% to 15%, and can be met using either revenue comparison method. The thresholds for April and May 2020 remain at 30%.
And last, the government intends to add special rules to address issues for corporate groups, non-arm’s length entities, and joint ventures.
Any employer that engages in artificial transactions to reduce revenue for the purpose of claiming the CEWS will be subject to a 25% penalty equal to the value of the subsidy claimed. Such an employer will also have to repay the entire amount of the subsidy.
The Department of Finance summarized the revenue tests for each eligbility period in this helpful chart:
|Claiming period||Required reduction in revenue||Reference period for eligibility|
|Period 1||March 15
|15%||March 2020 over: March 2019 or Average of January and February 2020|
|Period 2||April 12
|30%||April 2020 over: April 2019 or Average of January and February 2020|
|Period 3||May 10
|30%||May 2020 over: May 2019 or Average of January and February 2020|
Refunding payroll contributions
Today the government proposed to enhance the CEWS by refunding 100% of employer-paid contributions to EI, CPP, QPP, and QPIP. More specifically, the refund covers contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer can claim the CEWS for those employees. There is no weekly or overall limit to the amount that can be refunded. Employers are required to continue collecting and remitting employer and employee contributions, and can soon apply for the refund at the same time as applying for the CEWS.
In computing the amount of a subsidy with respect to an employee, the subsidy is limited to 75% of the employee’s pre-crisis weekly remuneration. Today the government has clarified that pre-crisis remuneration for an employee is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee received no remuneration.
Originally, the government proposed that an employer could not claim the CEWS for remuneration paid to an employee that falls within a 4-week period in which the employee was eligible for the Canada Emergency Response Benefit. This restriction has been replaced. Instead, eligiblity for the CEWS will be limited with respect to any employee that have been without remuneration for more than 14 consecutive days in the eligibility period.