Federal Budget 2021 - Covid-19 Measures Update Crowe BGK

Federal Budget 2021 - Covid-19 Measures Update

Valérie Dumas, LL.B., M. Fisc. & Sam Lackman, CPA, CA
4/21/2021
Federal Budget 2021 - Covid-19 Measures Update Crowe BGK

On April 19, the federal budget 2021 was presented by Finance Minister Chrystia Freeland. Along with other measures, the federal government announced updates to many COVID-19 measures. Below are the details of the proposed updates to the COVID-19 relief programs.

Support for Individuals

___________________________________________________________________________________________________________________

Extension of the Canada Recovery Benefit and the Canada Recovery Caregiving Benefit

To continue to support workers through a transition away from emergency income supports and position Canadians for the recovery, the government proposes to provide up to 12 additional weeks of Canada Recovery Benefit (CRB) to a maximum of 50 weeks. The 12-week extension would be paid as follow:

  • First 4 weeks: Benefit of $500 per week; and
  • Last 8 weeks: Benefit of $300 per week.

All new CRB claimants after July 17, 2021 would also receive the $300 per week benefit, available up until September 25, 2021. 

Budget 2021 also proposes to extend the Canada Recovery Caregiving Benefit (CRCB) an additional 4 weeks, to a maximum of 42 weeks, at $500 per week, in the event that caregiving options, particularly for those supporting children, are not sufficiently available in the interim as the economy begins to safely reopen.

For more details on the eligibility criteria of the CRB and CRCB, please consult our detailed publication.

Tax Treatment of COVID-19 Benefit Amounts

Repayment of COVID-19 Benefit Amount

Where an individual received a COVID-19 benefit, but later determined that the benefit amount must be repaid, this amount can only be deducted for income tax purposes in the year the repayment takes place. Therefore, if the repayment does not occur in the same year as the year of receipt of the benefit, an individual may owe tax in respect of the benefit for the year of receipt, while obtaining a deduction for the repayment amount in a future tax year.

Budget 2021 proposes to amend the Income Tax Act to allow individuals the option to claim a deduction in respect of the repayment of a COVID-19 benefit amount in computing their income for the year in which the benefit amount was received rather than the year in which the repayment was made. This option would be available for benefit amounts repaid at any time before 2023. Moreover, an individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, would be able to request an adjustment to the return for that year.

For these purposes, COVID-19 benefits would include:

  • Canada Emergency Response Benefits/Employment Insurance
  • Canada Emergency Student Benefits;
  • Canada Recovery Benefits;
  • Canada Recovery Sickness Benefits; and
  • Canada Recovery Caregiving Benefits.

Non-Resident Claiming COVID-19 Benefit

Budget 2021 also proposes to amend the Income Tax Act to ensure that the COVID-19 benefit amounts noted above, and similar provincial or territorial benefit amounts, are included in the taxable income of those individuals who reside in Canada but are considered non-resident persons for income tax purposes. As a result, COVID-19 benefits received by these non-resident persons would be taxable in Canada in a manner generally similar to employment and business income earned in Canada.

Support for Businesses
___________________________________________________________________________________________________________________

The Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS), and the Lockdown Support aim at supporting businesses that have experienced a decline in revenues while weathering the COVID-19 crisis. These programs are legislated to be available until June 5, 2021.

Budget 2021 proposes to extend the CEWS, the CERS and the Lockdown Support until September 2021. It also proposes to gradually decrease the rates for the CEWS and the CERS, beginning July 4, 2021, in order to ensure an orderly phase-out of the programs as vaccinations are completed and the economy reopens. The proposed details of these programs from June 6, 2021 to September 25, 2021 are described below.

Canada Emergency Wage Subsidy

CEWS for Active Employees

The rate structure for the CEWS for active employees includes a base subsidy for employers that have experienced a decline in revenues as well as a top-up wage subsidy that is available to employers that have experienced a decline in revenues of at least 50 per cent. The maximum combined base subsidy and top-up wage subsidy rate is set at 75 per cent through the qualifying period ending on June 5, 2021.

Budget 2021 proposes to gradually decrease the CEWS rate starting July 4, 2021. Furthermore, only employers with a decline in revenues of more than 10 per cent would be eligible for the CEWS as of that date. The table below illustrates the base and top-up CEWS rates for periods 17 to 20.

