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Updated Q&A: Canada emergency wage subsidy

Canada Publication April 9, 2020 - 7 PM ET

Updated information is available in respect of the Canada Emergency Wage Subsidy (CEWS).  Please refer to our April 12 bulletin.

Eligibility

1. Who is eligible to receive the 75% wage subsidy?

Eligible employers are those that have experienced a decline of 15% or more in gross revenue from arm’s-length sources in March or 30% or more in April or May, as compared to either the same month in 2019, or to an average of their monthly gross revenue earned in January and February 2020. Eligible employers include businesses of all sizes and across all sectors of the economy, including taxable corporations (public and private), partnerships, sole proprietorships, individuals, non-profit organizations, charities, and foreign-owned and foreign-controlled entities with employees employed in Canada. Public sector entities, including municipalities and local governments, Crown corporations, wholly owned municipal corporations, public universities, colleges, schools, and hospitals are excluded. 

Source: Press conference delivered by the Minister of Finance, the Minister of Small Business, Export Promotion and International Trade, and the Minister of Innovation Science and Industry on April 1, 2020 (the “April 1 Press Conference”); https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 8, 2020

2. How is the 15% or 30% revenue threshold calculated and do I need to prove this reduction is related to the COVID-19 crisis?

Eligibility will generally be determined by the change in an employer’s monthly gross revenues, year-over-year, for the calendar month in which the period began (the year-over-year approach) or as compared with an average of monthly gross revenue from January and February 2020 (the alternative approach). Employers would select the general year-over-year approach or this alternative approach when first applying for the Wage Subsidy and would be required to use the same approach for the entire duration of the program.
 
The amount of the Wage Subsidy received by the employer for a given month will be ignored for measuring year-over-year changes in monthly gross revenues. An employer’s gross revenue for this purpose would be its gross 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. Updated guidance indicates that employers will be allowed to calculate revenues under the accrual method or the cash method but not a combination of both. Employers would select a method when first applying and would be required to use that method for the duration of the program. 

While initially stated that gross revenue is to be calculated on an entity-by-entity basis rather than on consolidation of corporate groups or branch accounting, updated guidance suggests that special rules would also be provided to address issues for corporate groups, non-arm’s-length entities and joint ventures.

The table below outlines each claiming period and the period in which it has a decline in gross revenue of 15% or 30% or more.
 
  Claiming period   Reference period for eligibility 
Period 1   March 15 - April 11

 March 2020 over

  • March 2019 or
  • the average of January and February 2020
Period 2  April 12 - May 9  April 2020 over
  • April 2019 or
  • the average of January and February 2020
Period 3  May 10 - June 6  May 2020 over
  • May 2019 or
  • the average of January and February 2020

Employers are encouraged to consult their legal and financial service providers when calculating whether the threshold is met and to keep documentation supporting the determination of the 15 % or 30% decline of gross revenue. 

For charities and non-profit organizations, the government will continue to work with the sector to ensure the definition of revenue is appropriate to their specific circumstances. Specifically, government guidance provides that charities and non-profit organizations will be allowed to choose to include or exclude government funding in their revenues for the purpose of applying the revenue reduction test.

Currently, there is no specific requirement to prove that the decrease in gross revenue is attributable to the COVID-19 crisis.  

Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 9, 2020

3. If my revenues are in US dollars, do I convert my 2019 gross revenues into Canadian dollars (and, if so, at what exchange rate) or do I compare in nominal US dollars to determine whether there is a 15% or 30% reduction?

This has not been specifically addressed and may be subject of further clarification or of discussion with the government. Government guidance indicates that “[r]evenue would be calculated using the employer’s normal accounting method.” Presumably this means the employer should be comparing its gross revenues as calculated for accounting purposes, although updated guidance indicates that employers will be allowed to calculate revenues under the accrual method or the cash method, but not a combination of both. Employers would select a method when first applying and would be required to use that method for the duration of the program.

4. I became a functional currency reporter after May 2019, how do I compare my results for March, April and May 2019 to my 2020 revenues?

Similarly to the previous question, this has not been addressed. It is unclear whether a functional currency election for tax purposes would have any bearing on the calculation of gross revenues “using the employer’s normal accounting method.”

