Canada Emergency Wage Subsidy

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This page was last updated on July 7, 2020.

The Canada Emergency Wage Subsidy (CEWS) provides a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020. The CEWS is meant to prevent further job losses, encourage employers to re-hire workers previously laid off as a result of COVID-19, and help better position companies and other employers to more easily resume normal operations following the crisis. 

Who Qualifies?

  1. Corporations, except for corporations that are exempt from tax or are public institutions;
  2. Individuals and trusts who are employers;
  3. Registered charities, except for public institutions;
  4. Certain persons who are exempt from tax, being:
    • Agriculture organizations, boards of trade or chambers of commerce, acting as non-profit entities;
    • Non-profit corporations for scientific research and experimental development;
    • Labour organizations, societies of benevolent or fraternal benefit, or orders; and
    •  Non-profit organizations.
  5. A partnership whose members are described in any of paragraphs 1 to 5.
  6. Other prescribed organizations. 

On May 15, 2020, the Prime Minister announced that eligibility would be extended retroactively to include the following organizations:

  1. Partnerships that are up to 50% owned by non-eligible members;
  2. Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;
  3. Registered Canadian Amateur Athletic Associations;
  4. Registered Journalism Organizations; and
  5. Non-public colleges and schools, including institutions that offer specialized services such as arts schools, driving schools, language schools or flight schools.

Who Doesn’t Qualify?

  1. Municipal authorities and First Nation bands;
  2. Various non-taxable corporations owned, directly or indirectly, by the Federal government, one or more provincial governments or one or more municipal        organizations (including First Nations);
  3. Publicly funded schools and school boards;
  4. Hospitals and health authorities;
  5. Public universities and colleges; and
  6. A partnership that is owned 50% or more by members who are described in any of paragraphs 1 to 5.

Application Requirements

Applications can be made using your My Business Account and business owners should ensure that the employee who is in charge of their finances has access to their data through Represent a Client so that they can attest to the application. You may also apply using an online application portal.  An online web access code will be required to use this portal. This code may be obtained here.

In order to apply, you must:

  1. File an application form for the qualifying period on or before September 30, 2020;
  2. Have the individual who is responsible for financial activities of the entity attest that the application is complete and accurate in all material respects;
  3. Meet the revenue decline requirements (see below);
  4. Calculated the estimated subsidy for your business (see below); and
  5. Have a registered payroll remittance account on March 15, 2020.

Revenue Decline Requirements

The basic requirement is that your revenues must have declined by at least 15% in March, 2020, and 30% in April or May, 2020 against the applicable comparable period (see below).

Comparable Periods

You can compare the revenues for the month in 2020 to the same month in 2019 (i.e. March, 2020 to March, 2019; April, 2020 to April, 2019 and May, 2020 to May, 2019). Alternatively, you can choose to compare revenues in March 2020, April 2020 and May 2020 to the average monthly revenue earned in January and February 2020. Note that you must choose to either use the same month in 2019 approach for all three months, or you must use January/February average approach or all three months, you cannot change your approach month-by-month.

Special calculations are applied for businesses that began operations in January or February 2020.

Definition of “Revenues”

“Revenues” for purposes of the subsidy means “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 other of resources of the eligible entity – in Canada”. 

The following special rules apply:

  • Charities must include revenues from any related business, as well as gifts and any other amounts received in the course of their ordinary activities, but they can choose to either include or exclude government revenues (note that this choice is binding for all future calculations under the program);
  • Non-profit type entities must include membership fees and other amounts received in the course of their ordinary activities, but they can choose to either include or exclude government revenues (note that this choice is binding for all future calculations under the program);
  • You must exclude all revenues received from parties with which you do not act at arm’s length;
  • You must exclude any wage subsidy (this subsidy or the 10% Temporary Wage Subsidy); and
  • You can also choose to use the cash method or the accrual method to determine your revenues (note that this choice is binding for all future calculations under the program).

For corporate groups, the following special rules apply:

  • A group of affiliated entities may, if they all elect together, use consolidated income of the group to determine whether they all qualify, or none of them do; or
  • Each member of the group can determine revenues as separate entities.

Note that there is a special formula to determine eligibility for individual entities who are part of a group where all or substantially all revenues of the group are from non-arm’s-length parties.

I Qualified in March – do I Qualify for April?

If you meet the revenue decline test for March, you automatically meet it for April. However, you will have to be under the 70% threshold for April or May to qualify for May.

You Qualify – How Much do you Get?

First, you must identify your eligible employees. That would be an individual employed in Canada during the month, except for any employee who gets no remuneration in respect of 14 or more consecutive days in the month. 

Next, you need to determine their “eligible remuneration”.  This is the amount you paid them as salary, wages, other remuneration, fees, commissions or other amounts in respect of their services to the entity. There is some uncertainty as to whether or not taxable benefits should be included as eligible remuneration but a couple of amounts are explicitly excluded from the calculation: retiring allowances, severance pay and stock option benefits. 

Then, you need to determine the employee’s “baseline remuneration”.  This is the eligible remuneration that was paid to them from January 1 – March 15, 2020. The amount should be calculated as a weekly average, and any period of 7 or more consecutive days for which the employee was not remunerated should be excluded from the calculation. 

