The Canada Emergency Wage Subsidy
On April 1, 2020, the Federal Government provided some details about the 75% wage subsidy that was announced last week. This would provide a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.
Eligible employers would include individuals, taxable corporations, and partnerships consisting of eligible employers as well as non‑profit organizations and registered charities.
This subsidy would be available to eligible employers that see a drop of at least 30 per cent of their revenue (see Eligible Periods for Revenue Comparison). In applying for the subsidy, employers would be required to attest to the decline in revenue.
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.
Revenue from arm’s length sources would not include revenues from related corporations, such as management fees, rental income etc.
Eligible Periods for Revenue Comparison
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.
For example, if revenues in March 2020 were down 50 per cent compared to March 2019, the employer would be allowed to claim the Canada Emergency Wage Subsidy on remuneration paid between March 15, 2020 and April 11, 2020.
The table below outlines each claiming period and the period in which it has a decline in revenue of 30 per cent or more.
Reference period for eligibility
March 15 – April 11
March 2020 over March 2019
April 12 – May 9
April 2020 over April 2019
May 10 – June 6
May 2020 over May 2019
The same determination would have to be made for the following two periods to establish eligibility. Each claiming period will involve a separate application.
For eligible employers established after February 2019 (i.e. new businesses), eligibility would be determined by comparing monthly revenues to a reasonable benchmark. Additional details on these benchmarks have yet to be provided by the CRA.
How to ApplyEligible 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 and remuneration paid to employees. More details about the application process will be made available shortly. Therefore, the application process is not yet available as of the date of this newsletter release.
It is highly recommended that eligible employers that have not yet registered for a My Business Account do so as soon as possible. The link to the CRA registration page for a My Business Account can be found HERE.
It appears as though the 75% subsidy will be an actual payment to eligible employers, whereby the 10% subsidy can be claimed by reducing the amount of payroll tax remitted to the CRA by the subsidy amount. It would therefore be advisable for employers to be registered for direct deposit in order to receive the subsidy directly. The registration for direct deposit can be set up through the My Business Account.
How to Calculate the 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 by the government. Without this clarification, the calculation cannot be made. It appears the purpose of this inclusion of pre-crisis weekly remuneration is to ensure that employees do not temporarily increase an employee’s remuneration for the purpose of increasing the subsidy.
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, to a maximum of $847 per week.
Employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees to a maximum of $847 per week.
There would be no overall limit on the subsidy amount that an eligible employer may claim. As a comparison, the 10% temporary wage subsidy was limited to $25,000 per employer.
Let’s use an example of an employee who regularly earns $1,000 per week in wages. The employer has agreed to pay the employee a reduced wage of $750 per week, or 75% of their pre-crisis earnings (the calculation of which is to be clarified by the CRA). The employer would be eligible for a subsidy of $750 per week. If the employer continued paying the employee $1,000 per week, topping up the wages by the extra 25%, the subsidy would remain as $750 per week. The Federal Government is encouraging employers to top up the employee’s wages by this additional $250 per week.
Another example as provided by the CRA of how the subsidy would be calculated is below…
Bruno and Tisha run a floral shop in Burnaby, British Columbia. They have four full‑time employees, each earning $800 per week, and 6 part-time employees, each earning $400 per week, for a total weekly payroll of $5,600. Bruno and Tisha have closed their shop and are only fulfilling online orders during this challenging period. They are keeping all of their employees on the payroll, paying them their full regular wages, despite their revenues being down by 30 per cent. Bruno and Tisha would be eligible for a weekly wage subsidy of $4,200 ($600 for each of their full-time employees and $300 for each of their part-time employees).
The amount of subsidy received by an eligible employer would be considered government assistance and be included in the employer’s taxable income.
How Does the Subsidy Apply to Remuneration Paid to Owners or Related Employees of a Business?
This is a very important question that many family-owned business will want to know about. 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.
In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, the employer would be required to repay amounts paid under the Canada Emergency Wage Subsidy if they do not meet the eligibility requirements and pay their employees accordingly.
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 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.
Interaction with 10 per cent Wage Subsidy
Some eligible employers may be eligible for both the 10% and the 75% subsidy. However, if the 10% subsidy has been claimed for an eligible period, a future claim of the 75% subsidy would be reduced by the amount of the 10% subsidy already claimed.
Some key distinctions between the 10% and 75% subsidy are as follows:
The 10% subsidy does not require a drop of at least 30% of revenues.
The 10% subsidy is limited to $25,000 per employer.
The 10% and 75% subsidies are both available to corporations, however only the 10% subsidy requires that a corporate employer is eligible for the small business deduction.
Employers not eligible for the 75% subsidy would remain eligible for the 10% subsidy (if applicable).
I have to make a payroll remittance to the CRA for March. What should I do?
As noted above, only the 10% subsidy is claimed by reducing the payroll remittance to the CRA by the subsidy amount. The 75% subsidy will be received as an actual payment by the CRA. If you have an upcoming payroll remittance due by April 15 (or April 10 for some employers), you can claim the 10% subsidy now to benefit from some relief if you are eligible. When the 75% subsidy application becomes available in the coming weeks, you would reduce your claim by the previously claimed 10% subsidy. Alternatively, an employer can choose not to claim the 10% subsidy now and wait for the application for the 75% subsidy to become available.
For employers using payroll service providers (i.e. ADP and Ceridian), it appears as though the services providers are currently incorporating the 10% subsidy claim and reducing payroll remittances accordingly.
Interaction with the Canada Emergency Response Benefit
An employer would not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canada Emergency Response Benefit.
Sabounji LLP is available to assist you once the Federal Government announces further guidance on the subsidy and the application process is accessible. Please contact your Sabounji LLP advisor for further details.