Last week we wrote to you about the Canada Emergency Wage Subsidy that was announced on March 27, to help businesses retain and hopefully rehire some of the laid-off workers due to the challenges posed by the COVID-19 pandemic.
The point of this wage subsidy is not just to prevent further job losses, but to assist companies and employers to more easily return to normal operations. This is done with the expectation that employers will do their part by using the subsidy in a manner that supports the health and well-being of their employees.
WHO IS ELIGIBLE?
Eligible employers include:
- Sole proprietors
- Partnerships consisting of eligible employers
- Not-for-profit organizations
- Registered charities
This subsidy is available to employers that experienced a drop of at least 30% in their revenues due to the COVID-19 pandemic.
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|
How is revenue determined?
Revenues are defined as those from a business that is 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 30%, 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 30%, we would then have to analyze the decrease of the Canadian location only and determine if it has decreased by more than 30%. If it has not, the corporation would not satisfy the revenue decrease condition.
Revenue is calculated using the employer’s normal accounting method and would exclude revenues from extraordinary items and amounts on account of capital.
How is the decrease in revenues calculated?
The decrease in revenue is calculated by the change in the eligible employer’s monthly revenues, using the year-over-year method, for the calendar month in which the period began.
Accordingly, if the March 2020 revenues have declined by more than 30% compared to March 2019, the employer would be allowed to claim the Canadian Emergency Wage Subsidy on remuneration paid during the first period or between March 15 and April 11, 2020.
The same would apply with April 2020 in comparison for April 2019 for which salaries for period 2 would be subject to the subsidy and for May 2020 in comparison to May 2019 for which salaries for period 3 would be subject to the subsidy.
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, is the greater of:
- 75% of the amount of remuneration paid up to a maximum of $847 per week, and
- The lesser of:
- The weekly remuneration, up to a maximum of $847; or
- 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 of $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
- 75% x 465.00 = 349.00 and
- The lesser of:
- 465.00 or
- 75% x 1,162.00 = 871.50
In this case, for the period of March 15 to April 11, 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 will be able to apply for the Canada Emergency Wage Subsidy through the Canada Revenue Agency’s My Business Account portal. More details about the application process will be supplied in the coming days.
How does it interact with the Canada Emergency Response Benefit?
An employer will 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 eligible for 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.