COVID-19: Canada Emergency Wage Subsidy

Insights
| 4/8/2020

On April 1, 2020 the Federal Government announced additional details on the $73 billion Canada Emergency Wage Subsidy (CEWS) program for employers impacted by COVID-19. 

What is the CEWS

The Federal Government will cover up to 75% of each employee’s salary on the first $58,700 that they earn this year, or up to $847 per week.

The program is effective for a 24-week period, from March 15 to August 29, 2020.

The Federal Government has proposed the extension of the CEWS until December 19, 2020. The legislation is currently under review.

Further proposed updates to the program include making the subsidy accessible to a broader range of employers by including those with a revenue decline of less than 30% and providing a gradually decreasing base subsidy to all qualifying employers. This would help many struggling employers with less than a 30% revenue loss get support to keep and bring back workers, while also ensuring those who have previously benefited could still qualify, even if their revenues recover and no longer meet the 30% revenue decline threshold.

Consideration has also been given to introducing a top-up subsidy of up to an additional 25% of eligible wages for employers that have been most adversely affected by the pandemic. This would be particularly helpful to employers in industries that are recovering more slowly.

Eligibility

Eligible employers will include Individuals, taxable corporations, and partnerships consisting of eligible employers as well as non profit organizations and registered charities.

The Federal Government recently made regulatory changes (see below) to prescribe certain types of organizations in order to extend eligibility for the CEWS to additional groups, provided they meet all other eligibility criteria:

  • Partnerships that are up to 50% owned by non-eligible members;
  • Indigenous government-owned corporations that are carrying on a business and are tax-exempt and their wholly-owned subsidiaries that are carrying on a business and are tax-exempt;
  • Partnerships where the partners are Indigenous governments and eligible employers; 
  • Registered Canadian Amateur Athletic Associations;
  • Registered Journalism Organizations; and
  • Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools, or flight schools.

Public bodies will not be eligible for this subsidy. These include municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals, except where noted above.

A business’s revenue has to have decreased by at least 15% for the month of March and by at least 30% for the months of April, May, and June. This reduction is determined by comparing revenue to one of two benchmarks:

1. Compare March, April, May, June 2020 revenues to revenues from those same months in 2019.

OR

2. Compare March, April, May, June 2020 revenues to the average revenues of January and February of 2020. 

Please see the calculating revenue section below for more details.

Regulatory Changes

The prescribed organizations described below may now begin applying for the CEWS, provided they meet all other eligibility criteria.

Partnerships with One or More Non-Eligible Members

Currently, in order for a partnership to be eligible for the CEWS, all of its members must be eligible entities (generally, individuals, taxable corporations, non-profit organizations, or registered charities). As a result, partnerships in which non-eligible entities hold even a minority interest are currently precluded from claiming the CEWS.

Partnerships will be eligible entities for purposes of the CEWS so long as non-eligible members, taken together, do not hold a majority of the interests in the partnership. Specifically, in order for a partnership to qualify for the CEWS, the fair market value of interests in the partnership held by non-eligible entities at all times in the qualifying period must not exceed 50% of the fair market value of all interests in the partnership.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Indigenous Government-Owned Businesses

Currently, in order for Indigenous government-owned corporations to be eligible for the CEWS, they must be taxable. The Federal Government is extending eligibility for the CEWS to include Indigenous government-owned corporations that are carrying on a business and are tax-exempt under paragraph 149(1)(d.5) of the Income Tax Act, as well as their wholly-owned subsidiaries that are carrying on a business and are tax-exempt under paragraph 149(1)(d.6) of the Income Tax Act. As well, partnerships where each partner of the partnership is either an Indigenous government or an eligible employer will be eligible entities for purposes of the CEWS. This rule is in addition to the rule for partnerships outlined above. Indigenous governments would include First Nation bands, self-governing Indigenous governments and other comparable Indigenous governing bodies.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Registered Canadian Amateur Athletic Associations 

Registered Canadian Amateur Athletic Associations (RCAAAs) are national associations responsible for the promotion of sport on a nation-wide basis, and are heavily involved in the preparation of Canada’s Olympic teams. There are approximately 125 RCAAAs in Canada, including Hockey Canada, Lacrosse Canada, and Biathlon Canada.

Because provincial, regional, and local members of an RCAAA are considered non-profit organizations, they are eligible for the CEWS. However, the national-level RCAAAs are currently excluded because they fall under a category of tax-exempt entity that is not explicitly included in the list of eligible entities for the CEWS.

