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GOVERNMENT SUPPORT EXTENDED… Call for a Free Consultation!
The Canada Emergency Wage Subsidy has been extended until 25 September 2021.
Bill C-30, the Budget Implementation Act of 2021, received Royal Assent on 29 June 2021, legally extending the Canada Emergency Rent Subsidy.
The restrictions that apply until 25 September 2021 have been revised as explained in the article below. Due to the fact that different criteria apply to different benefit periods, M7 Taxes Inc. would be happy to assist you in assessing if you are eligible for this program and the amount of the subsidy you are entitled to. Employers who meet the criteria can apply.
Employers with Revenue Decreases in 2020 could be Eligible for the Canadian Emergency Wage Subsidy
Section 125.7 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) was first enacted on 11 April 2020, and sets out the rules that apply to the Canada Emergency Wage Subsidy (“CEWS”). Several legislative and regulatory changes have been made to the program in recent months, modifying and extending it.
Amount & Limits of Subsidies
Eligibility
Employers who are eligible for the Canada Emergency Wage Subsidy include:
individuals;
registered non-profits;
charitable organizations; and
partnerships, if at least 50% of the fair market value (“FMV”) of all partnership interests is held by partners who would otherwise be eligible for the subsidy.
Certain enterprises held by Indigenous governing bodies, private schools or colleges, registered Canadian amateur sporting groups, and registered journalistic organizations are now included in the definition of "qualifying entity."
Public institutions, such as public schools and school boards, public universities and colleges, hospitals, health authorities, municipalities, First Nations bands, and entities controlled by the Crown or a municipality, are not eligible to use the CEWS.
An employer must show a revenue decrease for the relevant qualifying period (each a "Qualifying Period") to qualify:
Employers can show a revenue reduction in one of two ways: by comparing the current month to the prior year (e.g., March 2020 to March 2019) or by referring to their average revenue in January and February of 2020. Employers have some freedom in choosing between these options, as long as they utilize the same method to compute revenue reductions for Periods 1 to 4 (15 March 2020, to 04 July 2020) and Periods 5 to 20 (15 March 2020, to 04 July 2020). (05 July 2020, to 25 September 2021). Employers who qualify for one Qualifying Period will automatically get at least a portion of the subsidy in the next Qualifying Period, even though they must apply separately for each month.
Note that the default revenue reference period for Periods 10 and 11 is December 2020. This adjustment corrects the timing difference caused by the fact that claim periods of 28 days are shorter than the calendar months used to calculate revenue (e.g., for Period 10, which ended on 19 December 2020, employers were required to know their December 2020 revenues before making a claim).
Starting in Period 17, the reference period is also adjusted. The reference period is determined by the greater of the fall in income for the particular qualifying period and the immediately prior qualifying period, according to the most recent legislative update.
Revenue Calculation
In general, revenue for CEWS purposes is determined using the employer's normal accounting processes. Except for extraordinary items and sums received from non-length arm's entities, qualifying revenue includes inflows received in the ordinary course of the entity's activity. Government support can be excluded from the revenue calculation of registered charities and non-profits.
Most businesses typically calculate revenue on an accrual basis, which means that revenue is received when products or services are given rather than when they are paid for. Employers can, however, choose to compute revenue on a cash basis, which means that income is recognized only when payment is received. For all Qualifying Periods, an employer must apply the same calculating technique.
If every member of the group agrees to adopt the same approach, revenues can be estimated on a consolidated group-wide basis or for each individual business for employers who are part of a bigger corporate group. Inappropriate circumstances, where an entity's revenues are derived from non-arm's-length payments (e.g., the sales division pays a transfer price to the manufacturing division), the revenue decline may be calculated group-wide (to prevent inter-group payments from being used to manipulate the amount of the revenue decline).
If two corporations merge or if an employer buys the business assets of another individual or partnership, special regulations apply. In some circumstances, it may be possible to assess CEWS eligibility using the other corporation's or business's pre-transaction income.
Amount and Limits of Subsidies
Subsidy of 75% in the beginning
For most employees, the weekly subsidy will be 75 percent of their pre-crisis salary (average weekly earnings from 01 January 2020, to 15 March 2020), up to a maximum of $847 per week, from 15 March 2020, to 04 July 2020. Salary, wages, fees, commissions, and certain taxable perks to employees are all examples of eligible remuneration. The subsidy is meant to cover 75 percent of an employee's salaries, with the company making best efforts to pay the remaining 25 percent, as previously declared by the finance minister.
If an employee's pay has been lowered by more than 25% since 15 March 2020, the subsidy will be equal to the amount of remuneration paid, up to a weekly maximum of $847, during this time. Employees hired after 15 March 2020, are entitled to the 75 percent discount if they deal with the company at arm's length (family members hired after 15 March 2020, who were not employed during 2019, would not be eligible).
Subsidy Rate Variable
The CEWS is divided into two sections for CEWS periods commencing after 04 July 2020: a base subsidy and a top-up subsidy. The base subsidy is offered to all employers who have experienced a revenue decrease, with the amount of the subsidy fluctuating depending on the magnitude of the revenue reduction. Both active and on-leave employees are eligible to use the CEWS.
