COVID-19 Update: Canada Emergency Wage Subsidy Program

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COVID-19 Update: Canada Emergency Wage Subsidy Program

Last updated August 17, 2020. We will update blog posts when more information is released.

The Canada Emergency Wage Subsidy is a program from the federal government that intends to help businesses keep their employees on payroll during the COVID-19 outbreak, or bring back employees who were previously laid off. We’ve prepared a brief summary below.

What is the Canada Emergency Wage Subsidy?

The Canada Emergency Wage Subsidy is a taxable benefit to employers and was initially available for a period of twelve weeks (made up of three 4-week periods), from March 15, 2020 to June 6, 2020. The subsidy for this period is up to 75% of the first $58,700 of remuneration paid by eligible employers, which equates to a maximum subsidy for a given employee of $847 per week.

Employers must pay the remaining 25% of the employee’s wages. The employee must be actively working for the employer to receive the subsidy.

The government has extended the wage subsidy for an additional 24 weeks (i.e., six more 4-week periods) until November 21, 2020. All the rules related to the wage subsidy for Period 5 (July 5 to August 1, 2020) and subsequent periods have been modified.

The benefit is not available to your business if it closes or does not pay any salary, wages or remuneration to employees between March 15 to November 21, 2020.

The subsidy is retroactive to March 15, 2020.

Find out how the subsidy will help you as a business owner:

Does my business qualify?

An “eligible employer” for the wage subsidy is defined as a person or partnership who is registered with the Canada Revenue Agency (CRA) for payroll remittance purposes.

This includes:

  • individuals (including trusts)
  • taxable corporations
  • registered charities
  • partnerships consisting of eligible employers
  • persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:
  • non-profit organizations
  • agricultural organizations
  • boards of trade
  • chambers of commerce
  • non-profit corporations for scientific research and experimental development
  • labour organizations or societies
  • benevolent or fraternal benefit societies or orders

It does not include public sector entities (public universities, crown corporations, etc.)

For the first 16 weeks of the subsidy, qualifying employers must demonstrate a drop in gross revenues of 15% or more in March and 30% in April or May, when compared to the same month in 2019.

How Do I Calculate Revenue Reductions?

When comparing year-over-year changes in monthly revenues, employers should use their normal accounting methods but must not include:

  • revenue from extraordinary items (i.e. revenue that is not part of a company’s day-to-day operation)
  • passive income (interest, dividends)
  • capital gains
  • the amount of the wage subsidy that they received in each month

For each claiming period below, the revenue drop is calculated based on the following eligibility periods.

CLAIMING PERIOD REQUIRED REDUCTION REFERENCE PERIOD FOR ELIGIBILITY

March 15 to April 11, 2020

15%

March 2020 over:
March 2019 or
Average of Jan and Feb 2020

April 12 to May 9, 2020

30%

April 2020 over:
April 2019 or
Average of Jan and Feb 2020

May 10 to June 6, 2020

30%

May 2020 over:
May 2019 or
Average of Jan and Feb 2020

For example, an eligible employer must attest that their revenue in March 2020 has declined 15% compared to their revenues in March 2019 to be eligible for the subsidy from March 15 - April 11, 2020.

For the following twenty weeks (from July 5, 2020 to November 21, 2020), the wage subsidy has been modified to be available for all eligible employers that experience a decline in revenue for a claim period, with a base subsidy amount, and an additional top-up subsidy amount of 25% for those employers that have been hit hardest by the COVID-19 crisis.

The base subsidy is a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on remuneration of up to $1,129 per week. Click here for a rate structure of the base CEWS.

A top-up CEWS of up to 25 per cent is available to employers that were the most adversely impacted by the pandemic. The top-up CEWS is determined based on the revenue drop experienced when comparing revenues in the preceding 3 months to the same months in the prior year. Click here for an explanation of how the top-up subsidy works.

The two-part CEWS would apply with respect to the remuneration of active employees. A separate CEWS rate structure would apply to furloughed employees.

As of August 17, 2020, applications are open for Period 5, the first period of the enhanced program.

Who is an eligible employee?

An eligible employee is an individual employed in Canada by you during the claim period, except if there was a period of 14 or more consecutive days in that period in respect of which they were not paid eligible remuneration by you.

Can I claim the wage subsidy for employees I hire back?