The Federal Government is extending CEWS eligibility to national-level RCAAAs that are tax-exempt under paragraph 149(1)(g) of the Income Tax Act.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Registered Journalism Organizations

Canadian journalism organizations generally qualify for support under the CEWS. However, non-profit Canadian journalism organizations that register as qualified donees under the new “registered journalism organization” category would be ineligible for the CEWS. This is because this new category of tax-exempt entities is not explicitly included in the list of eligible entities for the CEWS.

To address this discrepancy, the Federal Government is extending eligibility for the CEWS to registered journalism organizations that are tax-exempt under paragraph 149(1)(h) of the Income Tax Act.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Non-public Educational and Training Institutions

The Federal Government will allow private colleges and private schools to be eligible entities for purposes of the CEWS. This will allow non-public educational and training institutions to qualify for the wage subsidy. This would include for-profit and not-for-profit institutions such as arts schools, language schools, driving schools, flight schools, and culinary schools.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020.

Proposed Legislative Changes

In May of 2020, the Federal Government announced proposed legislative amendments to ensure that the CEWS continues to meet its objectives. These proposed changes are explained below. They would come into effect upon being enacted.

Support for Seasonal Employees and Employees Returning from Extended Leave

Under the CEWS, the subsidy amount for a given employee on eligible remuneration paid in respect of the period between March 15 and June 6, 2020 is the greater of:

  • 75% of the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week; and
  • the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week, or 75% of the employee's pre-crisis weekly remuneration, whichever is less. The pre-crisis remuneration for a given employee is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

In effect, employers may be eligible for a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees' pre-crisis employment earnings.

In addition, a special rule applies to employees that do not deal at arm's length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in respect of any week in a 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 effect, the subsidy is available in respect of non-arm's length employees only for those employed prior to March 16, 2020.

These rules can lead to unintended outcomes in some situations, such as when employees were on parental, disability, or unpaid leave from January 1 to March 15 of 2020, or when individuals – whether dealing at arm’s length or non-arm’s length with their employer – are employed on a seasonal basis. To bridge these gaps, the Government proposes to amend the CEWS to allow employers to choose one of two periods when calculating the baseline remuneration of their employees. Specifically, employers would be allowed to calculate baseline remuneration for an employee as the average weekly remuneration paid to the employee from January 1 to March 15 of 2020 or, alternatively, as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019, in both cases excluding any period of seven or more consecutive days without remuneration. Employers would be able to choose which period to use on an employee-by-employee basis.

This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020, and subsequent qualifying periods.

Amalgamations

Corporations formed on the amalgamation of two or more predecessor corporations (or where one corporation is wound up into another) may not qualify for the CEWS since they would not have benchmark revenues to prove a revenue decline or their benchmark revenues may not provide a full picture of their pre-crisis revenues.

The Government proposes to amend the CEWS to allow corporations formed on an amalgamation of two or more predecessor corporations (or where a corporation is wound up into another), to calculate benchmark revenue for the CEWS revenue-decline test using their combined revenues, unless it is reasonable to consider that one of the main purposes for the amalgamation (or the winding up) was to qualify for the CEWS.

This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Tax-Exempt Trusts

Under the current rules, trusts are eligible for the CEWS, as they are generally considered to be individuals for tax purposes. The Government proposes to amend the CEWS to better align the tax treatment of trusts and corporations for CEWS purposes. As a result, trusts with employees would continue to be eligible for the CEWS, subject to the following added exceptions:

  • In cases where the trust is a tax-exempt entity (other than a public institution), it would qualify only if it is a registered charity or one of the other types of eligible tax-exempt entities.
  • In cases where the trust is a public institution, it would qualify only if it is a prescribed organization.

This change is proposed to apply in respect of the third qualifying period (May 10 to June 6) and any subsequent qualifying period.

Calculating Revenues

In determining eligibility for the CEWS, an employer’s revenues would be those from its ordinary activities carried on in Canada earned from the sale of goods, the rendering of services, and the use by others of its resources.  Revenues would be calculated using the employer’s normal accounting method (either the accrual or cash method – but not both) and would exclude amounts from extraordinary items and amounts on account of capital.

Initially, the Federal Government indicated that revenue amounts derived from non-arm’s length parties would not be included in revenues for the purposes of the CEWS.  However, the new legislation now provides some exceptions.

