Updated: Out with the Old and in with the New – the Canada Emergency Wage SubsidyWednesday, April 8, 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. Finance Minister Bill Morneau provided initial details of the Wage Subsidy on April 1, 2020 and on April 8, 2020 he announced a further expansion of the Wage Subsidy. Based on the announcements made on April 8, 2020, we have updated the information provided in our initial update on the Wage Subsidy, and will further update you as more information becomes available.
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 decline of at least 15% in their revenue for the March claim period, and a 30% decline for the April and May claim periods. This makes sense given that the full brunt of the crisis was not felt by most employers until the middle of March.
3. How much can my business receive?
The Wage Subsidy is currently available to employers on remuneration paid to an employee in Canada (existing and new) between March 15 and June 6, 2020. 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. Pre-crisis weekly remuneration is based on an employee’s average weekly remuneration paid between January 1 to March 15, 2020, excluding any seven-day periods during which the employee did not receive any 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.
Additionally, the federal Government is proposing to refund 100% of the employer’s contributions to the Canada Pension Plan, Employment Insurance, Quebec Parental Insurance Plan and Quebec Pension Plan for employees that are on leave with pay and for which the employer is eligible to claim the Wage Subsidy, with no limit on the refund amount an employer can claim. This refund is not limited to the $847 weekly cap in respect of the Wage Subsidy.
4. How do I calculate the decline in revenue?
The decline in revenue test is based on an individual employer basis, and not on a consolidated basis. An employer would generally be required to examine its revenue in Canada from arm’s length sources for the months of March, April and May 2020 and determine the change in monthly revenues based on two possible benchmarks: (i) comparing monthly revenues year-over-year for the same calendar month, and (ii) comparing monthly revenues to the average of revenues for January and February 2020. Employers will be able to calculate revenues using either the accrual or cash method and must use the chosen method for the entire duration of the Wage Subsidy. Amounts received under the Wage Subsidy are not to be included for the purpose of calculating the year-over-year revenue change.
More details are required to determine whether the Wage Subsidy will provide relief for those owners that do not draw salaries, but are still suffering.
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 a web-based application or 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. Employers who artificially reduce their revenue in order to claim the Wage Subsidy may also be subject to a penalty equal to 25% of the value claimed.
People who provide false or misleading information in order to claim the benefit or who misuse the funds obtained under the Wage Subsidy can face fines of up to 225% of the amount they have received under the Wage Subsidy and up to five years in prison.
If you have any questions with respect to the matters discussed above, please contact Marija Tasevska at email@example.com, Katy Pitch at firstname.lastname@example.org, 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.