The federal government's second COVID-19 economic relief package received Royal Assent on April 11, 2020. The bulk of the new legislation amends the Income Tax Act to create what has become known as the Canada Emergency Wage Subsidy (CEWS). The CEWS adopts or varies many of the changes announced on April 8.
This post summarizes the newly enacted CEWS eligibility requirements, the subsidy amount, how to apply, and concludes with a comparison of the CEWS and the Temporary Wage Subsidy (TWS).
Each employee who receives the benefit must, for each qualifying period, be employed in Canada by a business that is eligible to receive the subsidy. The employee cannot be without pay for any consecutive 14-day period during that qualifying period.
ii. Temporary Raises
An employer cannot temporarily raise an employee's wages to boost that employee's income during any qualifying period and then return that employee to their previous income level after the subsidy ends. An employer is to base the subsidy amount upon the employee's average weekly wage from January 1, 2020 to March 15, 2020, excluding any period of seven or more consecuitve days without pay (known as the "baseline remuneration"). Any temporary raises must be borne fully by the employer, and one can likely expect penalties for abusing the system in this way.
The employer must show a decrease in revenues for the applicable qualifying period to receive the wage subsidy. The legislation delineates how to calculate revenue for the purposes of this test as "the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity - generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity...". The revenues must also be from activities carried out in Canada. Other sources of revenue such as membership fees and gifts received in the ordinary course of business for certain businesses or charities are also included, with some exceptions.
The employer can calculate its revenue to determine eligibility in accordance with its normal accounting practices, subject to some exceptions.
For instance, for the first qualifying period of (1) March 15, 2020 to April 11, 2020, the employer must show a 15% or greater decrease in revenues for March 2020 when compared to either March 2019 or the average of January and February 2020. However, for the next two qualifying periods of (2) April 12, 2020 to May 9, 2020 and (3) May 10, 2020 to June 6, 2020, the employer needs to show a 30% or greater decrease in revenues when comparing (2) April 2020 or (3) May 2020 to, depending on the business's prior election, either the previous year's revenues for that same time period or the average of January and February 2020 revenues. This is also illustrated on a chart on the government's CEWS information page.
The amount received under the CEWS is reduced by any amounts the employer receives under the Temporary Wage Subsidy or any EI work-sharing program.
An employer must submit a new application for every month/qualifying period for which it would like to receive the subsidy
The TWS provides for a maximum subsidy of up to $1,375 per employee. The CEWS clearly has a greater potential impact, providing for a maximum subsidy of up to $874 per week per employee.
Note: while this blog and the information above provides general information, it does not constitute legal advice. The best way to get guidance on your specific legal issue is to contact a lawyer. For more information about the CEWS, or if you have any other questions regarding your employment issue, please contact our office for a consultation with one of our lawyers.
This post summarizes the newly enacted CEWS eligibility requirements, the subsidy amount, how to apply, and concludes with a comparison of the CEWS and the Temporary Wage Subsidy (TWS).
1. Eligibility
There are several requirements for a business to be eligible for the wage subsidy.a. Employees
As the total subsidy amount a business can receive depends on the number of employees, each individual employee for whom the employer seeks to receive the subsidy must meet certain eligibility criteria.Each employee who receives the benefit must, for each qualifying period, be employed in Canada by a business that is eligible to receive the subsidy. The employee cannot be without pay for any consecutive 14-day period during that qualifying period.
b. Eligible Employers
The following employers (referred to as "eligible entities") are eligible to receive the wage subsidy:- Corporations (other than certain tax-exempt corporations or public institutions);
- Sole proprietorships and individuals;
- Registered charities (other than public institutions);
- Not-for-profit organizations; or
- Partnerships whose members are also eligible entities.
c. Qualifying Period and Subsidy Length
There are three defined qualifying periods defined for which employers can receive the subsidy:
- March 15, 2020 to April 11, 2020;
- April 12, 2020 to May 9, 2020; or
- May 10, 2020 to June 6, 2020.
d. Eligible Remuneration
The wage subsidy can only be applied against any salary, wages, commissions or fees for services, but not any retiring allowances or benefits. There are two other prohibitions:i. Repayment of Remuneration
The subsidy does not apply to any remuneration which the employer (whether a corporation, partnership, or individual) reasonably expects to be paid back or returned to it. This latter prohibition focuses in particular on non-arms-length parties and is likely meant to prevent abuse.
