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COVID-19 Update: Canada Emergency Wage Subsidy Program

Last updated Jan. 4, 2021. We will update blog posts when more information is released.

What is the Canada Emergency Wage Subsidy?

The Canada Emergency Wage Subsidy (CEWS) is a taxable benefit available to employers who have experienced a drop in revenue due to COVID-19, to cover part of their employee wages retroactive to March 15, 2020.

The program intends to help businesses keep their employees on payroll or bring back employees who were previously laid off.

We’ve prepared a summary below, including the most recent announcements by the federal of Government.

What are the recent updates to the Canada Emergency Wage Subsidy?

The government passed Bill C-9 on November 19, 2020 to include the following updates to the Canada Emergency Wage Subsidy:

  • the subsidy has been extended to June 2021
  • the maximum subsidy rate for periods 8 to 10 will remain at 65% (40% base rate + 25% top-up)
  • beginning in period 8, the top-up rate and base rate are now calculated using the same one-month revenue drop
  • for periods 8 to 10, use the new top-up calculation or the previous 3-month average drop, whichever works in your favor
  • starting in period 9, the calculation for employees on leave with pay now aligns better with EI benefits
  • you can now calculate per-crisis pay (baseline remuneration) for employees who were on certain kinds of leave, retroactive to period 5

Does my business qualify?

To be eligible to receive the wage subsidy, you must meet all three of the following criteria:

  1. Have had a CRA Payroll account on March 15, 2020.
    • if you didn’t have a payroll account, you may still qualify if another person or partnership made remittances on your behalf OR you purchased all (or almost all) of another person’s or partnership’s business assets.
  2. Be of the following types of employers including:
    • Individuals
    • Taxable corporations or trusts
    • persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:
      • non-profit organizations o agricultural organizations
      • boards of trade o chambers of commerce
      • non-profit corporations for scientific research and experimental development
      • labour organizations or societies
      • benevolent or fraternal benefit societies or orders
      • registered charities
      • partnerships consisting of eligible employers
      • Full list is available on the Government of Canada website
  3. Have experienced a drop in revenue
    • Your drop in revenue is calculated by comparing your eligible revenue during the crisis with your eligible revenue from a previous period (baseline revenue)

When applying for CEWS, you will also need to know which of your employees can be included in your calculation. You will also need to know how much their pay or eligible remuneration was.

How much is the subsidy?

For claim periods 1 to 4  (from March 15th to July 4, 2020) the subsidy is up to 75% of the first $58,700 of remuneration paid (or a maximum of $847 per employee per week).

For periods 5 (starting July 5, 2020) and later, the wage subsidy has been modified to be available for all eligible employers that experience a decline in revenue for a claim period, with a base subsidy amount, and an additional top-up subsidy amount of 25% for those employers that have been hit hardest by the COVID-19 crisis.

The base subsidy is a specified rate dependent upon the change in an eligible employer’s monthly revenues. It is applied to the amount of remuneration paid to the employee for the eligibility period, on remuneration of up to $1,129 per week.

The maximum base CEWS rate would be provided to employers with a revenue drop of 50 per cent or more. Employers with a revenue drop of less than 50 per cent would be eligible for a lower base CEWS rate.

Click here for a rate structure of the base CEWS.

A top-up CEWS of up to 25 per cent is available to employers that were the most adversely impacted by the pandemic. The top-up CEWS is determined based on the revenue drop experienced when comparing revenues in the preceding 3 months to the same months in the prior year.

Click here for an explanation of how the top-up subsidy works.

The two-part CEWS would apply with respect to the remuneration of active employees. A separate CEWS rate structure would apply to furloughed employees.

How do I calculate revenue reductions?

For claim periods 1 to 4, you had to show that your eligible revenue dropped by a minimum amount to qualify for the subsidy. If you met the minimum revenue drop, the subsidy calculation used a fixed rate of 75%. Periods 1 to 4 were the 4-week periods from March 15, 2020 to July 4, 2020.

For claim periods 5 and later (claims that cover July 5, 2020, and later), there is no minimum revenue drop required to qualify for the subsidy. The rate your revenue has dropped is used only to calculate how much subsidy you will be eligible to receive.

You can calculate your revenue drop for claim periods 5 and later by using the online calculator provided by the government.

What is eligible revenue?

Eligible revenue generally includes revenue earned in Canada from:

  • selling goods
  • rendering services, and
  • others’ use of your resources

When comparing year-over-year changes in monthly revenues, employers should use their normal accounting methods but must not include:

  • revenue from extraordinary items (i.e. revenue that is not part of a company’s day-to-day operation)
  • passive income (interest, dividends)
  • capital gains
  • the amount of the wage subsidy that they received in each month

Who is an eligible employee?

An eligible employee is an individual employed in Canada by you during the claim period.

For claim periods 1 to 4, you can’t include employees who had 14 or more consecutive days in that period in respect of which they were not paid eligible remuneration by you.

However, for periods 5 and later, you may include these employees in your calculation.

Employee eligibility depends on the person being employed in Canada, not living in Canada.

Can I claim the wage subsidy for employees I hire back?

You can claim the wage subsidy for an employee that you hire back and pay retroactively in respect of a claim period. If the employee has received a Canada Emergency Response Benefit (CERB) payment from the CRA for a claim period, and it is later determined that they are no longer eligible for the CERB, the employee is required to repay the CERB payment.

Here’s an example from the CRA. Consider a laid off employee who has applied for the CERB for the four-week period of April 12 – May 9.