The legislation now allows a group of affiliated entities to calculate consolidated revenue, with each member of the group then using these consolidated amounts for the purposes of the revenue test. The new legislation also provides a special rule such that where all or substantially all of an employer’s qualifying revenue is earned from non-arm’s length entities, the employer may determine its decline in revenue based on the decline in arm’s length revenue experienced by non-arms entities from which it earned revenue.  And for a group of eligible entities that normally prepares consolidated financial statements, each member of the group may determine its qualifying revenue separately, provided that every member of the group determines its qualifying revenue on that basis.

These special rules and exceptions are introduced with the intent to provide the CEWS to businesses with employees employed by a separate entity or corporate group.

For non-profits and registered charities, revenue calculations must exclude those received from non-arm’s length persons. These organizations can choose whether or not to include funding from government sources in their calculations. Once chosen, the same approach will apply throughout the duration of the CEWS program.

Businesses can use the online CEWS Calculator to estimate the amount of the subsidy they may receive.

Proposed Changes to Calculating Revenue

Reference Periods for the Drop-in-Revenues Test

For the purpose of the base CEWS, eligibility would generally be determined by the change in an eligible employer's monthly revenues, year-over-year, for the applicable calendar month. Table 5 below outlines each claiming period and the relevant period for determining an eligible employer’s change in revenue. For Period 5 (July 5 to August 1) and all subsequent periods, an eligible employer would be able to use the greater of its percentage revenue decline in the current period and that in the previous period for the purpose of determining its qualification for the base CEWS and its base CEWS rate in the current period. This would provide certainty and be a continuation of the rules for Periods 1 to 4 that allowed an employer that met the revenue test in one period to automatically qualify for the following period.  

Employers that have elected to use the alternative approach for the first 4 periods would be able to either maintain that election for Period 5 and onward or revert to the general approach. Similarly, employers that have used the general approach for the first 4 periods would be able to either continue with the general approach or elect to use the alternative approach for Period 5 and onward. Whichever approach they choose would apply for Period 5 and onward and would apply to the calculation of the base CEWS and the top-up CEWS. This would provide flexibility for employers to adjust their approach in light of new circumstances they may be experiencing as the CEWS is extended.

Table 5
Claim period

General approach

Alternative approach

Period 5 July 5 to August 1, 2020  July 2020 over July 2019 or June 2020 over June 2019  July 2020 or June 2020 over average of January and February 2020 
Period 6  August 2 to August 29, 2020  August 2020 over August 2019 or July 2020 over July 2019  August 2020 or July 2020 over average of January and February 2020 
Period 7  August 30 to September 26, 2020  September 2020 over September 2019 or August 2020 over August 2019  September 2020 or August 2020 over average of January and February 2020 
Period 8  September 27 to October 24, 2020 October 2020 over October 2019 or September 2020 over September 2019  October 2020 or September 2020 over average of January and February 2020
Period 9 October 25 to November 21, 2020  November 2020 over November 2019 or October 2020 over October 2019  November 2020 or October 2020 over average of January and February 2020 

For the purpose of the top-up CEWS, eligibility would generally be determined by the change in an eligible employer's revenues for a three-month period. Table 6 below outlines each claiming period and the relevant period for determining an eligible employer’s average change in revenue.

Table 6
  Claim period  General approach  Alternative approach 
Period 5  July 5 to August 1, 2020  April to June 2020 over April to June 2019 April to June 2020 average over January and February 2020 average* 
Period 6  August 2 to August 29, 2020  May to July 2020 over May to July 2019 May to July 2020 average over January and February 2020 average* 
Period 7 August 30 to September 26, 2020  June to Agust 2020 over June to August 2019  June to August 2020 average over January and February 2020 average* 
Period 8  September 27 to October 24, 2020  July to September 2020 over July to September 2019  July to September 2020 average over January and February 2020 average* 
Period 9  October 25 to November 21, 2020  August to October 2020 over August to October 2019  Augsut to October 2020 average over January and February 2020 average 

* The calculation would equal the average monthly revenue over the 3 months of the reference period divided by the average revenue for the months of January and February 2020.

Amount of Subsidy

The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 will be 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.

As described above, employers may be eligible for a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees, and such employers will be expected where possible to maintain their existing employees’ pre-crisis employment earnings. The subsidy will also be available for salaries and wages paid to new employees.

The subsidy for a new hire is 75% of the amount of remuneration paid, up to a maximum of $847 per week per employee.

