Canada Emergency Wage Subsidy Audits
COVID-19 and the Canadian government’s response to lockdown parts of the country has naturally left many businesses struggling to operate. For some businesses, revenue have fallen so sharply that they are faced with the possibility of shutting down if they don’t receive assistance.
Canada Emergency Wage Subsidy
In response, the Government of Canada implemented a broad range of emergency benefits to help businesses through these challenging times. Most notably, the federal government enacted the Canadian Emergency Wage Subsidy (CEWS).
The CEWS operates by subsidizing up to 75% (up to a maximum of $847 per week) of the employee wages to Canadian employers who have seen a drop in their revenue due to the pandemic. In other words, the objective of the CEWS is to act as a financial crutch for businesses to re-hire workers, prevent further job losses and ease companies back into normal operations.
It follows that the CEWS program is not intended to help businesses that have not been financially affected by the pandemic.
Canada Emergency Wage Subsidy and CRA Audits
To ensure that the CEWS is achieving its objective, the Canada Revenue Agency announced that they will launch an audit pilot project to verify that CEWS applicants were in fact eligible and fraudulent transactions were not being abused.
As of August 25, 2020, it was reported that the CEWS paid out approximately $30 billion dollars to nearly 300,000 applicants.
Potential Consequences for Ineligible Applicants
If the CRA audits a Canadian employer/business and subsequently deems them ineligible, there are various potential ramifications.
First, an employer that is determined not to be eligible for the CEWS must repay all amounts paid under the wage subsidy program.
An employer will also have to return or repay all or part of the wage subsidy where:
- It made an error in the calculation of the amount claimed for a period, thereby reducing the amount originally claimed;
- It noticed that it did not qualify for the wage subsidy after submitting the application and receiving the subsidy;
- It noticed that made a data entry error (typo), thereby reducing the amount originally claimed for a period; and
- On a review of its claim by the CRA after it received the subsidy, the claim amount was either rejected or reduced by the CRA.
Furthermore, if the CRA determines that an employer knowingly, or under circumstances amounting to gross negligence, made a false statement or omission in its CEWS claim, the employer is liable to a penalty up to 50% of the difference between the amount of wage subsidy that it claimed in its application and the amount of wage subsidy to which it is actually entitled.
Lastly, if the CRA finds that a CEWS claim was made fraudulently, a criminal investigation and prosecution can be charged in addition to the civil penalties. A person convicted of a criminal offence related to a fraudulent CEWS claim faces the potential of imprisonment.
Examples of inappropriate conduct by the Canadian employer would include underreporting or even intentionally decreasing their business revenue to qualify for the CEWS. Another example would include “hiring” the services of family members and friends to receive the CEWS. As always, the finding of gross negligence and criminal prosecution would be determined on a case-by-case basis and on the specific facts.
The Onus is on the Taxpayer
It’s important to be mindful that once an audit is commenced, the onus is solely on the taxpayer (in this case Canadian employer/business) to prove they are eligible for the CEWS. This means that any further requests made by the CRA regarding records and proof of operations of the business must be adhered to in order to prove eligibility.
Considering the serious potential risks involved in the CEWS audit, it is critical that applicants understand their obligations to ensure their interests are protected. If you need assistance with the CEWS or any pending audits, professionals at Rosen Kirshen Tax Law have a proven track record fighting against claims by the CRA. Facing against the pandemic and its effects alone is a daunting task. Taxpayers should not have to also worry about the CRA making claims against them. Call us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.