The Canada Emergency Wage Subsidy
Previously, we wrote about the initial emergency relief Canada Emergency Wage Subsidy (CEWS) implemented by the Government of Canada. As the changes implemented on November 19th build on the already existing CEWS, it is important to have a good understanding of the initial program. Our earlier blog posts on the COVID-19 Benefit Programs and CEWS and can be found here and here.
Essentially, the CEWS operates by subsidizing a percentage of the employee wages to Canadian employers who have seen a drop in their revenue due to the pandemic. The primary goal 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. This fundamental characteristic has not changed, and it continues to be the purpose which drives the CEWS.
Changes to the Canada Emergency Wage Subsidy
The following are some notable changes to the CEWS as of November 19, 2020.
- The CEWS has now been extended to June 30, 2021. Moreover, the deadline to apply for the CEWS has been extended to the later of:
- January 31, 2021; or
- 180 days after the end of the claim period.
- The maximum subsidy rates for periods 8 to 10 will remain at 65% (40% base rate + 25% top – up rate) up to the maximum weekly benefit of $734. To be eligible for the maximum 65% subsidy rate, there must be a revenue drop of 70% or more. The following is the dates for the eligible periods:
- Period 8 – September 27, 2020 to October 24, 2020;
- Period 9 – October 25, 2020 to November 21, 2020; and
- Period 10 – November 22 to December 19, 2020.
- Beginning in period 8, the calculation for the top-up rate is based on the higher revenue drop between the following:
- One – month revenue drop for the claim period month used to calculate the base rate; and
- The average revenue drop of the three months prior to claim period month.
Any employer who experiences a revenue drop less than 50% is not eligible for the addition of the top – up rate. Therefore, this change would only apply for employers who have experienced a revenue drop of more than 50%. Click here for the breakdown and calculation of the subsidy amount. The calculator has been updated to include the changes implemented on November 19th, 2020.
- The term “eligible employee” has now been narrowed down to include only those individuals who have been employed in Canada primarily throughout the relevant qualifying period. In other words, wages paid to employees that are not employed in Canada are no longer eligible to be subsidized.
The Canada Emergency Wage Subsidy – What to Watch For?
The changes to the CEWS should be welcomed by Canadian employers as they are ultimately made for their benefit. However, the added changes to the program also mean more calculations and moving parts to consider.
It is critical to remember that the CRA can and will audit taxpayers they suspect are not eligible for the CEWS. The CRA will likely start the audit process by issuing a questionnaire. These questionnaires would be sent to the taxpayer who applied for relief via one of these programs and notify them that the CRA is looking for further clarification with respect to their claim.
For the CEWS, the questionnaire would be concerned with how the employer calculated their payroll for the period for which the employer applied for relief and whether or not the employer had a valid business number and payroll account with the CRA.
Most importantly, the questionnaire would be concerned with how and on what basis the employer calculated their revenue declines. As shown above, the subsidy amount base rate and top up rate depends on the amount of revenue decline experienced by the employer. Therefore, it is imperative that the calculations are done properly.
What initially may seem like a lifeboat can turn out to be a financial and emotional setback if the CRA comes knocking. If you have questions about CEWS or your business is being audited, 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.