The pre-crisis remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

Eligible remuneration may include salary, wages, and other remuneration such as fees, commissions, or other amounts for employment services. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General as payroll taxes. However, eligible remuneration does not include severance pay, retiring allowances, or items such as stock option or certain other taxable benefits. In addition, accelerated remuneration paid in excess of an employee’s base salary, with the main purpose of increasing the amount of the CEWS paid, will not be eligible.

A special rule will apply to employees that do not deal at arm’s length with the employer, such as owner-managers, family corporations, and professional corporations. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and July 4, 2020, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration. The subsidy will only be available in respect of non-arm’s length employees employed prior to March 15, 2020.  That is, the CEWS is not available for renumeration paid to non-arm’s length employees hired after the COVID-19 crisis began.  For Period 5 and subsequent periods, the wage subsidy for such employees would be based on the employee’s weekly eligible remuneration or pre-crisis remuneration, whichever is less, up to a maximum of $1,129.

For active arm’s-length employees, the amount of remuneration would be based solely on actual remuneration paid for the eligibility period, without reference to the pre-crisis remuneration concept used for earlier CEWS periods, which is explained in the Finance Canada backgrounder of April 11, 2020. The subsidy would only be available in respect of non-arm's-length employees that were employed prior to March 16, 2020.

For Period 4, the pre-crisis remuneration of an employee would be based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020; from March 1, 2019, to May 31, 2019; or from March 1, 2019, to June 30, 2019. For Period 5 and subsequent periods, the pre-crisis remuneration of an employee would be based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020 or from July 1, 2019 to December 31, 2019. In all cases, the calculation of average weekly remuneration would exclude any period of seven or more consecutive days without remuneration. Employers can choose which period to use on an employee-by-employee basis.

There will be no overall limit on the subsidy amount that an eligible employer may claim and employers must make their best effort to top-up employees’ salaries to bring them to pre-crisis levels.

Proposed Changes

The Federal Government is proposing the CEWS would consist of two parts effective July 5:

  • a base subsidy available to all eligible employers that are experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
  • a top-up subsidy of up to an additional 25% for those employers that have been most adversely affected by the COVID-19 crisis.

The two-part CEWS would apply with respect to the remuneration of active employees and a separate CEWS rate structure would apply to furloughed employees. A safe harbour would be available to ensure that, through August 29 (periods 5 and 6), employers would have access to a CEWS rate that is at least equal to what they would have had under the initial CEWS structure, as described further below (see Safe harbour rule for Periods 5 and 6).

Base subsidy for all employers impacted by the crisis

Effective July 5, 2020 (i.e., Period 5 and subsequent periods), employers that have been affected by the COVID-19 crisis would be eligible for a base CEWS amount for active employees. This base CEWS would be a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on remuneration of up to $1,129 per week. The rate of the base CEWS would now vary depending on the level of revenue decline, and its application would be extended to employers with a revenue decline of less than 30% (see Table 1). This expansion would mean that all eligible employers with a revenue decline would now qualify for CEWS support.

The specified rate would be determined based on the change in an eligible employer's monthly revenues, as described further below (see Reference Periods for the Drop-in-Revenues Test).

The maximum base CEWS rate would be provided to employers with a revenue drop of 50% or more. Employers with a revenue drop of less than 50% would be eligible for a lower base CEWS rate, as shown in Table 1. The decline in the base CEWS rate between a 50% revenue drop and zero should help to provide a smooth phase-out so that businesses can grow and rehire without worrying about a sharp drop in support as economic activity returns.

The maximum base CEWS rate would be gradually reduced from 60% in Periods 5 and 6 (July 5 to August 29) to 20% in Period 9 (October 25 to November 21).

Table 1

 

Period 5*:

July 5 - August 1

Period 6*:

August 2 - August 29

Period 7:

August 30 - September 26 

Period 8:

September 27 - October 24 

Period 9: 

October 25 - November 21

Maximum weekly benefit per employee Up to $677  Up to $677  Up to $565  Up to $452  Up to $226 
Revenue drop          
50% and over 60%  60%  50%  40%  20% 
0% to 49%

1.2 x revenue drop

(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)

1.2  x revenue drop

(e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)

1.0 x revenue drop

(e.g., 1.0 x 20% revenue drop = 20% base CEWS rate) 

0.8 revenue drop

(e.g., 0.8 x 20% revenue drop = 16% base CEWS rate) 

0.4 x revenue drop 

(e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)

* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more. As described further below (see Safe harbour rule for Periods 5 and 6).