5. How is the 75% wage subsidy calculated?

The Wage Subsidy for a given employee (both current or new) will be equal to the greater of:

  • 75% of the amount of eligible remuneration paid, up to a maximum benefit of $847 per week; and
  • the lesser of (a) the amount of eligible remuneration paid, up to a maximum benefit of $847 per week, and (b) 75% of the employee’s pre-crisis weekly eligible remuneration.

For these purposes, eligible remuneration includes salary, wages and other remuneration. These are amounts for which employers  would generally be required to withhold  amounts for federal income tax purposes. However, it does not include severance pay, or items such as stock option plans  or the personal use of a corporate vehicle. It’s unclear to what extent it will include other non-cash taxable benefits.

Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html 

Last updated: April 1, 2020

6. In my corporate group, the only revenues of certain entities that are employers are from the supply of goods or the provision of services to other group entities, which in turn supply goods or provide services to third parties.  If the entity making the third-party sales has suffered a reduction of 15% or 30% in its gross revenues, can the employer entity be entitled to the Wage Subsidy?

Although previous guidance suggested the calculation is at an entity level for the employer and based on a reduction of arm’s-length revenues, which would limit access to the Wage Subsidy in certain scenarios, updated government guidance suggests that special rules will be provided to address issues for corporate groups, non-arm’s-length entities and joint ventures. The specifics of these rules have not yet been provided. 

Source: https://www.canada.ca/en/department-finance/news/2020/04/government-provides-further-flexibility-for-employers-to-access-the-canada-emergency-wage-subsidy.html

Last updated: April 8, 2020

7. I am a foreign (e.g., American) corporation with operations in Canada – am I eligible to receive the 75% wage subsidy?

The Department of Finance has stated the Wage Subsidy is aimed at preventing further job losses. Thus, it appears an American corporation with employees in Canada would be eligible for the wage subsidy for such employees. However,  the government stated that more technical and administrative information will follow, which may specifically address the eligibility of foreign entities with employees in Canada.  The eligibility requirement that there be a 15% or 30% reduction in gross revenue would apply in this case to gross revenue from arm’s-length sources from business carried on in Canada.

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 8, 2020

8. I am a 149(1)(o.2) entity, am I eligible?

Government guidance indicates eligible employers “include” taxable corporations such that the list of eligible employers is not expressed as an exclusive list. However, charities and non-profit organizations which are tax exempt are specifically included as eligible, which would suggest other tax exempt entities may not be eligible. We have put the question to the Department of Finance. From a policy perspective, there would not appear to be a reason to exclude such tax exempts. 

9. Does the subsidy apply to a company with multiple divisions where one division has seen a 15% or 30% reduction in revenue while others have not?

Current Department of Finance guidance suggests that the reduction should be calculated for the legal tax-paying entity. Therefore if the divisions are not distinct legal entities it appears any revenues would be aggregated. However, the government stated that more technical and administrative information will follow, which may specifically address this point. 

Source: April 1 Press Conference

Last updated: April 1, 2020

10. Does the subsidy apply to employees working only in Canada? What about employees that are paid from a Canadian company, but work outside of Canada?

Currently, the Wage Subsidy applies to employees employed in Canada. 

Source: April 1 Press Conference

Last updated: April 1, 2020

11. My operations are in Canada, but I sell outside of Canada. Am I eligible to receive the 75% wage subsidy?

Yes. Eligible employers may include multinational corporations that have employees in Canada but sell goods and services outside of Canada.  For determining eligibility, the relevant amount would be the employer’s gross revenue from its business carried on in Canada earned from arm’s-length sources.

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

12. Due to online sales, my revenue has not decreased 15% or 30%, but my profits have decreased by more than 50% – am I eligible to receive the 75% wage subsidy?

As it currently stands, the eligibility criterion is focused on gross revenue and not profit. Therefore, if your gross revenue has not decreased by either 15% or 30% or more, you would not be eligible. 

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html; 

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 8, 2020

13. My business is cyclical and I expect the drop to come later – can I apply now?

No, as currently contemplated, the government has indicated that the Wage Subsidy is only being provided for revenue declines for March, April and May. The particular issue with cyclical revenues may be subject to further discussion with the government. We expect this may particularly affect non-profits and charities who may have one big fundraiser a year that has been cancelled.

