The following is an update of the rules regarding eligibility for the Canada Emergency Wage Subsidy. The changes to the previously announced programs are highlighted by underlying the respective provisions.
On April 11, 2020, the Finance Minister introduced new legislation that includes additional flexibilities and sought after support to those eligible employers that are hardest hit by the COVID-19 pandemic
Who is eligible to receive the Wage Subsidy?
The Wage Subsidy is granted to the following Eligible Entities:
1. Sole proprietors
2. Corporations
3. Partnerships consisting of eligible employers
4. Not for profit organizations
5. Registered charities
How long will subsidy last?
The subsidy is designed to help companies over the 12 week period starting March 15, 2020. As such the following periods are referred to as Eligible Periods:
Period 1 March 15 to April 11
Period 2 April 12 to May 9
Period 3 May 10 to June 6
What are the requirements for accessibility?
To be accessible, the eligible entity or employer must have experienced a loss in revenues for the months of March, April and May of 2020. The loss in revenues for the month of March 2020 must be at least 15%, while the loss of revenues for the months of April and May must be at least 30%.
To provide certainty to the employers, the following additional flexibilities were introduced.
1. To measure their loss of revenue, it is proposed that employers compare their revenue of March, April and May 2020 to that of the same month of 2019 or to an average of their revenue earned in January and February 2020.
2. It is also proposed that once an employer is found eligible for a specific period, they would automatically qualify for the next period of the program. So as an example, an employer with a revenue drop of more than 15% in March would qualify for the first and second periods of the program, hence covering remuneration paid between March 15 and May 9. Similarly, an employer with a revenue drop of 30% in April would qualify for the second and third periods of the program, covering remuneration paid from April 12 to June 6.
How is revenue determined?
Revenues are defined as those from a business carried on in Canada. As an example, a company has clients inside Canada and outside Canada and operates from a single location in Canada; if the overall revenues have decreased because of COVID-19 by more than 15% for the month of March 2020, as compared to the monthly revenue of March 2019, that corporation is eligible for the wage subsidy.
On the other hand, a corporation that operates from 3 locations, one in Canada, one in the US and one in the UK, if the overall decrease in revenues was more than 15%, we would then have to analyze the decrease of the Canadian location only and determine if it has decreased by more than 15%. If it has not, the corporation would not satisfy the revenue decrease condition.
On March 27, it was announced that revenue would be calculated using the employer’s normal accounting method, and would exclude revenues from extraordinary items and amounts on account of capital. For added flexibility, employers would be allowed to measure revenues either on the basis of accrual accounting (as they are earned) or cash accounting (as they are received). Once chosen, the same accounting method would have to be used throughout the program period.
What is the amount of the subsidy?
The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020, would be the greater of:
a) 75% of the amount of remuneration pay paid for a maximum of $847 per week, and
b) The lesser of:
i. The weekly remuneration, up to a maximum of $847; or
ii. 75% of the employee’s pre-crisis remuneration.
As an example, CSC Logistics Inc. is a transportation corporation with employees working from a single location in Canada. Due to the COVID-19 pandemic, the corporation experienced a 78% drop in shipments.
Shawn is an experienced logistics officer and handles all the international air freight scheduling for CSC. Shawn has agreed to a reduced compensation provided that he only works 2 days a week for a weekly salary $465. Before March 15, 2020 his weekly salary $1,162.00
CSC Logistics Inc. would be entitled to a subsidy to assist it in retaining Shawn and perhaps increasing his hours and accordingly his pay.
The subsidy would be calculated as the greater of
a) 75% x 465.00 = 349.00 and
b) The lesser of:
i. 465.00 or
ii. 75% x 1,162.00 = 871.50
In this case, for the periods of March 15 to May 9, CSC would be entitled to $465.00 as a wage subsidy per week.
Had Shawn kept working full time, the employer would have been eligible to 75% of $1,162 or $871.50.
How to apply?
Eligible employers would be able to apply for the Canada Emergency Wage Subsidy through the Canada Revenue Agency’s My Business Account portal.
How does it interact with the Canada Emergency Response Benefit?
An employer would not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is benefitting from the Canadian Emergency Response Benefit.
The employers, who are not eligible for the Emergency Wage Subsidy, would still be able to furlough employees who will receive up to $2,000 a month.
Is the Emergency Wage Subsidy taxable?
As with any government assistance provided, the wage subsidy reduces the remuneration expense and indirectly increases net income subject to income tax.
The integrity of the program is crucial to bring employees back to work and stimulate the economy. The government has mentioned that willful misrepresentation to obtain the wage subsidy will be accompanied by severe consequences.
For further information please contact your RSW advisor.