For most employees, the following mechanism can be used to calculate the relevant subsidy.

1. First, calculate these three amounts:

  • 75% of their eligible remuneration for the specific week;
  • $847; and
  • If they do not deal at arm’s length with the employer, $nil, otherwise use $847 a week.

Determine the smallest number of the three amounts above.

2. Next, calculate these three amounts:

  • 100% of their eligible remuneration for the specific week;
  • 75% of their baseline remuneration; and
  • $847 a week

Determine the smallest number of the three amounts above.

3. The greater of the amounts determined in 1 and 2 is the subsidy for that worker.

So how does this work in practice? 

  • For arm’s length employees that worked for you pre-March 15, 2020
    • You’ll get their actual payroll, up to 75% of their pre-COVID baseline remuneration if they are paid no more than what they were paid pre-COVID. 
    • If you gave them a raise, you will get 75% of that higher income.
    • You’ll cap out at $847 per week.
  • For arm’s length employees that start work after March 15, 2020
    • You’ll get 75% of their actual payroll to a maximum of $847 per week
  • For non-arm’s length employees that were on payroll and worked for you pre-March 15, 2020
    • You’ll get their actual payroll, up to 75% of their pre-COVID baseline remuneration if they are paid no more than what they were paid pre-COVID. 
    • If you gave them a raise, you will get 75% of their pre-COVID baseline – the subsidy does not go up if non-arm’s length workers get a raise.
    • You’ll cap out at $847 per week.
  • For non-arm’s length employees that were not on payroll pre-March 15, 2020
    • There is no subsidy.

To determine the amount of the subsidy you must add up all the subsidy amounts calculated above for all the employees, subtract any claims under the 10% Temporary Wage Subsidy, subtract any Employment Insurance the employees received from the EI work sharing program, and add back the employer portion of EI and CPP paid for any employees that are on paid leave.

The Government of Canada has launched the Canada Emergency Wage Subsidy Calculator for Employers, which can be found here.

CRA has also recently noted that there may be some overlapping periods where an individual has received payments under the Canada Emergency Response Benefit (CERB) and an eligible entity has also claimed the CEWS in respect of the individual. In order to ensure that the CERB applies as intended, Finance is considering implementing an approach to limit duplication, which could include a process to for re-hired individuals to cancel their CERB and repay some or all the amounts received. More information is expected on how these repayments will be administered.

When Does It End?

The program was initially scheduled to run for 12 weeks, or three 4-week blocks, until June 6, 2020.  On May 15, the Prime Minister announced that the program will be extended for an additional 12 weeks until August 29, 2020.  To qualify for the June 7 to July 4, 2020 period, your revenues must have declined by at least 30% in June 2020 against the applicable comparable period (June 2019 or the average monthly revenue earned in January and February 2020). The revenue decline required to qualify for the last two 4-week blocks has not yet been announced.

The legislation permits the government to add additional periods up to September 30, 2020. If they do extend the program, they are able to make further changes to elements of the program.

Anti-Avoidance Rules and Penalties

Entities are expected to play by the rules and there will be consequences for those who do not. The following rules and penalties have been put in place to deter those trying to abuse the program:

  • If any of the salary/wages to an employee circles back to the employer or someone the employer directs it to, it is ineligible for the subsidy;
  • If salary/wages are adjusted to increase payments now and reduce them after the program ends for the purpose of allowing the employer to get a larger subsidy, the salary/wages in question are ineligible for the subsidy;
  • Any strategy undertaken to reduce qualifying revenues for the relevant period in order to qualify that is not specifically allowed for under the rules means you lose the subsidy in its entirety for that period, and you get a 25% penalty;
  • Gross negligence penalties may be applied to entities that inappropriately take advantage of the program, requiring them to repay the amount received plus a 50% premium;
  • In extreme cases, criminal sanctions can be applied with fines of up to 200% of the amount received, as well as up to 5 years in prison; and
  • The Minister may communicate or otherwise make available to the public, in any manner that the Minister considers appropriate, the name of any person or partnership that makes an application under the Canada Emergency Wage Subsidy.  As such, entities should also consider the reputational risk associated with inappropriate claims under the program.

The full text of the legislation may be found here.

More details about the Canada Emergency Wage Subsidy can also be found on the Government of Canada website here.

Can I claim both the CEWS and 10% Temporary Wage Subsidy?

Yes, although the amount of the 75% subsidy the employer receives will be reduced by the amount of the 10% subsidy claimed. For timing reasons, we recommend immediate use of the 10% subsidy if you qualify. More specifically, the 10% subsidy is claimed by a reduction in income tax remittance, up to $1,375 per employee and $25,000 for all employees of that business. This can be claimed in the next payroll remittance. Read more about the 10% Temporary Wage Subsidy here.

Recent proposals that are not yet law

Changes to the CEWS have been proposed but are not yet law.  These proposed changes include the following:

  • Allowing employers to elect to calculate baseline remuneration based on the average weekly remuneration paid to employees from March 1 2019 to May 31, 2019 instead of the amount paid between January 1, 2020 and March 15, 2020.
  • Extending eligibility to employers who do not have a payroll account but use a payroll service provider to make their remittances on their behalf.