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

14. I operate a small business / start up without revenue – can I still receive the 75% wage subsidy?

As currently contemplated, revenue is required for an employer to be eligible for the wage subsidy. For any employer, including those that were not active in the relevant month in 2019, eligibility may be determined by comparing monthly revenues for March, April and May to an average of their revenues earned in January and February 2020. 

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 8, 2020

15. Since May 2019, my business has grown significantly as a result of a number of factors, including that I opened a new plant in the second half of 2019, which doubled my capacity.  My gross revenues for March 2020 are significantly higher than my gross revenues for March 2019 but represent a more than 15% drop from pre-COVID-19 levels.  Am I entitled to claim the Wage Subsidy?

Updated guidance provides that for any employer, including those that had significant growth from March 2019, eligibility may be determined by comparing monthly revenues for March, April and May 2020 to an average of their gross revenues in January and February 2020 (the alternative approach). This alternative approach, if taken, must be used for determining revenue reduction for each of March, April and May 2020. Other similar examples are employers who have experienced significant growth in revenues since March-May 2019 as a result of substantial hiring or acquisitions.

16. In the context of a professional services firm, will gross revenues include unbilled fees or work-in-progress?

It is proposed that employers be allowed to measure revenues either on the basis of accrual accounting (as they are earned) or cash accounting (as they are received). It is not clear whether work-in-progress will be allocated to the relevant periods for this purpose.

Source: https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 8, 2020

Scope


17. Is the revenue test overall (i.e., global revenue) or just Canadian revenue?

An employer’s gross revenue for this purpose would be its gross revenue from its business carried on in Canada and earned from arm’s-length sources. Gross revenue would be calculated using the employer’s normal accounting method (subject to the selection of either the accrual method or the cash method on application) and would exclude revenues from extraordinary items and amounts on account of capital. 

Source: April 1 Press Conference;

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html;

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 9, 2020

18. How much are employers eligible to receive?

The aggregate amount available to an eligible employer will depend on the number of its employees and their pre-crisis eligible  remuneration. There is no limit on the number of employees eligible for the Wage Subsidy for a particular eligible employer. 

The Wage Subsidy for a given employee will be equal to the greater of:

  • 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
  • the lesser of (a) the amount of remuneration paid, up to a maximum benefit of $847 per week, and (b) 75% of the employee’s pre-crisis weekly remuneration.

Additionally, the government has provided updated guidance proposing that employers eligible for the Wage Subsidy will be entitled to receive a 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund is intended to apply to the entire amount of employer-paid contributions in respect of remuneration paid to furloughed employees in a period where the employer is eligible for the Wage Subsidy.

Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html 

https://www.canada.ca/en/department-finance/news/2020/04/government-provides-further-flexibility-for-employers-to-access-the-canada-emergency-wage-subsidy.html 

Last updated: April 8, 2020

19. What are the minimum and maximum amounts that I can receive as part of the 75% wage subsidy?

See the responses to questions above for information on the maximum amount of Wage Subsidy that an eligible employer may receive per employee. There is no minimum amount.  

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

20. Do I have to pay the money out to employees?

An eligible employer’s entitlement to the Wage Subsidy is based on the salary or wages actually paid to its employees. The eligible employer must keep records reflecting the salary or wages paid to employees. The government has indicated that penalties, including fines or imprisonment, may apply in cases where employers have inappropriately accessed the Wage Subsidy, for example by providing false or misleading information relating to salary or wages actually paid to employees or by misusing funds obtained under the program. 

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

21. Will the company receive actual cash for the subsidy or is it a reduction in remittances of income tax withheld on employees’ remuneration (i.e., how does the 10% subsidy work)?

An eligible employer will receive the Wage Subsidy in cash by cheque or direct deposit into the employer’s bank account.

Source: April 1 Press Conference

Last updated: April 1, 2020

22. Do I need to keep all of my employees to be entitled to the Wage Subsidy? 

No.  The Wage Subsidy is on an employee-by-employee basis and only applies to employees you keep or, if an employee has been laid off due to the COVID-19 crisis, rehired.

23. Does my intention need to have been to proceed with the lay off of an employee in order to be entitled to the subsidy?

No, intention to fire is not required.