Figure 1

Crowe MacKay Canada Emergency Wage Subsidy

Top-up subsidy for the most adversely affected employers

A top-up CEWS of up to 25% would be available to employers that were the most adversely impacted by the pandemic. This top-up CEWS would be determined based on the revenue drop experienced when comparing revenues in the preceding three months to the same months in the prior year. Under the alternative approach to the calculation of baseline revenues, an eligible employer’s top-up CEWS would be determined based on the revenue drop experienced when comparing average monthly revenue in the preceding three months to the average monthly revenue in January and February 2020.

For example, if an employer had $600,000 in revenue between April 1 and June 30, 2019, and $210,000 in revenue between April 1 and June 30, 2020, the employer would have a three-month revenue drop of 65%.

Under the alternative approach, if an employer had $400,000 in revenue between January 1 and February 29, 2020 (average monthly revenue of $200,000), and $210,000 in revenue between April 1 and June 30, 2020 (average monthly revenue of $70,000), the employer would have a three-month revenue drop of 65%.

Employers that have experienced a three-month average revenue drop of more than 50% would receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50%, up to a maximum top-up CEWS rate of 25%, which is attained at a 70% revenue decline. As with the base CEWS rate, the top-up CEWS rate would apply to remuneration of up to $1,129 per week. The top-up CEWS rate for selected average revenue drop levels is illustrated in Table 2 below.

Table 2

3-month average revenue drop  Top-up CEWS rate 

Top-up calculation =

1.25 x (3 month revenue drop - 50%) 

70% and over  25%  1.25 x (70%-50%) = 25% 
65%  18.75%  1.25 x (65-P%) = 18.75% 
60% 12.5%  1.25 x (60%-50%) = 12.5% 
55%  6.25%  1.25 x (55%-50%) = 6.25% 
50% and under  0.0%  1.25 x (50%-50%) = 0.0% 

The overall CEWS rate would be equal to the top-up CEWS rate plus the base CEWS rate. Table 3 shows the combined base and top-up CEWS rates for Periods 5 to 9 for the most adversely affected employers.

Table 3

Timing 

Period 5*:

July 5 - August 1

Period 6*:

August 2 - August 29

Period 7:

August 30 - September 26

Period 8:

September 27 - October 24

Period 9: 

October 25 - November 21

Maximum weekly benefit per employee
Up to $960  Up to $960  Up to $847  Up to $734 Up to $508 
Revenue drop in the current 1-month reference period           
50% or more

85%

(60% base CEWS + 25% top-up) 

85%

(60% base CEWS + 25% top-up)

75%

(50% base CEWS + 25% top-up)

65%

(40% base CEWS + 25% top-up)

45% 

(20% base CEWS + 25% top-up)

0% to 49%

1.2 revenue drop + 25%

(e.g., 1.2 x  20% revenue drop + 25% = 49% CEWS rate)

1.2 x revenue drop + 25%

(e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate)

1 x revenue drop + 25%

(e.g., 1 X 20% revenue drop + 25% = 45% CEWS rate)

0.8 x revenue drop + 25%

(e.g., 0.8 x 20% revenue drop + 25% = 41% CEWS rate)

0.4 x revenue drop + 25%

(e.g., 0.4 x 20% revenue drop + 25% = 33% CEWS rate)

* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more. As described further below (see Safe harbour rule for Periods 5 and 6).

Table 4 illustrates the interaction of the three-month drop in revenue test for the top-up CEWS and the month-over-month revenue test for the base CEWS for Periods 5 and 6. For example, an employer that is recovering with a revenue drop of 20% in Period 5 and a preceding three-month average revenue drop of 60% would benefit from a base CEWS rate of 24% and a top-up CEWS rate of 12.5%, which would provide a combined CEWS rate of 36.5%.