The amount of the base subsidy for an employer in a given period is determined by changes in the employer's monthly income, with the greatest subsidy going to employers who experience a revenue decrease of at least 50%. The base rate for each Qualifying Period will drop during the remaining claim periods in 2021, as shown in the table below until it is completely phased out.
Employers who have experienced a revenue drop of more than 50% are eligible for an additional top-up subsidy for wages paid after 04 July 2020. Eligibility for the top-up subsidy is established by looking at the employer's average income reduction over the previous three months for wages paid from 05 July 2020, to 26 September 2020. Employers may choose to utilize their current month's revenue decreased to assess their eligibility for the top-up subsidy for Qualifying Periods commencing after 26 September 2020. (e.g., using the same revenue reduction number as their base subsidy calculations). The following table shows the top-up subsidy rates:
The top-up subsidy rate for qualified employers is equal to 1.25 times their applicable revenue decrease exceeding 50%, with a maximum top-up of 25% of the compensation paid during Periods 5 to 10 (applies to remuneration of up to $1,129 per employee per week). The maximum top-up for Periods 11 to 17 is 35 percent of the salary provided. As the number of periods increases, the top-up rate lowers. For example, an employer with a 60 percent income reduction in Period 5 would be eligible for a 12.5% top-up (1.25 x (60% – 50%) = 12.5%). This employer would earn a $141.13 top-up on top of their base subsidy if they paid their employee at least $1,129 per week.
A revision to the baseline remuneration calculation was included in the recent legislative update. As previously stated, the baseline remuneration was calculated using an employee's average weekly earnings from 01 January 2020 to 15 March 2020. A qualified employer can now choose a different baseline period. Employers can choose to use the average weekly earnings earned between 01 March 2019, and 30 June 2019, or between 01 July 2019, and 31 December 2019, for the qualifying period between 06 June 2021, and 03 July 2021. Employers might choose to use the average weekly earnings paid between 01 July 2019, and 31 December 2019, for qualifying periods commencing after 03 July 2021. During a Qualifying Period, special restrictions apply when computing CEWS amounts for employees who are on paid leave for a given week (and do not report for any duties that week).
While the overall benefit obtained by a company from the CEWS is uncapped, firms are required to include CEWS benefits in their taxable income. Under the original program guidelines, an employer could not claim the CEWS in respect of an employee who was entitled to the Canada Emergency Response Benefit (a $2,000 payout for employees who do not earn a salary for 14 or more consecutive days within a Qualifying Period). Employees who do not earn pay for 14 or more consecutive days are no longer excluded from CEWS eligibility for Qualifying Periods commencing after 04 July 2020.
Mechanism of Delivery
The Canada Revenue Agency (the "CRA") will pay the amount of CEWS that an employer qualifies for straight to the employer. The CRA will pay the subsidy amount to the employer after the employer applies for the CEWS and provides documentation that the qualifying salary has been paid to eligible employees.
The legislation also establishes a set of criteria that will apply to employers that take steps to minimize their qualifying revenue if one of the principals aims of the transaction or event is to qualify for, or enhance, the CEWS. Such employers will be obliged to refund any subsidy obtained and will face adversity.
Repayment obligations for publicly traded firms that have claimed the CEWS for a qualifying period commencing after 05 June 2021, were also included in the most recent legislative update. If the total compensation for specified executives in the 2021 calendar year exceeds the total compensation for specified executives in the 2019 calendar year, repayment will be required. Specified executives are identified executive officers whose salary is required to be reported in the corporation's annual information circular to shareholders under Canadian securities law.
Chief Executive Officers, Chief Financial Officers, and three additional highly compensated executives would be included. If the criteria are reached, the company must repay the lesser of the total of all wage subsidy amounts received in respect of active employees for qualifying periods beginning after 05 June 2021 or the amount by which aggregate specified executive compensation for 2021 exceeds aggregate specified executive compensation for 2019. This new repayment requirement applies to all subsidy amounts paid to any entity in the group and is imposed at the group level.
Steps to Follow
Employers can apply for the CEWS through their CRA My Business Account or through the CRA's website's online portal. CEWS applications should be processed within seven to 10 business days, according to the CRA. Employers are encouraged to ensure that they can receive direct deposits from the CRA in order to expedite payment delivery. Employers have 180 days to apply for the CEWS after the end of a Qualifying Period (15 July 2021, is the last day to apply for CEWS Qualifying Period 11).
Consider the subsidies that may be available to your company as you assess your employee compensation plans at this challenging time. M7 Taxes Inc. will be happy to assist you in establishing whether your business structure is eligible for this emergency relief program and how to maximize your benefit from it.
Note: This article is intended to be general in nature and does not include all conceivable legal rights or remedies. Furthermore, regulations change over time and should be evaluated exclusively in the context of specific circumstances. Therefore, these materials should not be relied on or interpreted as legal advice or opinion. In every given circumstance, readers should seek the opinion of a legal practitioner.