You can claim the wage subsidy for an employee that you hire back and pay retroactively in respect of a claim period. If the employee has received a Canada Emergency Response Benefit (CERB) payment from the CRA for a claim period, and it is later determined that they are no longer eligible for the CERB, the employee is required to repay the CERB payment.

Here's an example from the CRA. Consider a laid off employee who has applied for the CERB for the four-week period of April 12 – May 9.

At the time of application, the laid off employee expected to have little or no work or income for the four-week period of April 12 - May 9. However, the laid off employee finds out immediately afterwards that their employer will rehire them and will give back-pay for that same four-week period.

In this situation, the rehired employee will be asked to repay the CERB for that four-week period of April 12 – May 9.

How is the subsidy calculated?

The Government has updated their free calculator to help employers prepare for the next period of the CEWS program, which opened on August 17, 2020.

The calculator includes information on how the CEWS can support your employees, who is eligible to apply, and how claim periods are structured. The calculator will provide an estimate of the subsidy you expect to receive. It also allows you to print a spreadsheet and statement to view your claim at a glance. That way you can easily enter the required information in the CEWS application.

What qualifies as remuneration?

For the subsidy, remuneration qualifies as salary, wages and other remuneration for which the employer would generally be required to withhold income tax.

This does not include retiring allowances, stock option benefits or benefits relating to the personal use of an employer-owned vehicle.

How do I apply?

There are three ways to apply for the Canada Emergency Wage Subsidy:

Employers would have to keep records demonstrating the reduction in revenue and remuneration paid to employees.

“Companies will be required to show what the pre-crisis income was of an employee and show that they've paid that employee an amount up to $847, and then they will get that money returned to them from the Canada Revenue Agency,” Morneau said.

The Government of Canada has also provided a detailed guide for applying for the Canada Emergency Wage Subsidy.

If you need assistance with applying FBC has options available to both Members and Non-Members.  Non-Members can register for an eligibility assessment through our REBOOT your business program.  FBC Members can contact their representative directly.

How would I receive the subsidy?

You will receive the money from the CRA in a direct deposit. Make sure your business details and direct deposit information for your payroll accounts (RP) are up to date. This will ensure that any payments to you will be processed quickly and easily.

To update your business and direct deposit details, go to CRA My Business Account.

The claims will be subject to verification by the CRA.

Funds for approved applications will begin to be released on May 5.

What about the Temporary Wage Subsidy?

On March 18, 2020, the Prime Minister announced a temporary 10 per cent wage subsidy. The 3-month measure allows employers to reduce payroll deductions they must remit to the CRA.

The temporary wage subsidy will co-exist with the Canada Emergency Wage Subsidy.

If you don’t qualify for the Canada Emergency Wage Subsidy, you may continue to qualify for the previously announced wage subsidy of 10 percent of remuneration paid from March 18 to June 19, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.

Click here to learn more about the federal temporary wage subsidy.

What if I'm eligible for both?

For employers that are eligible for both programs, the amount paid under the 75% wage subsidy will be reduced by the amount paid under the 10% temporary wage subsidy.

The government states “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.”

If you qualify for the 10% temporary wage subsidy, you can access it as soon as you're required to make payroll remittances for the pay period that includes March 18, 2020.

For many businesses, this will be April 15, 2020.

If you did not reduce the source deductions you remitted to the CRA, but you were entitled to the Temporary Wage Subsidy, the CRA will treat you as having over-remitted your employee source deductions..

What records do I need?

The government stated employers who lie about or inflate losses in their earnings to access the Canada Emergency Wage Subsidy will be subject to a fine equal to 25% of the subsidy they received. They could also face jail time.

Under existing provisions of the Income Tax Act, those found guilty of making or participating in false or deceptive statements could be sentenced to prison for up to 5 years.

To prove compliance, keep the following records:

  • Documentation to prove the 15% or 30% reduction in gross revenue
  • Documentation that shows the entire amount of the wage subsidy is transferred to your employees
  • Records that prove you paid the remaining 25%
  • If you can't pay the remaining 25%, have records that prove why you can't

Contact FBC

If you’d like to learn more about this or other COVID-19 programs for Canadian businesses, please call us at 1-800-265-1002 or email [email protected]

Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also book an appointment online.

Visit our COVID-19 Resource Centre for the latest information, advice and insights for small business owners.

Disclaimer: The material above is provided for educational and informational purposes only.


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