Table 4

Revenue drop in the current 1-month period  70% or more  50% to 69%  0 to 49% 
50% or more

85% (60% base CEWS + 25% top-up)

60% + 1.25 x (3 month revenue drop-50%)

(e.g., 60% base CEWS + 1.25 x (60% 3 month revenue drop - 50%) = 72.5% CEWS rate)

60% (60% base CEWS + 0% top-up)

0% to 49%

1.2 x revenue drop + 25%

(e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate)

1.2 revenue drop + 1.25 x (3 month revenue drop-50%)

(e.g., 1.2 x 20% revenue drop + 1.25 x (60% 3 month revenue drop-50%) = 36.5% CEWS rate)

1.2 x revenue drop 

(e.g., 1.2 x 20% revenue drop = 24% CEWS rate)

No revenue drop

25% (0% base CEWS + 25% top-up)

1.25 x (3 month revenue drop-50%)

(e.g., 1.25 x (60% 3 month revenue drop-50%) = 12.5% CEWS rate)

nil 

Figure 2

Crowe MacKay Canada Emergency Wage Subsidy

Safe harbour rule for Periods 5 and 6

For Periods 5 and 6, an eligible employer would be entitled to a CEWS rate not lower than the rate that they would otherwise be entitled to if their subsidy were calculated under the CEWS rules that were in place for Periods 1 to 4. This means that in Periods 5 and 6, an eligible employer with a revenue decline of 30% or more in the relevant reference period would receive a CEWS rate of at least 75% or potentially an even higher CEWS rate using the new rules outlined above for the most adversely affected employers (up to 85% ).

Refund for Certain Payroll Contributions

The Government expands the CEWS by introducing a new 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.  

In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.

This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS and there would be no overall limit on the refund amount that an eligible employer may claim.

For greater certainty, employers would be required to continue to collect and remit employer and employee contributions to each program as usual. Eligible employers would apply for a refund, as described above, at the same time that they apply for the CEWS.

Eligible Periods

Eligibility will generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began. There are two benchmarks to use in determining eligibility:

1. Comparing 2020 revenues to 2019 revenues,

For example: if revenues in March 2020 were down 20% compared to March 2019, the employer would be allowed to claim the CEWS (as calculated above) on remuneration paid between March 15 and April 11, 2020.

OR

2. Comparing 2020 revenues to the average revenues of January and February of 2020.

For example: ABC Inc. is a start-up that started its operations last September. It reported revenues of $100,000 in January and $140,000 in February, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March are 25% lower than $120,000, ABC inc. would be eligible for the CEWS for the first claiming period. To be eligible for the following claiming period, ABC Inc. revenues would have to be $84,000 or less for the month of April (that is, 30% lower than $120,000). 

Employers would select one of the revenue benchmarks in their first CEWS application, and be required to continue to use the same method for the entire duration of the program.

There are three four-week periods, with period one beginning March 15. Once an employer has qualified for a particular period, they would automatically qualify for the next period. 

The amount of wage subsidy (provided under the COVID-19 Economic Response Plan) received by the employer in a given month would be ignored for the purpose of measuring year-over-year changes in monthly revenues.

The table below outlines each claiming period’s eligibility. 

  Claiming Period  Required Reduction in Revenue  Reference period for eligibility 
Period 1  March 15 - April 11  15% 

March 2020 over:

  • March 2019 or
  • Average of January and February 2020
Period 2  April 12 - May 9 30% 

April 2020 over:

  • April 2019 or
  • Average of January and February 2020
Period 3  May 10 - June 6  30% 

May 2020 over:

  • May 2019 or
  • Average of January and February 2020
Period 4 June 7 - July 4 30% 

June 2020 over:

  • June 2019 or
  • Average of January and February 2020
Period 5 July 5 - August 1  Refer to Table 5 and Table 6 under Calculating Revenues Refer to Table 5 and Table 6 under Calculating Revenues
Period 6 August 2 - August 29  Refer to Table 5 and Table 6 under Calculating Revenues Refer to Table 5 and Table 6 under Calculating Revenues
Period 7 August 30 - September 26 Refer to Table 5 and Table 6 under Calculating Revenues  Refer to Table 5 and Table 6 under Calculating Revenues 
Period 8 September 27 - October 24   Refer to Table 5 and Table 6 under Calculating Revenues Refer to Table 5 and Table 6 under Calculating Revenues 
Period 9
October 25 - November 21  Refer to Table 5 and Table 6 under Calculating Revenues Refer to Table 5 and Table 6 under Calculating Revenues
Eligible Employees

An eligible employee is an individual who is employed in Canada.

Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration from the eligible employer for more than 14 consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6. 

This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a four-week period for which the employee is eligible for the Canadian Emergency Response Benefit (CERB).

Effective July 5, 2020, the eligibility criteria would no longer exclude employees that are without remuneration for 14 or more consecutive days in a reporting period.

CEWS for Furloughed Employees

For Periods 5 and 6, the subsidy calculation for a furloughed employee would remain the same as for Periods 1 to 4. It would be the greater of: 

  • For arm’s-length employees, 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
  • 75% of the employee’s pre-crisis weekly remuneration up to a maximum benefit of $847 per week or the amount of remuneration paid, whichever is less.