24. What if I fired an employee, can I still receive the 75% wage subsidy? 

No. An eligible employer’s entitlement to the Wage Subsidy will be based on the salary or wages actually paid to the employee. If an employee has been laid off due to the COVID-19 crisis, the employer may rehire the employee and be entitled for the Wage Subsidy for salary or wages actually paid to the employee. 

Source: April 1 Press Conference

Last updated: April 1, 2020

25. Can I reduce my employee’s pay and continue to benefit from the 75% wage subsidy?

In accordance with guidance provided by the Minister of Finance, an employer may reduce an employee’s pay and continue to benefit from the Wage Subsidy. However, doing so may give rise to labour and employment considerations. As described in the response to a question above, the maximum amount of the Wage Subsidy will still be computed based on the employee's pre-crisis salary or wages.

Source: April 1 Press Conference; 

https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html 

Last updated: April 1, 2020

26. Do employees need to perform employment services if I keep them on my payroll?

No.  Employees need to be employed and on your payroll, but there is no specific requirement for them to perform employment services.

27. Does this subsidy work with other subsidies (i.e., the temporary 10% wage subsidy for eligible small businesses)? If so, how?

For employers eligible for both the Wage Subsidy and the 10% wage subsidy, known as the Temporary Wage Subsidy for Employers, for a period, any benefit from the Temporary Wage Subsidy for Employers for remuneration paid in a specific period would generally reduce the subsidy available under the Wage Subsidy for that same period.

Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

28. What other programs are being offered?

In addition to the Wage Subsidy, the government has also introduced the following programs:

  • The Canada Emergency Response Benefit (CERB), which provides a taxable benefit of $2,000 a month for up to four months to eligible workers who have lost their income due to COVID-19. 

    Note that eligibility for the Wage Subsidy for an employee’s remuneration will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6. This rule replaces the previously announced restriction that an employer would not be eligible to claim the Wage Subsidy for remuneration paid to an employee in a week that falls within a four-week period for which the employee is eligible for the CERB. Updated guidance also indicates that, to limit duplication, the government may put in place a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.
  • The Canada Emergency Business Account, which provides up to $25 billion to eligible financial institutions so they can provide interest-free loans to small businesses, including not-for-profits. This includes partially forgivable loans of up to $40,000 to small businesses and not-for-profits in all sectors and regions. To qualify, organizations will need to demonstrate they paid between $50,000 and $1 million in total payroll in 2019. These loans – guaranteed and funded by the Government of Canada – will ensure that small businesses have access to the capital they need so they can pay for rent and other important costs over the next number of months.
  • The Small and Medium-sized Enterprise Loan and Guarantee program, which will enable up to $40 billion in lending, supported through Export Development Canada and Business Development Bank of Canada, for guaranteed loans when small businesses go to their financial institutions to help weather the impacts of COVID-19. The program will allow eligible businesses to access up to $12.5 million in additional financing support.
  • The Work-Sharing Program has been extended from a maximum duration of 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers. For employers and employees that are participating in a Work-Sharing Program, EI benefits received by employees through the Work-Sharing Program will reduce the benefit that their employer is entitled to receive under the Wage Subsidy. 
  • Deferral of all goods and services tax/harmonized sales tax (GST/HST) remittances until June 30, 2020, as well as customs duties owed for imports.
  • Deferral of income tax payments will vary between taxpayers. Please refer to the follow guidance for specifics: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html   

Source: April 1 Press Conference;

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html;

https://www.canada.ca/en/department-finance/economic-response-plan.html

Last updated: April 9, 2020

Procedure


29. How do I apply? What is the process to receive the subsidy?

The government is working to finalize the Wage Subsidy application process. It has indicated that details will be available on its website within four to six weeks. 

At the appropriate time, eligible employers will be able to apply for the Wage Subsidy using the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Eligible employers will need to apply for the Wage Subsidy each month (March, April and May). 

Upon making an application, the eligible employer will need to provide an attestation that it is making best efforts to pay the remaining 25% of an employee’s salary or wages. The Minister of Finance acknowledged it may not always be possible  for the employer to "top up" the employee's salary or wages and we understand that eligible employers will not be legally required to do so. It is unclear how the presence, or absence, of best efforts will be determined and whether there will be any sanction, but the government has indicated that eligible employers will not be required to demonstrate or prove to the government they are financially unable to top up employees' salaries or wages. 

