The situation regarding COVID-19 is changing rapidly, this post is current as of April 15, 2020.
By now, many people are aware of the new Canada Emergency Wage Subsidy ("CEWS") introduced by the federal government at the beginning of the month. It provides a 75% wage subsidy to eligible entities retroactive to March 15, 2020. The purposes of the measure include preventing job losses and encouraging employers to re-hire workers previously laid off during the COVID-19 crisis. The government subsequently announced additional enhancements and tabled Bill C-14, COVID-19 Emergency Response Act, No. 2 to implement the CEWS. Bill C-14 received Royal Assent this weekend on April 11.
Now that the CEWS measures are a part of our laws, it’s time to take action and apply for the subsidy. Where do I start? How do I apply? When will I get the subsidy? I would like to go over some of these practical issues in this blog
Do You Qualify?
The first step is to determine if you qualify for the subsidy. Here are three threshold conditions:
- First, you have to be an eligible entity. The subsidy is available only for eligible entities. Fortunately, the broad definition of an eligible entity generally includes individuals, corporations and partnerships as well as some registered charities and tax-exempt entities.
- Second, you must have a business number for payroll purposes as of March 15, 2020.
- Third, you have to meet a condition that involves comparing revenues of current and prior periods. I refer to this as the revenue condition in this blog.
The Revenue Condition
The CEWS is intended to help businesses and other entities who experience a significant decrease in revenue. Accordingly, the legislation requires a comparison of the current period revenue and a prior period revenue (as a benchmark) to determine if there has been a significant decrease.
An application for the subsidy is based on a qualifying period. The first qualifying period is March 15 to April 11. For this first period, an eligible entity must determine the qualifying revenue for March 2020 (i.e. the current period) and compare that to the qualifying revenue of March 2019 (i.e. the prior period). For most taxable eligible entities, qualifying revenue would generally be revenue from its activities in Canada other than extraordinary items and revenue from non-arm's length parties and partnerships.
If the March 2020 qualifying revenue is equal to or less than 85% of the March 2019 revenue, the entity would meet the revenue condition for the first qualifying period. The 85% becomes 70% for subsequent qualifying periods. For example, for the next qualifying period, the April 2020 qualifying revenue must be equal to or less than 70% of the April 2019 revenue.
In addition, if the entity satisfies the revenue condition for a qualifying period, it would be deemed to meet the condition for the next qualifying period. For instance, this could allow the entity to claim the subsidy for the first two qualifying periods if it qualifies for the first qualifying period.
There is also an election that allows an entity to choose a different benchmark for the prior period. An eligible entity can elect to use the average monthly qualifying revenue from January and February 2020 as the prior period benchmark rather than March 2019. This might be helpful if the entity does not meet the revenue condition based on the qualifying revenue for March 2019. However, once made, the election would apply for the first three qualifying periods from March 15 to June 6, 2020.
To get started, what information do you need to determine if you qualify for the subsidy? For the first qualifying period, you will need the qualifying revenue for March 2019 and March 2020. If you want to consider the alternative benchmark election, you will also need to determine the qualifying revenue for January and February of 2020.
How much is the subsidy?
The subsidy is calculated for each eligible employee. An eligible employee generally means an individual employed in Canada by the eligible entity in the qualifying period. It does not include an individual who is without remuneration by the eligible entity for 14 or more consecutive days in the qualifying period.
The subsidy depends on the eligible remuneration paid to the eligible employee for each week in the qualifying period. Eligible remuneration generally includes remuneration for payroll purposes other than a retiring allowance and certain taxable stock option benefits.
To calculate the subsidy, the first step is to determine the subsidy for each week in a qualifying period and for each eligible employee. This weekly subsidy is the greater of the following amounts (a) or (b) below:
(a) the least of:
(i) 75% of eligible remuneration paid to the eligible employee in respect of that week,
(ii) $847, and
(iii) NIL if the eligible employee does not deal at arm’s length with the qualifying entity in the qualifying period,
(b) the least of:
(i) the amount of eligible remuneration paid to the eligible employee in respect of that week,
(ii) 75% of baseline remuneration in respect of the eligible employee determined for that week, and
For an employee who does not deal at arm’s length with the eligible entity, the subsidy would be the lessor of the eligible remuneration paid to the employee and 75% of baseline remuneration. Baseline remuneration is the average weekly eligible remuneration paid to the eligible employee by the eligible entity from January 1, 2020 to March 15, 2020 (excluding 7 or more consecutive days for which the employee was not remunerated). This is subject to the weekly over-all maximum of $847 per week per employee.
The subsidy for each week in respect of each eligible employee would then be added up to determine a total, which is one of the main components of the wage subsidy. The following adjustments would be made to this total to determine the wage subsidy:
- Reduction for the eligible entity’s benefits from the 10% wage subsidy,
- Reduction for any employment insurance benefits that the eligible employee received from the Work-Sharing Program, and
- Increase for employer-paid premiums and contributions payable by the eligible entity to Employment insurance, Canadian pension plan, provincial pension plans and Quebec Parental insurance plan for each week throughout which the employee is on leave with pay.
How do you apply and when would you receive the subsidy?
How quickly can we apply for the wage subsidy? In theory, an eligible entity can apply today if it meets the conditions for the subsidy.
How do you apply for the subsidy? The government has indicated that eligible entities will be able to apply for the subsidy through the Canada Revenue Agency's ("CRA") My Business Account portal. However, it seems that the government will need more time to set up the application process. As of this morning (April 14) at 8 a.m., I was not able to find any option under the CRA My Business Account portal to apply for the CEWS.
If you were to apply for the wage subsidy today, how quickly would you receive the subsidy? Under the legislation, the CRA has the discretion to pay the subsidy at any time after the beginning of a taxation year in which you become entitled to the subsidy. For example, if your company has a December 31 year-end and qualifies for the subsidy, it could apply for the subsidy as soon as the CRA sets up the application process. The company would then need to wait for the CRA to process the application and pay the subsidy.
What if the CRA were to exercise its discretion to defer the payment of the subsidy? If CRA decides to defer the payment of the subsidy, you might need to wait until the CRA issues a notice of assessment for the year before you can ask for the payment of the subsidy. Hopefully, the CRA would generally exercise their discretion in favour of paying the subsidy promptly, consistent with the legislative intention to prevent job losses and encourage employers to re-hire workers.
To recap, if you qualify for the subsidy, you might be able to apply for it as soon as CRA sets up the application process. But actually receiving the subsidy would depend on how quickly CRA processes the application and whether the CRA exercises its discretion to pay the subsidy promptly or defer the payment.
The first qualifying period just ended on April 11. If you are an eligible entity, you might be entitled to a wage subsidy equal to 75% of the remuneration paid to employees during this period (March 15 to April 11). Also, you might be entitled to the 75% subsidy for remuneration paid to employees during the next qualifying period (April 12 to May 9). These subsidies could provide significant cashflow for businesses hit hard by the COVID-19 crisis. Accordingly, you might want to start assembling information and take the next steps to determine if you are eligible for the subsidy.