Canada Emergency Wage Subsidy Bill C-14
Dear Valued Clients,
We hope you and your families are safe and well!
On April 11, 2020, Parliament passed the legislation for the Canada Emergency Wage Subsidy ("CEWS"). The purpose of this benefit is to prevent employers from laying off any more employees and to encourage them to hire back employees who have already been temporarily laid off. There is a great deal of information out there on this topic, so we are sharing the main points with you.
Canada Emergency Wage Subsidy (CEWS)
This temporary wage subsidy amount for a given employee on eligible remuneration paid for the period between March 15, 2020 and June 6, 2020 would be the greater of either:
- 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week;
2. the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration (whichever is less).
If employers are eligible for both the CEWS and the 10% wage subsidy for a period, any benefit from the 10% wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.
If employers and employees are participating in a Work-Sharing Program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.
If employers are claiming the 10% Wage Subsidy or utilizing the Work-Sharing Program, any amount received by the government as income must be added when preparing your revenue reports for their CEWS application.
Eligible Wage Subsidy Periods & Claim Requirements
Businesses claiming the wage subsidy should be prepared to illustrate their decrease in revenues. Revenues can be calculated on either an accrual or cash basis to make things fair for those businesses whose revenue recognition is more complex. This will be somewhat helpful for start- ups, high-growth companies, and not-for-profits.
Claiming Period 1: March 15 to April 11, 2020 (required to prove a reduction in revenue of 15%)
Businesses will need to compare their revenue for the month of March 2020 with their revenue from March 2019 or with an average of revenue generated from January and February 2020.
Claiming Period 2: April 12 to May 9, 2020 (required to prove a reduction in revenue of 30%)
Businesses will need to compare their revenue for the month of April 2020 with their revenue from April 2019 or with an average of revenue generated from January and February 2020.
Claiming Period 3: May 10 to June 6, 2020 (required to prove a reduction in revenue of 30%)
Businesses will need to compare their revenue for the month of May 2020 with their revenue from May 2019 or with an average of revenue generated from January and February 2020.
It is important to note that if you decide to use one method of comparing your decrease in revenues for the first claim period over the other, then you must use the same comparison model to prepare each revenue report used to calculate your business’s decrease in revenue for each subsequent claim period.
Revenue Test Updates
Originally, the CEWS restricted the revenue test for companies to arm’s length revenue. This would have caused issues for businesses with significant revenue from inter-entity transactions. The recent legislation now allows two different ways for business owners to find potential financial relief:
- A group of affiliated entities will now be allowed to calculate consolidated revenue. Each eligible entity in the group can then use the consolidated amounts for the purposes of the revenue test. Even though a decline in revenue will be measured for the entire group, it should help to eliminate issues where revenue generation and payroll functions do not coordinate properly.
- A special rule has also been introduced so that all or most of an eligible entity’s qualifying revenue is from other non-arm’s length entities. In these cases, this rule will allow the entity to determine its decline in revenue based on the decline in arm’s length revenue experienced by non-arm’s entities from which it earned revenue.
Applying for the Canada Emergency Wage Subsidy
Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency's “My Business Account” portal. Employers will need to be prepared by gathering records and reports to demonstrate their reduction revenues and remuneration paid to employees.
Even though the actual CEWS application is not up and running yet, business owners should register for the CRA’s “My Business Account” and set themselves up for direct deposit if they haven’t already. This will put you one step ahead once the application portal is activated.
You can check here for registration details: https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/business- account.html
Abusing the Wage Subsidy Program
If an employer claims the CEWS even though they do not meet the eligibility terms of the program, they will be required to repay any amounts they may have received.
For businesses who produce artificial transactions to reduce their revenue for the purpose of claiming the wage subsidy, they will be subjected to a penalty of 25% of the subsidy claimed on top of the requirement to repay the full amounts received.
For employers who make fraudulent claims or do not pay the claimed amounts to their employees, the government is contemplating penalties of up to 225% of what the business received from the program, along with criminal charges and up to 5 years of imprisonment.
Refund for Payroll Contributions
Our government is preparing to provide a 100% refund for certain employer-paid contributions for the following programs: Employment Insurance; Canada Pension Plan; Quebec Pension Plan; Quebec Parental Insurance Plan. How this benefit for employers will be administered is still being finalized by our government.
Employers must still collect and remit employer/employee contributions for these programs and then they will need to apply for their refund. This refund would cover 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim the Canada Emergency Wage Subsidy for those employees. There would be no overall limit on the refund amount that an eligible employer may claim.
Anyone employed in Canada is an eligible employee as long as they are a Canadian Citizen or a Permanent Resident.
Eligibility for the CEWS of an employee's remuneration is available to employees other than those who have been without remuneration for 14 or more consecutive days in the eligibility period (i.e. from March 15 to April 11, or from April 12 to May 9, or from May 10 to June 6).
This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canada Emergency Response Benefit.
Interaction with the Canada Emergency Response Benefit (CERB)
In recent government updates, it was clarified that only employees receiving remuneration during the eligibility period would qualify for the Canada Emergency Wage Subsidy. If an employee is already receiving the Canada Emergency Response Benefit, they cannot be claimed for the CEWS.
The government is encouraging eligible employers to apply for the CEWS once it’s available so that they can retain or rehire employees as quickly as possible to keep their businesses going and to support their employees during these difficult times.
It is still being determined how the government will ensure that the CERB is applied for as intended and how they will limit duplication or overlapping benefits. This may include a process to allow those employees rehired by their employer during the same eligibility period the opportunity to cancel their CERB claim and repay that amount should they be able to resume their employment.
Please visit the CRA’s website for further details: https://www.canada.ca/en/department-finance/econom...
This newsletter and the details provided are solely shared for informational purposes and does not constitute legal, tax, or financial advice or opinions. Please do not hesitate to reach out to your manager with any questions.
Pramen Prasad CPA, CA, CMA Managing Partner
Prasad & Company LLP
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