Canada Emergency Wage Subsidy Base and Top-up Rate Structure, Periods 17 to 20
(June 6, 2021 to September 25, 2021)

 

Period 17
June 6 – July 3

Period 18
July 4 – July 31

Period 19
August 1 – August 28

Period 20
August 29 September 25

Maximum

weekly benefit

per employee*

$847

$677

$452

$226

Revenue decline:

 

 

 

 

70% and over

75%
(i.e., Base: 40%
Top-up: 35%)

60%
(i.e., Base: 35%
Top-up: 25%)

40%
(i.e., Base: 25%
Top-up: 15%)

20%
(i.e., Base: 10%
Top-up: 10%)

50-69%

Base: 40% + 
Top-up:(revenue decline - 50%) x 1.75
(e.g., 40% + (60% revenue decline - 50%) x 1.75 = 57.5% subsidy rate)

Base: 35% +
Top-up:(revenue decline - 50%) x 1.25
(e.g., 35% + (60% revenue decline - 50%) x 1.25 = 47.5% subsidy rate)

Base: 25% +
Top-up:(revenue decline - 50%) x 0.75
(e.g., 25% + (60% revenue decline - 50%) x 0.75 = 32.5% subsidy rate)

Base: 10% +
Top-up:(revenue decline - 50%) x 0.5
(e.g., 10% + (60% revenue decline - 50%) x 0.5 = 15% subsidy rate)

 

>10-50%

Base: revenue decline x 0.8
(e.g., 30% revenue decline x 0.8 = 24% subsidy rate)

Base: (revenue decline - 10%) x 0.875
(e.g., (30% revenue decline - 10%) x 0.875 = 17.5% subsidy rate)

Base: (revenue decline - 10%) x 0.625
(e.g., (30% revenue decline - 10%) x 0.625 = 12.5% subsidy rate)

Base: (revenue decline - 10%) x 0.25
(e.g., (30% revenue decline - 10%) x 0.25 = 5% subsidy rate)

0-10%

Base: revenue decline x 0.8 (e.g., 5% revenue decline x 0.8 = 4% subsidy rate)

0%

0%

0%

* The maximum weekly benefit per employee is equal to the maximum combined base subsidy and top-up wage subsidy for the qualifying period applied to the amount of eligible remuneration paid to the employee for the qualifying period, on remuneration of up to $1,129 per week.

CEWS for Furloughed Employees

A separate CEWS rate structure applies for furloughed employees. The CEWS for furloughed employees is aligned with the benefits provided through Employment Insurance (EI) through June 5, 2021 to ensure equitable treatment of such employees between the two programs. To ensure that the CEWS for furloughed employees remains aligned with benefits available under EI, Budget 2021 proposes that the weekly CEWS for a furloughed employee from June 6, 2021 to August 28, 2021, would remain the same and continue to be the lesser of:

  • the amount of eligible remuneration paid in respect of the week; and
  • if the employee receives remuneration of $500 or more in respect of the week, the greater of:
    • $500; and
    • 55% of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $595.

The CEWS for furloughed employees would continue to be available to eligible employers that qualify for the CEWS for active employees for the relevant period until August 28, 2021. Employers will also continue to be entitled to claim under the CEWS their portion of contributions in respect of the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees.

Reference Periods 

Currently, the CEWS legislation provides that the decline of revenue of an employer is determined either:

  • By comparing the employer’s revenues in a month with the revenues in the same month in 2019 (the general year-over-year approach); or
  • By comparing the employer’s revenues in a month with the average of its January and February 2020 revenues (the alternative approach).

Also, a deeming rule exists, which provides that an employer’s decline in revenues for any particular qualifying period is the greater of its decline in revenues for the particular qualifying period and the immediately preceding qualifying period.

Budget 2021 proposes the reference periods set out in table below for determining an eligible employer’s decline in revenues for the qualifying periods from June 6, 2021 to September 25, 2021.


