More revisions to the emergency wage subsidy program

For small business it’s worthwhile untangling the red tape

By Evelyn Jacks and Beth Graddon

The federal government announced a third round of enhancements to its Canada Emergency Wage Subsidy (CEWS) program on April 8, as it tries to stave off thousands of bankruptcies across the small-business community. MPs will need to be recalled to Parliament to enact the legislation, which reduces the 30% revenue test to 15% for March only and introduces an alternative method for calculating the revenue. Some employer-paid CPP/EI refunds may also be available.

Canada’s COVID-19 Economic Response Plan has evolved through seven news releases since March 13, and the sheer pace of some of these changes has left professionals, business owners, and employees alike floundering in the dust. This week, the following new measures were introduced:

The 75% Canada Emergency Wage Subsidy: This is now for employers who suffer a decline in revenues of 15% or more in the period March 15 to 31 and 30% or more for the period of April 1 to June 6, 2020. These comparisons can be based on two calculation options:

1. This month compared with the same month last year.

2. An average of revenue earned in January and February 2020. Employers would select the general year-over-year approach or this alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program.

Apply for this wage subsidy through CRA’s My Business Account portal.

The subsidy covers 75% of wages paid to new employees and 100% of the first 75% of remuneration paid to existing employees. A maximum of $847 per week or 75% of pre-crisis weekly remuneration (whichever is less) will apply. Business must re-apply for the subsidy monthly and may access funding over three eligibility periods, provided that there was a decline in revenues of 30% or more in April or May; or as above, 15% in March.

Cash or accrual, not both. It was also announced that a cash-basis accounting method may be used rather than accrual accounting, but not a combination of both. The accounting method used when first applying for the CEWS would be used for the entire duration of the program.

For registered charities and non-profit organizations, the calculation will include most forms of revenue, excluding revenues from non-arm’s-length persons. These organizations can also choose whether or not to include revenue from government sources as part of the calculation. Again, the same approach would have to apply throughout the program period.

Penalties. A robust audit trail is required. The amounts will need to be repaid if criteria can’t be met. Penalties can range up to 225% of the amount received and up to five years in prison apply for fraudsters.

CESW and EI. For employers and employees who are participating in a Work Sharing Program, EI benefits received by employees through the Work Sharing Program will reduce the CEWS.

Reducing EI and CPP premiums. There is 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 those employees are on leave with pay, and for which the employer is eligible to claim the CEWS for those employees.

In general, an employee will be considered on leave with pay throughout a whole week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that time.

This EI/CPP 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. There is also no overall limit on the refund amount that an eligible employer may claim.

Employers would be required to continue to collect and remit employer and employee contributions to each program as usual and then apply for a refund, at the same time that they apply for the CEWS.

The 10% temporary wage subsidy for employers: On March 25, 2020, the COVID-19 Emergency Response Act, received Royal Assent, and in it was the implementation of a temporary 10% wage subsidy. Employers should initiate this subsidy for their April 15 payroll remittance. For employers that are eligible for both the CEWS and the 10% wage subsidy for a period, there will be an adjustment. Any benefit from the 10% wage subsidy for remuneration paid in a specific period will reduce the amount available to claim under the CEWS in that same period.

This is a payroll remittance reduction of 10% of wages paid March 18 to June 19 (3-months), up to $1,375 per employee or $25,000 per employer. This subsidy will be available to eligible employers regardless of revenue loss and it is taxable.

This subsidy is claimed by reducing the income tax remittances owing to CRA. If income tax remittances are fully offset by the value of the subsidy, future payroll remittances can be reduced by the excess even if they fall outside the application period, which ends June 19, 2020.

100% minimum wage subsidy. There’s more, but few details are available at this time. Employers who hire students through the Canada Summer Jobs Program will be eligible to receive 100% of provincial or territorial minimum wages paid in a new qualification period extending to February 2021.

Evelyn Jacks is an award-winning financial educator, best-selling author, tax expert, and founder of Knowledge Bureau™, a widely respected financial education institute and publisher which has welcomed thousands of students from the various financial services to its online and in-class programs. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com. Beth Graddon, Knowledge Bureau’s Marketing & Communications Strategist, contributed to this article.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.