Source: April 1 Press Conference

Last updated: April 1, 2020

30. Do I still have to pay payroll taxes even on the portion of the wages that are effectively reimbursed through the subsidy?

Yes. Payroll taxes will continue to be calculated as provided under applicable legislation. Total payroll will continue to be calculated in the same manner, even if a portion of the remuneration paid was effectively reimbursed through the Wage Subsidy.

31. What evidence do I need to support the 15% or 30% revenue decrease?

There is currently no specific guidance on the evidence required to support a 15% or 30% decrease in gross revenue. However, employers must keep records demonstrating the reduction in arm's-length gross revenue using the employer's normal accounting method (subject to the selection of either the accrual method or the cash method on application), and excluding revenues from extraordinary items and amounts on account of capital. Employers should consult their legal and financial service providers on the best method to appropriately document the reduction in arm's-length revenue.  

Source: n/a

Last updated: April 1, 2020

32. Should my board of directors be approving the application for the subsidy?

The Wage Subsidy has been described as a trust-based exercise, relying on the honesty and good faith of employers in reporting on their eligibility. As a result, the government has indicated that employers found to have made fraudulent claims may be subject to penalties, including fines or imprisonment. With those risks in mind,  it would be prudent to obtain board approval of any Wage Subsidy application to ensure directors are apprised of the existence and contents of any such application.   

Source: n/a

Last updated: April 1, 2020

33. How long will the subsidies be available for?

Currently the government has committed to making the Wage Subsidy available for a 12-week period, from March 15 to June 6, 2020. The Minister of Finance acknowledged that the Wage Subsidy may be extended beyond this time period.  The table below outlines each claiming period and the reference period for the gross revenue test. 

  Claiming period   Reference period for eligibility 
Period 1   March 15 - April 11

 March 2020 over

  • March 2019 or
  • the average of January and February 2020
Period 2  April 12 - May 9  April 2020 over
  • April 2019 or
  • the average of January and February 2020
Period 3  May 10 - June 6  May 2020 over
  • May 2019 or
  • the average of January and February 2020

Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html

Last updated: April 1, 2020

34. How long will it take to receive the 75% wage subsidy?

The government is working to finalize the Wage Subsidy application process. It has indicated that details will be available on its website within four to six weeks. Based on guidance from the Minister of Finance, it is currently anticipated that funds will be available in approximately six weeks;  however, no firm date has been established. It is recommended that eligible employers set up direct deposit accounts with the Canada Revenue Agency to ensure any Wage Subsidy payments can be made as quickly as possible. 

Source: April 1 Press Conference

Last updated: April 1, 2020

35. Can the 75% wage subsidy be clawed back?

At this time, there has been no indication that the Wage Subsidy may be clawed back. However, both the Prime Minister and the Minister of Finance have indicated that there may be severe penalties for any employer found to be misusing the Wage Subsidy, which may include clawbacks. An employer who does not meet the eligibility requirements or pay its employees accordingly will be required to repay amounts received under the Wage Subsidy.

The amount received under the Wage Subsidy will be included in computing the employer's income for income tax purposes. However, as the employer will generally be entitled to a deduction for the wages paid to the employee, the result should be a "wash" or neutral effect. It is worth noting, however, that this income inclusion can have an impact on the entitlement to or amount of other tax incentives available to the employer, including, for example, in the determination of the amount of qualified expenditures giving rise to scientific research and experimental development tax credits.

Source: the April 1 Press Conference

Last updated: April 1, 2020

Risk / liability


36. What are the penalties for misuse of the 75% wage subsidy?

Penalties may apply in cases of fraudulent claims, and the government is considering proposing new offences that will apply to individuals, employers or business administrators who provide false or misleading information to access the Wage Subsidy or who misuse any funds obtained under the program. The penalties may include fines or even imprisonment. Updated guidance indicates that employers would be subject to penalties of 25% of the subsidies(on top of reimbursing the subsidies) if they engage in artificial transactions to reduce revenue. Other details have yet to be officially announced. 

Source: April 1 Press Conference;

https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

Last updated: April 9, 2020



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