Beginning in Period 7, CEWS support for furloughed employees would be adjusted to align with the benefits provided through the CERB and/or Employment Insurance (EI).

For Period 5 and subsequent periods, the CEWS for furloughed employees would be available to eligible employers that qualify for either the base rate or the top-up for active employees in the relevant period.

The employer portion of contributions in respect of the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan, and the Quebec Parental Insurance Plan in respect of furloughed employees would continue to be refunded to the employer.

Application Process

Before You Apply

  • 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. Register your payroll accounts for direct deposit
  • If you are expecting a payment of $25 million or more, you will have to get your payment through the large value transfer system (LVTS). Learn more: LVTS registration process.

How You Apply

Businesses can apply online using one of the following methods:

  1. CRA MY Business Account (preferred method)
  2. Business representatives may apply using "Represent a Client" method
  3. Web Form

For an in-depth understanding of the CEWS application process refer to the Federal Government’s CEWS Application Guide.

After You Apply

When to Expect Your Payment

You can generally expect to receive your payment within 10 business days if you are registered for direct deposit on your payroll account. In some cases, the CRA may need to delay your payment if additional review is required or they need to contact you.

Include the Subsidy on Your Returns

The CEWS is taxable. You must include the amount of CEWS you receive on your Annual Return of Income (e.g. Corporation Income Tax Return, Partnership Return) when calculating your taxable income.

You will also be expected to report the amount of the CEWS that was used to pay each of your employees’ salaries by using a special code in the “other information” area at the bottom of the employees’ T4 slips. More information on the reporting requirements will be released before the end of the year.

Incorrect or Fraudulent Claims

If you do not meet the Canada Emergency Wage Subsidy eligibility requirements for a period, you will be required to repay any amounts you received for that period.

Penalties may apply in cases of fraudulent claims, including fines or even imprisonment.

If you artificially reduce your revenue for the purpose of claiming the wage subsidy, you will be required to repay any subsidy amounts you received, plus a penalty equal to 25% of the total value.

Read more on CEWS compliance

Keep Your Records

You must keep records demonstrating your reduction in revenues and remuneration paid to employees.

Read more on records you should keep

Businesses Responsibilities

The Federal Government is asking businesses to do their best in paying the remaining 25% of wages that are not supported by the subsidy program.

Businesses are encouraged to rehire employees as quickly as possible and to apply for the Canada Emergency Wage Subsidy if they are eligible. To ensure that the CERB applies as intended, the Federal Government will consider implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.

In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, the employer would be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements and pay their employees accordingly.

Employers who engage in artificial transactions to reduce their revenues in order to meet the CEWS eligibility could be subject to a penalty equal to 25% of the value of the CEWS amount claimed, in addition to having to repay the full amount of the CEWS that was improperly claimed.

Interaction with the Work-Sharing Program

In response to COVID-19 the Federal Government has extended the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

 
Government Assistance

The usual treatment of tax credits and other benefits provided by the government would apply. Accordingly, the wage subsidy received by an employer would be considered government assistance and be included in the employer’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.

Original Wage Subsidy Program

Introduced on March 18, original subsidy program is still in effect, and those who do not qualify for the Canada Emergency Wage Subsidy, may be eligible for this previously announced program.

For employers that are eligible for both the Canada Emergency Wage Subsidy and the 10 % wage subsidy for a period, any benefit from the 10 % 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.

Details on the 10% Wage Subsidy Program are as follows:

  • Eligible small employers will receive a temporary wage subsidy for a period of three months
  • The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
  • Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. 
  • Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.
An Example of how Employers will Benefit from the CEWS

Maude and Stéphane own a corporation that operates an automobile repair shop in Saint Boniface, Manitoba. They are working full time, each drawing a salary of $1,300 per week, and have three part-time employees, each earning $800 per week, for a total weekly payroll of $5,000. Maude and Stéphane have reduced their opening hours due to decreased demand for their services. They had initially laid off their employees, but they have now decided to re-hire them following the announcement of the Canada Emergency Wage Subsidy. Their employees are not being asked to report to work during this challenging period.