At the time of application, the laid off employee expected to have little or no work or income for the four-week period of April 12 – May 9. However, the laid off employee finds out immediately afterwards that their employer will rehire them and will give back-pay for that same four-week period.

In this situation, the rehired employee will be asked to repay the CERB for that four-week period of April 12 – May 9.

Information on how to pay back CERB can be found on the federal government’s website.

What qualifies as remuneration?

For the subsidy, remuneration qualifies as salary, wages and other remuneration for which the employer would generally be required to withhold income tax.

This does not include retiring allowances, stock option benefits or benefits relating to the personal use of an employer-owned vehicle.

How do I calculate my subsidy?

The Government has provided a free calculator to help employers calculate their subsidy amount for claim periods 1 to 10, including the changes to periods 8 to 10 which include the top-up calculation.

The calculator will automatically apply the best subsidy rate you qualify for.

The calculator includes information on how the CEWS can support your employees, who is eligible to apply, and how claim periods are structured. The calculator will provide an estimate of the subsidy you expect to receive. It also allows you to print a spreadsheet and statement to view your claim at a glance. That way you can easily enter the required information in the CEWS application.

What claim periods can I apply for and what are the deadlines?

Each CEWS claim period is for a specific period of 4 weeks, beginning on a Sunday and the subsidy does not renew automatically.

You will be required to confirm that you’re eligible for each claim period you’re applying for and calculate your amount according to that period’s rules before you apply.

You can review claim period eligibility requirements when you choose the claim period on the Government of Canada website.

Following are the current claim periods open for application (as of Jan. 4, 2021):

  1. March 15 to April 11, 2020
  2. April 12 to May 9, 2020
  3. May 10 to June 6, 2020
  4. June 7 to July 4, 2020
  5. July 5 to August 1, 2020
  6. August 2 to August 29, 2020
  7. August 30 to September 26, 2020
  8. September 27 to October 24, 2020
  9. October 25 to November 21, 2020
  10. November 22 to December 19, 2020 

The deadline to apply is January 31, 2021, or 180 days after the end of the claim period, whichever comes later.

How do I apply for the Canada Emergency Wage Subsidy?

There are three ways to apply for the Canada Emergency Wage Subsidy:

Employers would have to keep records demonstrating the reduction in revenue and remuneration paid to employees.

“Companies will be required to show what the pre-crisis income was of an employee and show that they’ve paid that employee an amount up to $847, and then they will get that money returned to them from the Canada Revenue Agency,” Morneau said.

The Government of Canada has also provided a detailed guide for applying for the Canada Emergency Wage Subsidy.

FBC Members requiring assistance with their CEWS applications can register for a free 15-minute eligibility assessment through our REBOOT program

If you’re not an FBC Member, please contact us for a free consultation

How would I receive the subsidy?

You will receive the money from the CRA in a direct deposit. Make sure your business details and direct deposit information for your payroll accounts (RP) are up to date. This will ensure that any payments to you will be processed quickly and easily.

To update your business and direct deposit details, go to CRA My Business Account.

The claims will be subject to verification by the CRA.

What about the Temporary Wage Subsidy?

On March 18, 2020, the Prime Minister announced a temporary 10 per cent wage subsidy. The 3-month measure allows employers to reduce payroll deductions they must remit to the CRA.

The temporary wage subsidy will co-exist with the Canada Emergency Wage Subsidy.

If you don’t qualify for the Canada Emergency Wage Subsidy, you may continue to qualify for the previously announced wage subsidy of 10 percent of remuneration paid from March 18 to June 19, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.

Click here to learn more about the federal temporary wage subsidy.

What if I’m eligible for both?

For employers that are eligible for both programs, the amount paid under the 75% wage subsidy will be reduced by the amount paid under the 10% temporary wage subsidy.

The government states “any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period.”

If you qualify for the 10% temporary wage subsidy, you can access it as soon as you’re required to make payroll remittances for the pay period that includes March 18, 2020.

For many businesses, this will be April 15, 2020.

If you did not reduce the source deductions you remitted to the CRA, but you were entitled to the Temporary Wage Subsidy, the CRA will treat you as having over-remitted your employee source deductions..

What records do I need?

The government stated employers who lie about or inflate losses in their earnings to access the Canada Emergency Wage Subsidy will be subject to a fine equal to 25% of the subsidy they received and they will have to pay back any wage subsidy that is received.

If an employer knowingly makes a false statement or omission in its wage subsidy application for a claim period, the employer is liable to a penalty of up to 50% of the difference between the amount of wage subsidy that it claimed in its application and the amount of wage subsidy to which it is actually entitled.

They could also face jail time.

Under existing provisions of the Income Tax Act, those found guilty of making or participating in false or deceptive statements could be sentenced to prison for up to 5 years.

To prove compliance, keep the following records:

  • Documentation to prove the 15% or 30% reduction in gross revenue
  • Documentation that shows the entire amount of the wage subsidy is transferred to your employees
  • Records that prove you paid the remaining 25%
  • If you can’t pay the remaining 25%, have records that prove why you can’t

Contact FBC

If you’d like to learn more about this or other COVID-19 programs for Canadian businesses, please call us at 1-800-265-1002 or email fbc@fbc.ca.

Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also book an appointment online.

Visit our COVID-19 Resource Centre for the latest information, advice and insights for small business owners.

Disclaimer: The material above is provided for educational and informational purposes only.