The Canada Emergency Wage Subsidy

Apr 2,2020 3 Comments By Segal GCSE LLP

On April 1, 2020, the federal government provided some details about the 75% wage subsidy that was announced previously. Even with these announcements, there is still some missing guidance which we hope will arrive soon.

The overall plan is a 75% wage subsidy to “eligible employers” for up to twelve weeks retroactive to March 15, 2020. This will be an actual payment from the government to the employer.

How to Apply

Eligible employers would be able to apply for the Canada Emergency Wage Subsidy through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Employers would have to keep records demonstrating their reduction in arm’s-length revenues (as discussed below) and remuneration paid to employees. More details about the application process will be made available shortly. This means that the application process is not available as of the publication of this article.

Interaction with 10% Wage Subsidy

For employers that are eligible for both the Canada Emergency Wage Subsidy and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period. In other words, eligible employers can choose to reduce remittances up to 10% of the employee’s salary and then receive the Canada Emergency Wage Subsidy. However, they cannot be added on top of each other. The benefit is limited to 75%, not 85%.

Eligible Employers

Eligible employers include:

Individuals,
Taxable corporations,
Partnerships consisting of eligible employers
Non profit organizations and
Registered charities

Who is not included as an eligible employer?

Municipalities and local governments
Crown corporations
Public universities
Colleges
Schools
Hospitals

Key Condition- Drop In Revenues- 30%

This subsidy would be available to eligible employers that see a drop of at least 30 per cent of their revenue.

How is Revenue Calculated?

An employer’s revenue for this purpose would be its revenue from its business carried on in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method, and would exclude revenues from extraordinary items and amounts on account of capital.

For non-profits and charities, the government will continue to work with the sector to ensure the definition of revenue is appropriate to their specific circumstances. This has not been clarified as of yet.

Revenue Comparisons- Eligible Periods

Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began. In determining monthly revenues, the wage subsidy would NOT be considered in revenues.

The Eligible Periods are as follows:

Period	Claiming Period	Reference Period
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

This means that the first step is to determine if monthly revenue, year over year, decreased by 30%. Then an eligible employer would make a claim for the above claiming period based on the salaries during the claiming period.

Each month will be a separate application. It may be possible that a company is not eligible for Period 1 but is eligible for Periods 2 and 3.

New Employers

For eligible employers established after February 2019, eligibility would be determined by comparing monthly revenues to a reasonable benchmark. How CRA would determine a reasonable benchmark is very unclear.

Amount of Subsidy

The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:

75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less.

Further guidance with respect to how to define pre-crisis weekly remuneration for a given employee will be provided in the coming days. Without this clarification, a calculation cannot be made.

In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.

Employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees.

Eligible Remuneration

Eligible remuneration may include salary, wages, and other remuneration. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation.

However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.

Non Arm’s Length Employees

A special rule will apply to employees that do not deal at arm’s length with the employer. 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 per cent of the employee’s pre-crisis weekly remuneration. That is, a non arm’s length employee cannot increase their salary after March 15, 2020 to maximize the benefit. The entitlement will be based on what the non-arm’s length employee was earning before March 15^th.

No Limit on Subsidy Claim

There would be no overall limit on the subsidy amount that an eligible employer may claim. That is, the actual dollar amount of subsidy is only limited per employee. The number of employees is not limited.

Employers must make their best effort to top-up employees’ salaries to bring them to pre-crisis levels.

Interaction with the Canadian Emergency Response Benefit (CERB)

As noted in previous publications, employees can claim $2,000 per month if they lose their job or have reduced earnings because of COVID 19. If an employee is eligible to claim the CERB, the employer cannot claim the 75% subsidy in the 4 week period in which the employee is eligible for the CERB. In order to claim the CERB, the employee is not supposed to have earned any income in the four week period and they have to have been out of work or unable to work for 14 consecutive days.

Taxation of Subsidy

The subsidy is fully taxable. From a cash perspective, the tax cost of obtaining the subsidy will not be due until the eligible employer’s tax filing due date. For a CCPC with a December 31, 2020 year end, the taxes on the subsidy would not be due until March 31, 2021. In Ontario, the tax due would be 12.2% if eligible for the small business deduction or 26.5% if not eligible for the small business deduction.

Ensuring Compliance

If the employer does not meet the eligibility requirements and has incorrectly received the subsidy, the employer would be required to repay amounts received under the Canada Emergency Wage Subsidy.

Penalties may apply in cases of fraudulent claims.

In addition, anti‑abuse rules will be proposed to ensure that the subsidy is not inappropriately obtained and to ensure that employees are paid the amounts they are owed. The government is considering proposing to create new offences that will apply to individuals, employers or business administrators who provide false or misleading information to obtain access to this benefit or who misuse any funds obtained under the program. The penalties may include fines or even imprisonment.

Segal GCSE LLP is available to assist you through the process once the government finalizes the methodology and the web access.

Comments

Nirav | Apr 2,2020
Reply

Excellent presentation

Ginny Battersby | Apr 2,2020
Reply

Is the employer required to deduct and remit income tax, EI and CPP at source from the gross subsidy amount paid to the employee? Will theses amounts be considered as payroll earnings for purposes of calculating EHT and WSIB? Can RSP contributions be deducted from these amounts if the employee so wishes?

Amy Lai | Apr 2,2020
Reply

The 75% wage subsidy is count by week not by our normal bi week or semi pay periods starting on Mar 15. Does it mean that we have to wait till mid April’s payroll before we can make the claim for the Month of March reimbursement if it is proven that this Mar sales had decreased by 30% compared with last Mar?