Canada Emergency Wage Subsidy (CEWS) Update
On April 11, 2020, Bill C-14 legislation was passed to enact the Canada Emergency Wage Subsidy (CEWS). The CEWS provides a potential 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020, based on their eligible remuneration paid during certain four-week periods. Eligibility is based on revenue declines, specifically 15% or more for March, and 30% or more for April and May.
There have been a lot of questions about this program as it has evolved in the last couple of weeks, and now into legislation, we wanted to provide some clarification around some key points:
CEWS and your organization
If you are an eligible employer (see below) that has incurred the applicable revenue declines, CEWS would assist your organization to retain or rehire existing employees who had been laid off, or hire new staff, by providing a non repayable, taxable contribution (grant) to the employer which would assist the employer meet employee wage obligations during the COVID-19 crisis.
Eligible employers include individuals, taxable corporations, partnerships, not-for-profit organizations and registered charities. There is no overall limit to the amount an employer may receive (other than a cap of $847 per week per staff member and 75% of the actual wages paid), nor is there a limit on number of employees.
Eligibility for the CEWS of an employee’s remuneration is available for employees other than those who have been without remuneration for 14 or more consecutive days in the eligibility period (see below). This is generally intended to prevent an individual being potentially eligible for both the CERB program benefit and wages paid being eligible for the CEWS benefit for the same period.
There are special rules for non-arm’s length employees such as owner/managers and their family members. In this situation, the employee must have been receiving wage remuneration prior to March 15, 2020. In this case, the subsidy is limited to the eligible remuneration paid in any pay period in the qualifying period, up to a maximum benefit of the lesser of $847 per week and 75% of the employee's pre-crisis weekly remuneration.
In addition, business owners who paid themselves exclusively by dividends prior to March 15 will not be eligible to convert their post March 15 remuneration to wages in order to qualify for assistance.
The subsidy amount for a given employee on eligible remuneration paid for the period between March 15 and June 6, 2020 is the greater of:
75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
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.
Employer-paid contributions to Employment Insurance (EI), the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), and the Quebec Parental Insurance Plan (QPIP) to employees that are on leave (not working) are 100% included in the subsidy.
Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers are generally required to withhold or deduct amounts to remit to the Receiver General on account of the employee's income tax obligation. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.
The key eligibility for this Program is an employer’s revenue decrease of at least 15% in March; 30% in April and May.
An employer's revenue for this purpose is its revenue in Canada earned from arm's-length sources. Revenue is calculated using the employer's normal accounting method, and exclude revenues from extraordinary items and amounts on account of capital.
Employers are permitted to calculate their revenues under one of the following methods:
The accrual method (revenues as they are incurred); or
the cash method (cash as received).
For registered charities and non-profit organizations, the calculation includes most forms of revenue, excluding revenues from non-arm's length persons. These organizations are allowed to choose whether or not to include revenue from government sources as part of the calculation.
Special rules for the computation of revenue are provided to take into account certain non-arm's length transactions, such as where an employer sells all of its output to a related company that in turn earns arm's length revenue. As well, affiliated groups are able to compute revenue on a consolidated basis or on a standalone basis.
The rules around calculating revenue reduction can be very complex for business, especially those with multiple corporations or transactions with non-arms length customers. We are happy to assist clients to determine their eligibility if in doubt.
Qualifying period 1: March 15 – April 11
Qualifying period 2: April 12 – May 9
Qualifying period 3: May 10 – June 6
Eligibility is determined by the change in an eligible employer's monthly revenues, year-over-year, for the calendar month in which the period began.
All employers are allowed to calculate their change in revenue using an alternative benchmark to determine their eligibility.
Under this alternative approach, employers are allowed to compare their revenue using an average of their revenue earned in January and February 2020. Employers can select the general year-over-year approach or this alternative approach when first applying for the CEWS and are required to use the same approach for the entire duration of the program.
For example, if March 2020 revenue of the entity is at least 15% less than March 2019, then all wages of the entity paid from March 15 – April 11, 2020 are eligible for the subsidy. Alternatively, if March 2020 revenue is 15% less than the average of January and February of 2020, the entity would also qualify.
In order to provide certainty to employers, once an employer is found eligible for a specific period, the employer automatically qualifies for the next period.
Once an employer meets the criteria in respect of a revenue decline, they would automatically meet the revenue decline criteria for the next period of the program, regardless of whether the subsequent month has the required revenue decline. For example, an employer with a revenue drop of more than 15% in March would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9.
How to Apply for CEWS
Employers can apply through CRA’s My Business Account portal. You will need to register online in advance (see MRSB blog, “How to Register for CRA account”). The online application process for CEWS is not yet available but is expected in the near future.
A few final notes to conclude about this legislation:
The government reiterated that there will be penalties for any organization abusing the system, including significant penalties for employers manipulating revenues, excessive claims of false statements or negligence and criminal charges for fraud or tax evasion.
The Minister reserves the right to make public in any manner, the name of any person or partnership that makes an application under the CEWS.
Money under the CEWS is expected to be available within two to four weeks
Our team of professionals are well versed on this program and all other Federal and Provincial relief programs announced due to COVID-19. You can find some helpful information available on a dedicated COVID-19 page on our website or by reaching out to any member of our team. We are also encouraging clients to consider the PEI Business Adaptation Advice Program as an additional resource to help support and guide.