Out with the Old and in with the New – the Canada Emergency Wage SubsidyFriday, April 3, 2020
Read online or download the full update here.
On March 30, 2020, Prime Minister Justin Trudeau announced the new Canada Emergency Wage Subsidy (the “Wage Subsidy”), which extended relief to almost all employers and increased the amount available to 75% of remuneration paid to an employee to a maximum of $847 per week. On April 1, 2020, Finance Minister Bill Morneau provided further details on the new Wage Subsidy.
We provide below a high-level Q&A of what employers need to know, so far:
1. What is the point of this?
“Get ready to rehire people” is the message from the federal Government. The goal behind the Wage Subsidy is to enable employers to keep and return employees to their payroll and to alleviate cashflow challenges that have resulted from the Covid-19 crisis. The Wage Subsidy does not replace the previously announced 10% wage subsidy described in our prior update here.
2. Is my business eligible?
Most employers in Canada, including individuals, partnerships, charities, non-profits, and taxable corporations, irrespective of size and regardless of whether they are publicly traded or private, Canadian or foreign-owned, will be eligible for the Wage Subsidy. Public bodies, including municipalities, public universities, schools, and hospitals, will not be eligible. The Wage Subsidy is available to eligible employers who experience a drop of at least 30% in their revenue.
3. How much can my business receive?
The Wage Subsidy is available to employers on remuneration paid to an employee (existing and new) between March 15 and June 6, 2020, which may be extended. The amounts available under the Wage Subsidy are capped at $847 per week per employee and are equal to the greater of: (i) 75% of the remuneration paid, and (ii) the lesser of (a) the amount of remuneration paid, and (b) 75% of the employee’s pre-crisis weekly remuneration. The federal Government is expected to provide further guidance on the definition of “pre-crisis weekly remuneration.” Employers are capped at 75% on the first $58,700 of an employee’s remuneration, but not capped on the number of employees.
Remuneration is used in the normal course sense, referring to salary, wages and other remuneration from which employers are generally required to withhold or make deductions. Not included in remuneration are payments like severance pay, stock option benefits or the personal use of a corporate vehicle.
4. How do I calculate the 30% or more decline in revenue?
The 30% or more decline in revenue test is based on an individual employer basis, and not on a consolidated basis. An employer would be required to examine revenue from its business carried on in Canada and earned from arm’s length sources and determine the change in monthly revenues, year-over-year, for the calendar month in which the period began. Amounts received under the Wage Subsidy are not to be included in the determination.
Start-ups and other eligible employers which were not in existence prior to February 2019 may still be able to receive the Wage Subsidy by comparing monthly revenues to a “reasonable benchmark.” However, the Wage Subsidy does not address relief for those owners that do not draw salaries, but are still suffering. More details on that and what constitutes a “reasonable benchmark” will be needed.
5. How do I apply for the Wage Subsidy and when can I get it?
Applications for the Wage Subsidy can be made online using Canada Revenue Agency’s My Business Account portal which should be available “soon.” While no exact details have been provided as to what proof an employer must submit to receive the Wage Subsidy, employers are expected to keep records demonstrating the reduction in arm’s length revenues and remuneration paid to employees. Employers will be required to apply for the Wage Subsidy for each claim period and payments under the program are expected to be made within 3-6 weeks.
6. What happens when this is all over?
The Wage Subsidy is considered to be government assistance and would therefore be required to be included in the employer’s taxable income, which could impact certain federal tax credits.
In light of the ever-evolving state of emergency in Canada, this Wage Subsidy has an “act now and deal with the consequences later” approach. As such, most employers will likely be able to receive the Wage Subsidy, however, once the dust has settled, if it is determined that the employer did not meet the eligibility requirements or pay their employees accordingly, the employer will be required to repay the amounts received under the Wage Subsidy.
People who provide false or misleading information in order to claim the benefit or who misuse the funds obtained under the Wage Subsidy have been warned that they can face fines or even imprisonment under new offences being considered by the federal Government.
If you have any questions with respect to the matters discussed above, please contact Marija Tasevska at firstname.lastname@example.org, Katy Pitch at email@example.com, or any other member of our Tax practice group.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.