Canada Emergency Wage Subsidy
Dear Valued Clients,
As a follow-up to our previous email, “COVID-19 Updates: Federal Wage Subsidy Information”, we have noted today's updates to hopefully answer some of those questions you’ve been having about this topic.
The Government of Canada has provided further clarification on how the 75% wage subsidy will work. However, it is important to note that there has been no legislation drafted yet in relation to the 75% wage subsidy.
The final process is still being worked on by our federal government, and we are hoping to see legislation in place over the next few days. We will be sure to relay the information to you when that happens.
Wage Subsidy Timeline
This government program will be in place for a 12-week period, retroactive from March 15, 2020 until June 6, 2020. The timeline for the implementation of this subsidy can be anywhere between 3 to 6 weeks from today.
In the interim, businesses are encouraged to apply for the newly announced “Canada Emergency Business Account” benefit to sustain their cash-flow needs. Further assistance is also available by way of the 10% wage subsidy which was previously announced by the Government of Canada.
How Will This Program Work?
- The subsidy is available to all entities except those that are non-taxable entities or public sector entities.
- The subsidy would apply at a rate of 75% of the first $58,700 that would be normally paid to an employee. This benefit represents about $847 per week ($58,700 / 52 x 12).
- The employer must have a drop in gross revenues of at least 30% in the months of March, April or May 2020 when compared to the same month in 2019 to access the subsidy. At the present time, the Department of Finance has not clearly identified what it considers as “gross revenues”.
It was mentioned by a senior Department of Finance official that “start-ups” may have a different threshold as it may be difficult to measure the 30% drop in revenues. In that case, the taxpayer should attempt to create a reasonable point of comparison. For example, assessing their February 2020 gross revenues (pre-subsidy) and their March 2020 gross revenues (post-subsidy).
This may also be determined on a case-by-case basis by the CRA. The government will rely on the self- assessment tax system to determine if the employer is eligible for this subsidy. As the gross revenues test will only be based on “arms-length sources”, we will have to wait until legislation is passed to further clarify what this means for your particular business.
Entitlement for the 75% Wage Subsidy
The entitlement to the wage subsidy will be based entirely on the salaries and wages actually paid to employees. At a high level, this subsidy will work in the following manner (again to be confirmed via legislation):
- The employer can opt for the subsidy to be the pre-crisis wage (prior to March 15) of up to 75% and does not have to add any amount over and above that amount to the employees’ pay cheques.
- The employer can opt for the subsidy on the post-crisis wage (after March 15) on the remuneration at that point.
- For non-arm’s length employees, the subsidy will only be available to the extent that they were already on payroll and based on a pre-crisis level (March 15).
How Can Employers Apply?
Employers, including partnerships, will have to apply on a monthly basis.
The CRA is considering two different avenues to access these types of applications. One is a web-based platform that all eligible businesses can use to apply from; the other is through the CRA “My Business Account”. This has not been finalized by the CRA, but it should be available to employers within 3 to 6 weeks.
Once the application has been completed and submitted to the CRA, the employer will receive the funds via direct deposit into their business’s bank account; otherwise the CRA can provide the employer with a cheque to cash if they are not set up for direct deposit.
Interaction with the 10% Wage Subsidy
- The previously announced 10% wage subsidy is for a narrower set of employers (mainly CCPC’s that are not subject to the large corporations’ tax small business deduction grind).
- The 75% wage subsidy is available to all employers that are considered taxable, both are available to employers should they qualify.
- The 10% wage subsidy does not have a condition such as showing a 30% decline in gross revenues.
- No “double-dipping” will be allowed. This means that an employer cannot claim the 10% wage subsidy and the 75% wage subsidy.
CRA Subsidy Reviews
It is up to the employer to prove to the CRA that they actually paid the individual and the employer must keep the paperwork required to demonstrate to the CRA the applicability of the claim.
The Department of Finance is still determining what the penalties will be in relation to any entities that may try to gain an unfair advantage of the wage subsidy benefit by making unmerited or false claims. Legislation is currently being drafted to combat this potential issue.
This newsletter and the details provided are solely shared for informational purposes and does not constitute legal advice or opinion. Please do not hesitate to reach out to your manager with any questions.
Pramen Prasad CPA, CA, CMA Managing Partner
Prasad & Company LLP