ii. Temporary Raises
An employer cannot temporarily raise an employee's wages to boost that employee's income during any qualifying period and then return that employee to their previous income level after the subsidy ends. An employer is to base the subsidy amount upon the employee's average weekly wage from January 1, 2020 to March 15, 2020, excluding any period of seven or more consecuitve days without pay (known as the "baseline remuneration"). Any temporary raises must be borne fully by the employer, and one can likely expect penalties for abusing the system in this way.
e. Revenue Comparison Test
i. Prior Reference Period Election
To receive the subsidy in any given qualifying period, the employer must show a decrease in revenue when compared to either (a) the same month the previous year or (b) the average revenues from January and February 2020 (i.e. the "prior reference period"). An employer can elect which prior reference period to use, however once an election is made that prior reference period is used for determining the employer's eligibility until June 2020. For any subsequent qualifying periods beyond June 2020 yet to be defined, the legislation appears to require that the prior reference period must be the same month the previous year.ii. Calculating Revenue
The employer must show a decrease in revenues for the applicable qualifying period to receive the wage subsidy. The legislation delineates how to calculate revenue for the purposes of this test as "the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity - generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity...". The revenues must also be from activities carried out in Canada. Other sources of revenue such as membership fees and gifts received in the ordinary course of business for certain businesses or charities are also included, with some exceptions.
The employer can calculate its revenue to determine eligibility in accordance with its normal accounting practices, subject to some exceptions.
iii. Percentage of Revenue Change
To receive the subsidy for the first qualifying period of March 15 to April 11, the employer must show a 15% or greater decrease in revenues in relation to the applicable prior reference period. For the subsequent qualifying periods, the employer must show a 30% or greater decrease in revenues.For instance, for the first qualifying period of (1) March 15, 2020 to April 11, 2020, the employer must show a 15% or greater decrease in revenues for March 2020 when compared to either March 2019 or the average of January and February 2020. However, for the next two qualifying periods of (2) April 12, 2020 to May 9, 2020 and (3) May 10, 2020 to June 6, 2020, the employer needs to show a 30% or greater decrease in revenues when comparing (2) April 2020 or (3) May 2020 to, depending on the business's prior election, either the previous year's revenues for that same time period or the average of January and February 2020 revenues. This is also illustrated on a chart on the government's CEWS information page.
2. Subsidy Amount
The subsidy amount is consistent with the government's prior announcements; the subsidy equates to 75% of each employee's remuneration, up to a maximum of $847 per week per employee. There will be no subsidy if the employee does not deal at arm's length with the employer.The amount received under the CEWS is reduced by any amounts the employer receives under the Temporary Wage Subsidy or any EI work-sharing program.
3. How to Apply
An employer must apply for the CEWS through the CRA My Business Account portal before October 2020. Part of the application involves attesting that the application is complete and accurate.An employer must submit a new application for every month/qualifying period for which it would like to receive the subsidy
4. Conclusion: Wage Subsidy Comparison
Given that there are two wage subsidies available to employers simultaneously, employers should consider which subsidy will meet their particular needs. As outlined below, there may be some benefits to taking advantage of both subsidies while employers still can. However, some employers may only qualify for one of the subsidies, or none at all (although it appears that few employers would not qualify for either subsidy).a. Eligibility
Businesses who do not qualify for the 75% CEWS may still qualify for the 10% TWS available for wages paid between March 18, 2020 to June 19, 2020. There is no revenue test for the TWS, but certain businesses and employees qualify. Please see our post about the TWS for more details.b. Duration
The TWS is only available for wages and other remuneration paid between March 18, 2020 and June 19, 2020, whereas the CEWS applies to remuneration paid between March 15 and June 6, 2020 and could potentially be expanded until October 2020.c. Payments
Since a business must re-apply for the CEWS and must show a drop in revenue for any given month, the CEWS is retrospective. The employer must incur the full payroll expense in order to be reimbursed up to $847 per week per employee. On the other hand, the TWS allows an employer to deduct up to the maximum benefit amount from its tax remittances immediately. The TWS could thus be used concurrently with the CEWS to reduce negative cash-flow impacts pending receipt of the larger CEWS amount.The TWS provides for a maximum subsidy of up to $1,375 per employee. The CEWS clearly has a greater potential impact, providing for a maximum subsidy of up to $874 per week per employee.
Note: while this blog and the information above provides general information, it does not constitute legal advice. The best way to get guidance on your specific legal issue is to contact a lawyer. For more information about the CEWS, or if you have any other questions regarding your employment issue, please contact our office for a consultation with one of our lawyers.