Canada Emergency Wage Subsidy Reference Periods, Periods 17 to 20
(June 6, to September 25, 2021)

Period

Period 17
June 6 –July 3

Period 18
July 4 – July 31

Period 19
August 1– August 28

Period 20
August 29 – September 25

General approach

June 2021 over June 2019 or May 2021 over May 2019

July 2021 over July 2019 or June 2021 over June 2019

August 2021 over August 2019 or July 2021 over July 2019

September 2021 over September 2019 or August 2021 over August 2019

Alternative approach

June 2021 or May 2021 over average of January and February 2020

July 2021 or June 2021 over average of January and February 2020

August 2021 or July 2021 over average of January and February 2020

September 2021 or August 2021 over average of January and February 2020

Employers that had chosen to use the general approach for prior periods would be required to continue to use that approach. Similarly, employers that had chosen to use the alternative approach would be required to continue to use the alternative approach.

Baseline Remuneration

Under the general rules, an eligible employer’s entitlement to the CEWS for a furloughed employee, as well as an active employee in certain circumstances, is determined through a calculation that takes into account both the employee’s current and baseline (pre-crisis) remuneration.

Baseline remuneration means the average weekly eligible remuneration paid to an eligible employee by an eligible employer during the period beginning January 1, 2020 and ending March 15, 2020. Any period of seven or more consecutive days for which the employee was not remunerated is excluded from the calculation. However, the eligible employer may elect, for each qualifying period in respect of an employee, an alternative baseline period for calculating the average weekly eligible remuneration.

To ensure that the alternative baseline remuneration periods for a particular qualifying period continue to generally reflect the corresponding calendar months covered by the qualifying period, Budget 2021 proposes to allow an eligible employer to elect to use the following alternative baseline remuneration periods:

  • March 1 to June 30, 2019 or July 1 to December 31, 2019, for the qualifying period between June 6, 2021 and July 3, 2021; and
  • July 1 to December 31, 2019, for qualifying periods beginning after July 3, 2021.

Requirement to Repay Wage Subsidy

Budget 2021 proposes to require a publicly listed corporation to repay CEWS amounts received for a qualifying period that begins after June 5, 2021 in the event that its aggregate compensation for specified executives during the 2021 calendar year exceeds its aggregate compensation for specified executives during the 2019 calendar year.

For the purpose of this proposed rule, a publicly listed corporation’s specified executives will be its Named Executive Officers whose compensation is required to be disclosed under Canadian securities laws in its annual information circular provided to shareholders, or similar executives in the case of a corporation listed in another jurisdiction. This generally includes its chief executive officer, chief financial officer, and three other most highly compensated executives. A corporation’s executive compensation for a calendar year will be calculated by prorating the aggregate compensation of its specified executives for each of its taxation years that overlap with the calendar year.  The amount of the CEWS required to be repaid would be equal to the lesser of:

  • the total of all CEWS amounts received in respect of active employees for qualifying periods that begin after June 5, 2021; and
  • the amount by which the corporation’s aggregate specified executives’ compensation for 2021 exceeds its aggregate specified executives’ compensation for 2019.

This requirement to repay would be applied at the group level and would apply to CEWS amounts paid to any entity in the group.

Canada Emergency Rent Subsidy

Rate Structure

The maximum base rent subsidy rate is set at 65 per cent through the qualifying period ending on June 5, 2021.

Budget 2021 proposes the base rent subsidy rate structures set out in the table below for June 6, 2021 to September 25, 2021. The CERS rates would be gradually phased out starting on July 4, 2021. Furthermore, only organizations with a decline in revenues of more than 10 per cent would be eligible for the CERS. 

Canada Emergency Rent Subsidy Base Rate Structure*, Periods 10 to 13
(June 6, 2021 to September 25, 2021)

 

Period 10
June 6 – July 3

Period 11
July 4 – July 31

Period 12
August 1 – August 28

Period 13
August 29 - September 25

Revenue decline:

 

 

 

 

70% and over

65%

60%

40%

20%

50-69%

40% + (revenue decline - 50%) x 1.25(e.g., 40% + (60% revenue decline - 50%) x 1.25 = 52.5% subsidy rate)

 

35% + (revenue decline - 50%) x 1.25
(e.g., 35% + (60% revenue decline - 50%) x 1.25 = 47.5% subsidy rate)

25% + (revenue decline - 50%) x 0.75
(e.g., 25% + (60% revenue decline - 50%) x 0.75 = 32.5% subsidy rate)

10% + (revenue decline - 50%) x 0.5
(e.g., 10% + (60% revenue decline - 50%) x 0.5 = 15% subsidy rate)

