This week, the government released detailed information on the new Canada Emergency Wage Subsidy (CEWS), which provides both small and large employers with a subsidy that may cover up to 75 per cent of employee wages. It’s meant to help employers who have had a significant decline in revenue as a result of the COVID-19 pandemic keep their workers.
This comes on top of the previously announced 10 per cent Temporary Wage Subsidy (TWS), which was passed into law last week. The TWS is aimed at assisting small- and medium-sized employers with their payrolls. Here’s what we know, so far, about the new CEWS, and how it ties in with the TWS.
What’s the CEWS?
The CEWS will provide a subsidy to “enable employers to re-hire workers previously laid off, and to keep those who are already on payroll.” The benefit is equal to 75 per cent of “eligible remuneration” paid by “eligible employers” for up to three months, retroactive to March 15, 2020.
What is an eligible employer?
Eligible employers include individuals, taxable corporations, partnerships whose partners are eligible employers, non‑profit organizations, and registered charities. Employers would have to attest that their monthly revenues have dropped by at least 30 per cent in the month(s) of March, April or May 2020, compared to the same month(s) in 2019. Public bodies, such as municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals, don’t qualify.
How do you measure a revenue decrease of 30 per cent?
To qualify for one of the three eligible periods, revenues must have decreased by 30 per cent or more during the relative reference period. The first eligible period is for remuneration paid from March 15 to April 11 and the relative reference period is revenues from March 2020 over March 2019. The second period is for remuneration paid from April 12 to May 9, with a measurement period for revenue of April 2020 over April 2019. The final period for remuneration runs from May 10 through June 6, with the third revenue measurement period being May 2020 over May 2019.
The revenue used to determine if there has been a decrease of 30 per cent or more includes amounts from business carried on in Canada that are earned from arm’s-length sources; extraordinary items and revenue arising from the sale of capital assets are excluded. Revenue would be calculated using the employer’s normal accounting method.
For non-profits and charities, the government said it would continue to consult with the sector to ensure the definition of revenue is appropriate to their specific circumstances.
What is eligible remuneration?
Eligible remuneration includes salary, wages, and other remuneration but does not include items such as severance pay, employee stock option benefits or the personal use of an employer’s vehicle.
How much is the subsidy worth?
The subsidy is generally equal to 75 per cent of the amount of eligible remuneration actually paid, up to a maximum benefit of $847 per week; however, employers may be entitled to a subsidy of up to 75 per cent of pre-crisis wages of existing employees (if, for example, wages or hours have been reduced), up to the actual amount paid, with the same maximum of $847 per week for each employee. Employers may also claim the CEWS for eligible remuneration paid to new employees.
Is it taxable?
The CEWS is considered government assistance and will be included in the employer’s income and taxed in the year it’s received.
How do you apply?
Eligible employers will be able to apply for the CEWS through the CRA’s My Business Account portal as well as a web-based application. Employers must keep records demonstrating their reduction in revenues and remuneration paid to employees.
Penalties
The government warned employers that if they don’t meet the eligibility requirements of the CEWS or fail to pay their employees accordingly, the employer would be required to repay amounts received under the CEWS. In addition, penalties may apply in cases of fraudulent claims and anti-abuse rules will be introduced to ensure that the CEWS is not inappropriately obtained. The penalties would 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 could include fines or possibly imprisonment.
What about the Temporary Wage Subsidy (10 per cent)?
This program remains unchanged. Under the TWS, an “eligible employer” can claim an amount equal to 10 per cent of the remuneration paid between March 18, 2020 and June 19, 2020. If no remuneration was paid to employees during this period, then no subsidy is available. The maximum amount of the subsidy is $1,375 per employee and $25,000 per employer. There is no required drop in revenues needed to qualify for the TWS.
Eligible employers that qualify for the TWS include individuals (sole-proprietors), certain partnerships, non-profit organizations, charities and certain Canadian-controlled private corporations (CCPCs). A CCPC is essentially a private corporation whose shares are not listed on a stock exchange, and that is owned and controlled by Canadian residents. Large CCPCs which have taxable capital of more than $15 million among their associated corporations in the previous year won’t qualify for the TWS.
Employers are only eligible if they had a payroll program account with the CRA on March 18, 2020.
The TWS is calculated manually and the employer can choose to reduce its payroll income tax remittances to the CRA by the amount of the TWS. Although the TWS is based on remuneration paid to employees between March 18 and June 19, there is no deadline for claiming the TWS (through reduced income-tax remittances.) In other words, if the amount of the TWS exceeds the income tax that the employer would normally have to remit up to June 19, 2020, the employer can continue to reduce subsequent income tax remittances to claim remaining TWS after this date.
Just like the CEWS, the TWS is taxable and will be included in the employer’s income and taxed in the year it is received.
Can you claim both the 75 per cent CEWS and 10 per cent TWS?
Sort of. Some employers will be eligible for both the 75 per cent CEWS and the 10 per cent TWS. The government has stated that any benefit from the TWS paid in a specific period will reduce the amount available to be claimed under the 75 per cent CEWS for that same period.