Maude and Stéphane are now keeping their employees on the payroll, paying them 75% of their pre-crisis salary ($600 per week). Maude and Stéphane would be eligible for a weekly wage subsidy of $3,494 ($847 for each of themselves and $600 for each of their employees). Maude and Stéphane would also be eligible for a 100% refund of their employer-paid contributions to Employment Insurance and the Canada Pension Plan in respect of their employees, providing an additional benefit of up to $124 per week.  

At the end of each claiming period, Maude and Stéphane would submit an application through the Canada Revenue Agency portal, attesting that their decline in revenues in each month is sufficient to qualify, when compared to the average of January and February. They would also report the total remuneration paid to themselves and their furloughed employees during the month. As Maude and Stéphane have access to direct deposits with the Canada Revenue Agency, they would receive their subsidy shortly after each application.

Hard hit employer eligible for an 85-per-cent combined subsidy rate

Joanne and Hal run a sporting goods store in Fredericton, New Brunswick. They have 10 full‑time employees, each earning $800 per week for a total weekly payroll of $8,000. Joanne and Hal closed their store on March 15, and reopened for curbside pick-up May 1. With the help of the CEWS, they have kept half of their employees on the payroll, paying them their full regular wages. Over the first 16 weeks of the CEWS, they benefitted from the 75% wage subsidy and they received $48,000 in CEWS support. In July, with the economy reopening, they intend to rehire all of their employees and have them return to their pre-crisis schedule. As revenues were down over 50% year-over-year in June, they would qualify for the maximum base CEWS rate of 60% in Period 5. In addition, because their revenues from April to June 2020 were down over 70% when compared to April to June 2019, they would be eligible for the 25% CEWS top-up, increasing their combined subsidy rate to 85%. This would translate into $27,200 in CEWS support in Period 5, to help them pay their employees’ salaries.

Employer that becomes eligible for the CEWS as a result of the removal of the 30% revenue decline threshold

Shelf Life Foods is a mid-size frozen food manufacturer in Kingston, Ontario. It has 200 full‑time employees, each earning $1,000 per week for a total monthly payroll of $800,000. Most of its pre-crisis sales were to supermarkets and have kept steady since the crisis began but the drop in its sales to restaurants during the crisis have contributed to reducing its overall revenues by 15% each month. Because the revenue drop the company experienced was less than the 30& threshold over the first 16 weeks of the CEWS, the company did not qualify for the CEWS. Deciding that it could not operate at a loss much longer, the company was preparing to reduce staff hours by 15%, or $120,000 per month. With the new design of the CEWS, however, the company, with a 15% revenue drop, would qualify for the base CEWS in Period 5, starting on July 5, 2020, and Period 6, starting on August 2, 2020. In Periods 5 and 6, it would receive a subsidy of 18% of its wages, equivalent to $144,000 for each period. Because it would qualify for the CEWS, the company decides it would not have to reduce staff hours.

Employer who becomes eligible for the CEWS as a result of extension to users of payroll services

Maude runs a non-profit organization in Vancouver, providing services to youth in her community. In addition to volunteers, she hires part-time students to help organize these services. Her revenues dropped significantly because of the overall economic decline but, because she makes use of a centralized payroll service available to such non-profit organizations in her province and did not obtain her own payroll program account with the CRA, she could not qualify for the CEWS. Now, with the change of rules regarding the use of payroll service providers, her organization would qualify for the CEWS and be able to claim benefits retroactive to March 15, 2020.

Recovering employer that is assured of continued support from future CEWS benefits

Maya and her brother Petr run a linen cleaning services business north of Montreal. Their cleaning services for hotels and inns have been shut down temporarily, but they managed to keep most of their other commercial linen cleaning services active. Throughout the crisis, they have been able to maintain 10 full-time employees, each being paid $800 per week for a total weekly payroll of $8,000. Over the preceding three months, revenues were down 50% compared to the same period last year. During Periods 1 through 4, they qualified for the maximum subsidy rate of 75%. Customers are gradually returning and they are considering seeking new lines of business. In June, their revenues are down 35%. This means that, under the new CEWS rules, they would qualify for a base CEWS rate of 42% in Period 5. However, with the safe harbour rule, they would be eligible for a rate of 75 per cent in Period 5—the rate they would have qualified for under the original CEWS rules. This would provide Maya and Petr a total subsidy amount of $24,000 in Period 5. In July, they have secured a new client, and revenues in July and August would be down 25% from last year. With the elimination of the 30% revenue test, they would now be eligible for a CEWS rate of 30% in Period 6. The extension and expansion of the CEWS would provide them with additional financial support as they rebuild their business.  

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