>10-50%

Revenue decline x 0.8
(e.g., 30% revenue decline x 0.8 = 24% subsidy rate)

(Revenue decline - 10%) x 0.875
(e.g., (30% revenue decline - 10%) x 0.875 = 17.5% subsidy rate)

(Revenue decline - 10%) x 0.625
(e.g., (30% revenue decline - 10%) x 0.625 = 12.5% subsidy rate)

(Revenue decline - 10%) x 0.25
(e.g., (30% revenue decline - 10%) x 0.25 = 5% subsidy rate)

0-10%

Revenue decline x 0.8
(e.g., 5% revenue decline x 0.8 = 4% subsidy rate)

0%

0%

0%

* Expenses for each qualifying period are capped at $75,000 per location and are subject to an overall cap of $300,000 that is shared among affiliated entities.

Reference Periods

Both the CERS and the CEWS use the same calculation to determine an organization’s revenue decline. As a result, the same reference periods are used to calculate an organization’s decline in revenues for the CEWS and the CERS. Likewise, if an organization elects to use an alternative method for computing its revenue decline under the CEWS, it must use that alternative method for the CERS.

Purchase of Business Assets

In order to qualify for the CEWS, an applicant must have had a payroll account with the Canada Revenue Agency (or engaged a qualifying payroll service provider). For the purpose of the CERS, an applicant is required to have a business number with the CRA. 

If certain conditions are met, the CEWS rules provide that an eligible entity that purchases the assets of a seller will be deemed to meet the payroll account requirement if the seller met the requirement. 

Budget 2021 proposes to introduce a similar deeming rule that would apply in the context of the CERS, where the seller met the business number requirement. This measure would apply as of the start of the CERS.

Lockdown Support

For locations that must cease operations or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory, the government introduced the Lockdown Support through the CERS program to provide additional help. In order to qualify for the Lockdown Support, an applicant must qualify for the base rent subsidy.

Budget 2021 proposes to extend, for the qualifying periods from June 6, 2021 to September 25, 2021, the current 25-per-cent rate for the Lockdown Support.


Canada Recovery Hiring Program - NEW

Budget 2021 proposes to introduce the new Canada Recovery Hiring Program to provide eligible employers with a subsidy of up to 50 per cent on the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021. 

An eligible employer would be permitted to claim either the hiring subsidy or the Canada Emergency Wage Subsidy for a particular qualifying period, but not both. The proposed details of the hiring subsidy are described below.

Eligible Employers

Employers eligible for the CEWS would generally be eligible for the hiring subsidy. However, a for-profit corporation would be eligible for the hiring subsidy only if it is a Canadian-controlled private corporation (including a cooperative corporation that is eligible for the small business deduction). Other eligible employers would include individuals, nonprofit organizations, registered charities, and certain partnerships.

Corporations and trusts that are ineligible for the CEWS because they are public institutions would not be eligible for the hiring subsidy. Public institutions generally include municipalities and local governments, Crown corporations, wholly owned municipal corporations, public universities, colleges, schools and hospitals.

Eligible employers (or their payroll service provider) would be required to have had a payroll account open with the Canada Revenue Agency on March 15, 2020.

Eligible Employees

An eligible employee must be employed primarily in Canada by an eligible employer throughout a qualifying period (or the portion of the qualifying period throughout which the individual was employed by the eligible employer).

The hiring subsidy would not be available for furloughed employees. A furloughed employee is an employee who is on leave with pay, meaning they are remunerated by the eligible employer but do not perform any work for the employer. An employee would not be considered to be on leave with pay for the purposes of the hiring subsidy if they are on a period of paid absence, such as vacation leave, sick leave, or a sabbatical.

Eligible Remuneration and Incremental Remuneration

The types of remuneration eligible for the CEWS would also be eligible for the hiring subsidy. Eligible remuneration generally includes salary, wages, and other remuneration for which employers are required to withhold or deduct amounts on account of the employee’s income tax obligations. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle. The amount of remuneration for employees would be based solely on remuneration paid in respect of the qualifying period.

Incremental remuneration for a qualifying period means the difference between an employer’s total eligible remuneration paid to eligible employees for the qualifying period and its total eligible remuneration paid to eligible employees for the baseline period. In both the qualifying period and the baseline period, eligible remuneration for each eligible employee would be subject to a maximum of $1,129 per week.

