Update for Employers on the Canada Emergency Wage Subsidy

Parliament recently enacted the Canada Emergency Wage Subsidy (“CEWS”) into law. Therein, a number of changes were made to the framework that had been previously announced, including relaxing the revenue test for the month of March and some flexibility in the determination of revenue.

The subsidy is currently available for 12 weeks commencing March 15, 2020 and ending on June 6, 2020. It is possible that the eligible period for CEWS could be extended depending on how the implications of the COVID-19 pandemic continue to develop in Canada. The framework appears to contemplate a potential extension up to September 30, 2020.

The eligible entities for CEWS include corporations that are not tax-exempt, individuals, registered charities or not-for-profit organizations, and partnerships consisting of eligible entities (i.e. a partnership of corporations or individuals etc).

In order to qualify, an employer must have a 15% reduction of revenue in March (compared to March 2019) and 30% in April and May (compared to April and May 2019 respectively). Alternatively, an employer may elect to use its average revenue earned in January and February 2020 as the baseline comparator. If the latter option is chosen, the employer must use the average of January and February 2020 revenue in comparison to each of the three months of the program.

An employer who applies for CEWS has the potential to receive payments for three separate four week claiming periods being (1) March 15 to April 11, (2) April 12 to May 9, and (3) May 10 to June 6. The employer will receive the subsidy for a specific claiming period if it meets the revenue reduction test mentioned above for that period, or if it has met the revenue reduction test for the immediately preceding claiming period.

To apply for this benefit, an employer must:

  • File an application with the CRA through the CRA’s My Business Account portal before October 2020;
  • Attest that the application is complete and accurate in all material respects; and,
  • Have a business number registered with the CRA to make remittances for income tax deductions that was in place prior to, or as of, March 15, 2020.

The amount of the subsidy is dependent on whether an employee was employed before March 15, 2020, a new hire, or whether the employee deals at arm’s length with the employer. The legislation provides as follows:

  • Pre-existing employees are entitled to the lesser of (i) the amount of eligible remuneration paid in a week to a maximum of $847.00; and (ii) 75% of the employee’s baseline remuneration.
  • New hires are entitled to 75% of the amount of remuneration paid in a week, up to a maximum of $847 per week.
  • Non-arm’s length employees will only qualify if they are pre-existing employees. The aforementioned guidelines for such employees apply herein.

“Eligible remuneration” includes salary, wages, fees, commissions or other amounts for services of the eligible employee, but does not include retiring allowances, stock option benefits, or other amounts that can be expected to be returned to the employer.  “Baseline remuneration” is equal to an employee’s average weekly remuneration for the period from January 1, 2020 to March 15, 2020, excluding any consecutive seven day period for which the employee was not paid. The legislation includes an anti-avoidance rule that prevents the undue inflation of salary paid during a claiming period that is offset by a corresponding reduction in a future period.

There is no limit on the maximum subsidy amount for which a qualifying employer may claim. However, any benefit received from the 10% Temporary Wage Subsidy will reduce the amount available under this subsidy.

Employers are required to make “best efforts” to top-up employees’ salaries to bring them to pre-pandemic levels; however, they are not required by the legislation to do so.

Revenue is measured on an accrual basis for each period, but the legislation allows an employer to utilize the cash method if that produces a preferable result. Revenue generally includes the inflow of cash, receivables or other consideration arising in the course of ordinary business activities of the employer (i.e. from the sale of goods, rendering of services and the use by others of resources of the employer).

CEWS is considered to be government assistance and must be included in the employer’s taxable income for its current fiscal year.

The subsidy an employer is entitled to will be deemed to be an overpayment of tax by the employer. The overpayment is refundable to the employer at any time during the taxation year.

Employers are permitted to return laid off employees back to work and qualify. Employers are also permitted to apply for the subsidy for laid off employees who were previously working within a claiming period.

Employers must keep records evidencing their revenue declines and remuneration paid to employees. They will not be expected to submit any paperwork to the CRA at the time of application, but may later be subject to an audit by the CRA.

Notably, this subsidy will be denied to an employer where:

  • a person or partnership not dealing at arm’s length with the employer enters into a transaction or participates in an event (or a series of transactions or events) or takes an action (or fails to take an action) that has the effect of reducing the qualifying revenues of the employer for a references period; and,
  • it is reasonable to conclude that one of the main purposes of the transaction, event, series or action is to cause the employer to qualify for the subsidy.

Employers who engage in artificial transactions to reduce revenue for the purpose of claiming the subsidy will be subject to a penalty equal to 25% of the value of the subsidy amount claimed, in addition to the requirement to repay the full amount of the subsidy that was improperly claimed.

It is also important to note that the legislation provides the CRA with the ability to publish the name of any employer that makes an application for the subsidy. Thus, in determining whether or not to apply, each employer should consider any reputational or other commercial impacts from the CRA potentially disclosing its name.

Further information about the CEWS program is available here: