After being passed by Parliament and receiving Royal Assent over the weekend, the government has shared additional details on the federal 75 percent wage subsidy.
Last week, the criteria for the program was “relaxed,” with just one major change coming from the weekend Parliamentary session. On Saturday, the opposition and government agreed to change the need to reapply every month. Now, an employer found eligible for a specific period would automatically qualify for the next period.
The revenue-based criteria, which had been criticized as not inclusive of Canadian tech companies, was reduced last week from the 30 percent year-over-year (YOY) revenue decline to 15 percent for the month of March. Businesses now also have the option to compare revenue decline to the average revenue in January and February 2020 rather than a YOY monthly decline. The program is currently available for a three month period from March 15 through to June 6. Here is a detailed breakdown of the Canada Emergency Wage Subsidy (CEWS).
Eligible companies include private corporations, non‑profit organizations, and registered charities. Public companies, which would include Crown corporations, schools, and hospitals, are not eligible. The Department of Finance Canada outlines that companies must have seen a drop in revenue of at least 15 percent in March 2020 and a 30 percent decline in the following months. Eligibility periods or periods that companies can make CEWS claims are:
- Period One – March 15 to April 11
- Period Two – April 12 to May 9
- Period Three – May 1- to June 6
As part of the “relaxed” criteria, companies have the option to compare revenue either to a YOY decline from the corresponding month in 2019 or to an average revenue brought in during January and February 2020. “This would provide more flexibility to employers for which the general approach may not be appropriate, including high-growth firms, sectors that faced difficulties in 2019, non-profits and charities, as well as employers established after February 2019,” states the finance department.
Once a company chooses one of the two reference periods they are required to use that for each following period. For example, if a company applies for March and uses the average revenue from January and February 2020, they are required to use that comparison for April and May as well.
In applying for the subsidy, companies are required to attest to the decline in revenue and once a company is found eligible for a specific period they will automatically qualify for the next one. The Department of Finance does note, however, that there will be penalties for fraudulent claims and companies will be required to repay amounts paid if they do not meet the eligibility requirements.
Companies will be able to claim the wage subsidy for any Canadian employees, including new staff members. However, companies will not be able to make claims for an employee that was laid off and did not receive a salary for 14 or more consecutive days in any given period.
How to calculate revenue decline
The declines in revenue should be calculated using a company’s normal accounting method and excludes revenues from “extraordinary items and amounts on account of capital.” While the finance department did not clarify extraordinary items, these are often a one-time gain or loss not expected to recur in the future. Companies are allowed to calculate revenue on the accrual method or the cash method, but not a combination of both. Similar to the reference period, whichever method a company chooses when they first apply will be required for each following period.
Amount of subsidy
When Prime Minister Justin Trudeau announced the wage subsidy in late March he noted that the 75 percent wage subsidy will be available on the first $58,700 of an employee’s salary. This means up to $874 per week for individual Canadians. The size of the subsidy for each employee is calculated based on either that or the employee’s pre-crisis weekly compensation, up to a maximum benefit of $847 per week, whichever is less. The Department of Finance noted that under these terms, companies may be eligible for a subsidy of up to 100 percent of the first 75 percent of pre-crisis wages or salaries of employees.
Pre-crisis compensation is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods when the employee was not paid. Eligible compensation may include salary, wages, as well as taxable benefits. It does not include severance pay, items such as stock option benefits, or the personal use of a corporate vehicle. Unlike the 10 percent wage subsidy, which is limited to $25,000 per employer, there is no overall limit to the amount companies can claim through CEWS.
CEWS and EI refund
On April 8, the government proposed to expand the CEWS by introducing a new 100 percent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan.
This also passed under Saturday’s legislation and means that, under the CEWs, companies may be eligible for a refund that would cover 100 percent of employer-paid contributions for each week employees are on leave with pay. Notably, the refund would not be available for employees on leave with pay for only a portion of a week. This refund is not subject to the weekly maximum benefit of $847 and there is no overall limit on the amount that a company can claim. Companies can apply for this refund at the same time as applying for the overall CEWS subsidy.
How to apply
Applications will be processed through a company’s CRA ‘My Business Account’ portal.
On Saturday, Finance Minister Bill Morneau expressed hopes the funding will be rolled out in two to five weeks. Last week, Trudeau also noted that to date the CRA had been focused on administering the Canadian Emergency Response Benefit with plans to turn its attention to the CEWS next. The Department of Finance requires companies to keep records demonstrating the reduction in revenues and compensation paid to employees.
The subsidy is being treated like typical government tax credits or benefits. The wage subsidy will be considered government assistance and included in a company’s taxable income. “Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration,” the finance department notes.
Interaction with 10 percent subsidy and work-share program
The 75 percent wage subsidy is in addition to the original 10 percent subsidy. Companies can be eligible for both, but any benefit from the 10 percent subsidy will likely reduce the amount available to be claimed under CEWs. Companies taking advantage of the federal Work-Sharing program, which was relaxed amid COVID-19, will still be able to claim under CEWs as well. However, any EI benefits received by employees through the Work-Sharing program will reduce the benefit they are entitled to receive under the CEWS.
Excerpted from Beta Kit on April 14, 2020
By Meagan Simpson, Associate Editor