As is currently the case for the CEWS, the eligible remuneration for a non-arm’s length employee for a week could not exceed their baseline remuneration determined for that week.

The table below illustrate the calculation of the incremental remuneration:

Canada Recovery Hiring Program Dates Used to Calculate Incremental Remuneration, Periods 17* to 22
(June 6, 2021 to November 20, 2021)

Qualifying period

Period 17

Period 18

Period 19

Period 20

Period 21

Period 22

Qualifying period dates

June 6 to 
July 3, 2021

July 4
to 
July
31, 
2021

August 1 to August 28, 2021

August 29 
to September
25, 2021

September 26 to October 23, 2021

October 24 
to November 20, 2021

Baseline period

March 14 to April 10, 2021

*Period 17 of the Canada Emergency Wage Subsidy would be the first period of the Canada Recovery Hiring Program. Period identifiers have been aligned for ease of reference.

Subsidy Amount

Provided that an eligible employer’s decline in revenues exceeds the revenue-decline threshold for a qualifying period (see Revenue-Decline Threshold below), its subsidy in that qualifying period would be equal to its incremental remuneration multiplied by the applicable hiring subsidy rate for that qualifying period. The table below illustrate these hiring subsidy rates:

Canada Recovery Hiring Program Rates, Periods 17* to 22
(June 6, 2021 to November 20, 2021)

 

Period 17
June 6 –
July 3

Period 18
July 4 –
July 31

Period 19
August 1–August 28

Period 20
August 29 –
September 25

Period 21 
September 26 – October 23

Period 22
October 24 –
November 20

Hiring subsidy rate

50%

50%

50%

40%

30%

20%

*Period 17 of the Canada Emergency Wage Subsidy would be the first period of the Canada Recovery Hiring Program. Period identifiers have been aligned for ease of reference.

Revenue-Decline Threshold

To qualify for a hiring subsidy in a qualifying period, an eligible employer would have to have experienced a decline in revenues sufficient to qualify for the CEWS in that qualifying period. For qualifying periods where the CEWS is no longer in effect, an eligible employer would have to have experienced a decline in revenues of more than 10 per cent. As such, an eligible employer’s decline in revenues would have to be more than:

  • 0 per cent, for the qualifying period between June 6, 2021 and July 3, 2021; and
  • 10 per cent, for qualifying periods between July 4, 2021 and November 20, 2021.

An employer’s decline in revenues would be determined in the same manner as under the CEWS. This method compares the employer’s revenues in a current calendar month with its revenues in the same calendar month, pre-pandemic. An employer can also elect to use an alternative approach, which compares the employer’s monthly revenues relative to the average of its January 2020 and February 2020 revenues. A deeming rule provides that an employer’s decline in revenues for any particular qualifying period is the greater of its decline in revenues for the particular qualifying period and the immediately preceding qualifying period.

Employers that had chosen to use the general approach for prior periods of the CEWS would be required to continue to use that approach for the hiring subsidy. Similarly, employers that had chosen to use the alternative approach would be required to continue to use the alternative approach.

The table below illustrate the reference periods to determine an eligible employer’s decline in revenues for the qualifying periods from June 6, 2021 to November 20, 2021.


Canada Recovery Hiring Program Reference Periods, Periods 17* to 22
(June 6, 2021 to November 20, 2021)

Timing

Period 17
June 6 July 3

Period 18
July 4 
July 31

Period 19
August 1August 28

Period 20
August 29 September 25

Period 21
September 26 
October 23

Period 22
October 24 
November 20

General approach

June 2021 over June 2019 or May 2021 over May 2019

July 2021 over July 2019 or June 2021 over June 2019

August 2021 over August 2019 or July 2021 over July 2019

September 2021 over September 2019 or August 2021 over August 2019

 

October 2021 over October 2019 or September 2021 over September 2019

November 2021 over November 2019 or October 2021 over October 2019

Alternative approach

June 2021 or May 2021 over average of January and February 2020

July 2021 or June 2021 over average of January and February 2020

August 2021 or July 2021 over average of January and February 2020

September 2021 or August 2021 over average of January and February 2020

October 2021 or September 2021 over average of January and February 2020

November 2021 or October 2021 over average of January and February 2020

An application for the hiring subsidy for a qualifying period would be required to be made no later than 180 days after the end of the qualifying period.