April 14, 2020
On April 11, 2020, the Federal Government passed the COVID-19 Emergency Response Act, No. 2 (the “Act”). In addition to other changes, the Act amends the federal Income Tax Act to establish the Canada Emergency Wage Subsidy (CEWS), which we previously discussed here and here.
The CEWS is designed to encourage employers to recall laid off employees and to keep them on payroll while also easing cashflow difficulties that businesses are facing due to the COVID-19 pandemic.
Below are our answers to the top ten (10) questions employers have about the CEWS.
- What employers are eligible to receive the CEWS?
An “eligible employer” that can receive the CEWS includes:
- registered charities;
- persons exempt from tax under the Income Tax Act because they are:
- agricultural organizations
- corporations created exclusively for promoting scientific research and experimental development;
- labour organizations; and,
- non-profit organizations;
4.partnerships consisting of eligible employers.
Public institutions (e.g. municipalities, hospitals, public universities) are not eligible for the CEWS.
- What time period does the CEWS cover?
The CEWS is available to employers for at least three (3) “qualifying periods”:
- from March 15, 2020 to April 11, 2020;
- from April 12, 2020 to May 9, 2020; and,
- from May 10,2020 to June 6, 2020.
The Act suggests additional qualifying periods may be announced. If so, these qualifying periods must end no later than September 30, 2020.
Employers must apply to receive the CEWS for each qualifying period. Employers must demonstrate a decline of at least 15% in revenue for the March qualifying period, and at least a 30% decline in qualifying revenue for the remaining qualifying periods.
- How do employers calculate revenue?
An employer’s “qualifying revenue” consists of revenue earned in Canada from the sale of goods and services, using the employer’s normal accounting method. Affiliated groups of eligible employers can compute their revenues on a consolidated basis. Employers can choose to calculate revenue via the cash or accrual accounting method, but not a combination of both. Employers must select a method when first applying for the CEWS and must continue to use the same method for the duration of the CEWS program.
There are additional exceptions for charities and non-profits. The most pertinent is that these organizations will have the option to exclude funding received from the government from their calculation of revenue.
- How do employers measure a decline in revenue?
An employer must show a decline in revenue by comparing (i) its monthly revenue from the same month of the previous year, or (ii) to the average revenue earned in January and February 2020.
For example, for the March qualifying period, an employer can either compare its March 2020 revenue to its revenue from March 2019, or to the average revenue from January and February 2020.
Employers must choose whether they will use the year-over-year comparison approach, or the average of their revenue earned in January and February 2020, when they first apply for the CEWS. Employers must use the same approach for the duration of the CEWS program.
- What remuneration paid to employees is eligible for the subsidy?
Employers will receive a 75% wage subsidy on the first $58,700 (up to $847 per week) on “eligible remuneration” paid to each “eligible employee” during a 4-week qualifying period.
Current and newly hired employees can be eligible for the subsidy. However, employees who have not been paid by the employer for 14 consecutive days in a 4-week qualifying period are not eligible for the subsidy.
Remuneration that is eligible for the subsidy includes the following:
- salary or wages;
- superannuation or pension benefits;
- death benefits;
- certain benefits under the Unemployment Insurance Act;
- amounts received as a benefit under a supplementary unemployment benefit plan;
- an annuity payment or a payment in full or partial commutation of an annuity; and,
- fees, commissions or other amounts for services.
Certain remuneration will not be eligible for subsidy, including the following:
- retiring allowances;
- any amount received by the employee that can reasonably be expected to be returned to the employer.
- any amount received by the employee in excess of the employee’s “baseline remuneration” (based on the average weekly earnings of the employee between January and March 15, 2020).
- Can the CEWS subsidy be the only wages employees receive?
Yes. There is nothing in the Act requiring an employer to pay employees their baseline remuneration in order to qualify for the subsidy. However, since this program is administered by the Canada Revenue Agency (CRA), one might expect CRA officials to ask employers to offer an explanation for why they did not pay the top up to their employees.
- How does the CEWS work with the existing 10% temporary wage subsidy or the EI work-sharing program?
The 10% wage subsidy (which we previously discussed here and here) is a three-month measure that allows eligible businesses to reduce their payroll remittances to the government by 10%, up to $1,375 per employee, to a maximum of $25,000.
The work-sharing program helps employers avoid lay-offs by providing Employment Insurance (EI) benefits to employees who agree, among other things, to a reduced work week.
Benefits received from these programs will reduce the amount of the subsidy received from the CEWS.
- How does the CEWS work with the Canada Emergency Response Benefit (CERB)?
Applications for the CERB (which we previously discussed here and here) opened on April 6, 2020. Many employees on lay-off have applied. However, employers are now considering recalling these employees because of the CEWS.
As the CEWS webpage notes, there was a previous announcement that employers would not be eligible for the subsidy on remuneration paid to an employee during a week they were eligible for the CERB. That restriction has now been lifted. The new policy is as follows: “To ensure that the Canada Emergency Response Benefit (CERB) applies as intended, we are considering implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.” (Emphasis added)
- Are there any penalties?
Yes. To maintain the integrity of the CEWS program, employers are required to repay amounts paid under the CEWS if they do not meet the eligibility requirements.
Employers found to have engaged in artificial transactions to reduce their revenue in order to qualify for the CEWS will be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.
- How do employers apply and how soon will the subsidy be paid?
Soon. Employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account Portal, or through an new online portal. Applications must be made no later than October 2020. It is anticipated that the subsidy will be paid within one (1) month of applying. More details about the application process are to come. Employers should note that the Act provides the Minister with discretion to publish the list of employers that have applied for the CEWS.
Our firm will continue to provide you with updates as the Federal Government’s response to the COVID-19 pandemic evolves.