Breaking Down the Canada Emergency Wage Subsidy (CEWS)

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What is it?

The Canada Emergency Wage Subsidy (CEWS) is a subsidy program introduced by the Canadian government that began on March 15, 2020. The CEWS provides a subsidy to eligible employers in the amount of 75% of eligible remuneration paid to each eligible employee up until the claim period ending July 4, 2020. Following the initial CEWS announcement, the government extended the program for 24 weeks and added additional rules for claim periods ending after July 4, 2020 (Canada Revenue Agency, 2020).

Further, the claim periods ending August 1, 2020 (period 5) and August 29, 2020 (period 6) are considered safe harbour periods (discussed below) that entitle eligible entities to use the prior CEWS rules for the subsidy rate determination if it is advantageous to do so. After these safe harbour periods, the CEWS rate is determined based on a base subsidy rate calculation and top-up calculation that relates to the entity’s revenue decline (Canada Revenue Agency, 2020).

Claim Periods & Reference Periods

The CEWS claim periods are the periods that encompass the remuneration paid to eligible employees and the reference periods are the periods used for revenue comparison purposes. The revenue comparison can be done using a general year over year approach (ex. March 2020 to March 2019) or an alternative approach (ex. March 2020 to January/February 2020 average). The qualifying periods, reference periods, and prior reference periods are as follows (Canada Revenue Agency, 2020):

Qualifying (Claim) Periods

Figure 1 Claim Periods – Canada Revenue Agency (2020)

Reference Periods (used for revenue comparison)

Figure 2 Reference Periods – Canada Revenue Agency (2020)

Prior Reference Periods (used for revenue comparison)

Figure 3 Prior Reference Periods – Canada Revenue Agency (2020)

Note: An eligible employer must use the alternative approach if from periods 1 to 4:

Figure 4 Alternative Approach Criteria Periods 1 to 4 – Canada Revenue Agency (2020)

And for periods 5 to 9:

Figure 5 Alternative Approach Criteria Periods 5 to 9 – Canada Revenue Agency (2020)

Employer Eligibility

An eligible employer is:

A corporation or trust (other than a corporation or trust that is exempt from tax under part I of the Income Tax Act or is a public institution

  • An individual other than a trust
  • A registered charity other than a public institution
  • A person that is exempt from Part I of the Income Tax Act (other than public institutions) that is:
    • An agricultural organization
    • A board of trade or a chamber of commerce
    • A non-profit corporation for scientific R&D
    • A labour organization or society
    • A benevolent or fraternal benefit society or order
    • A non-profit organization
  • A partnership, each member of which is a person or partnership described in this list
  • A prescribed organization, Including certain Indigenous businesses

To qualify for the wage subsidy any of the above entities must meet the following conditions (Canada Revenue Agency, 2020):

  • On March 15, 2020
    • It had an open payroll program account (RP) with the CRA or,
    • It employed one of more individuals in Canada, had another person or partnership (payroll service provider) administer its payroll, and that payroll service provider,
      • Had an open payroll program account with the CRA on March 15, 2020
      • Used its business number to make payroll remittances in respect of employees
    • It registers subsequently with the CRA for its own payroll program account
  • For claim periods 1 to 4, it experienced the required reduction in revenue:

Table 1 Revenue Reduction for Periods 1 to 4 – Canada Revenue Agency (2020)

When using the alternative approach, the prior reference period revenue (January and February 2020 average) is calculated as follows:

Equation 1 – Alternative Prior Reference Period Equation – Canada Revenue Agency (2020)

Note: If an eligible employer has not experienced the required revenue reduction, they may still qualify based on deeming rules, please see:

Table 2 Deeming Rule Examples for Periods 1 to 4 – Canada Revenue Agency (2020)

  • For claim periods 5 to 9, it experienced any decline in revenue for that or immediately prior claim period:

Table 3 Base Subsidy Reference Periods – Canada Revenue Agency (2020)

Table 4 Top-Up Reference Periods – Canada Revenue Agency (2020)

Note:  If an eligible employer has not experienced the required revenue reduction, they may still qualify based on deeming rules for periods 5 to 9, please see:

Table 5 Deeming Rule Examples Periods 5 to 9 – Canada Revenue Agency (2020)

Safe Harbour Rule for Claim Periods 5-6

For claim periods 5 (July 5, 2020 to August 1, 2020) and 6 (August 2, 2020 to August 29, 2020) there exists a safe harbour rule which enables eligible employers to use the rules from periods 1 to 4 for the subsidy rate calculation:

Figure 6 Safe Harbour Rule Periods 5-6 – Canada Revenue Agency (2020)

Qualifying Revenue

Qualifying revenue of an eligible employer is the inflow of cash, receivables, or other consideration arising from the course of its ordinary activities in Canada in the respective period. These inflows arise from the sale of goods, the rendering of services, and the use of the eligible employer’s resources (Canada Revenue Agency, 2020).

For a registered charity, qualifying revenue includes gifts and other amounts received during its ordinary activities. Further, if the charity operates a related busines this income is also included in the charity’s qualifying revenue (Canada Revenue Agency, 2020).

For a non-profit organization, qualifying revenue includes membership fees and other amounts received in the course of its ordinary activities (Canada Revenue Agency, 2020).

Items excluded from qualifying revenue includes amounts from extraordinary items, amounts on account of capital, and amounts received from entities that the eligible employer deals with at non-arm’s length. Further, amounts received from the CEWS and the TWS (Temporary Wage Subsidy) are excluded as well (Canada Revenue Agency, 2020).

Cash Basis vs Accrual Basis

An eligible employer may elect to use an alternative method of revenue recognition for the purpose of qualifying revenues. For instance, if the normal accounting practice is accrual-based the employer may elect to use the cash basis and vice versa. However, once the employer elects this they must use this method for all CEWS claim periods and cannot use a combination of these methods. This election must be noted on the attestation form (Canada Revenue Agency, 2020).

Eligible Employees

An eligible employee is an individual employed in Canada by the eligible employer in the claim period. In claim periods 1 to 4, employees that were without remuneration for 14 consecutive days are not eligible. Beginning with Period 5, this 14-day rule has been removed. Further, eligible employee status is determined for each claim period (Canada Revenue Agency, 2020).

For employees that are non-arm’s length (shareholders and related individuals) with the eligible employer, they are eligible if they remit source deductions on their pay (not dividends) and if they had baseline remuneration:

Figure 7 Baseline Remuneration – Canada Revenue Agency (2020)

Retroactive Pay and CERB

An eligible employer may hire back eligible employees and pay them retroactively in respect of a claim period to qualify for the wage subsidy. However, if the employee received CERB during these periods they may be disqualified from CERB if they exceed the maximum gross income for the CERB eligibility. (please see https://www.canada.ca/en/services/benefits/ei/cerb-application/questions.html for more information regarding CERB). Thus, the eligible employer could claim the CEWS if an eligible employee received CERB, however, the individual may have to repay the CERB.

Eligible Remuneration

Eligible remuneration refers to the amounts paid to employee as salary, wages, and other remuneration, certain taxable benefits, and fees, commissions or other amounts paid for services (Canada Revenue Agency, 2020). These amounts are generally the amounts the employer would be required to make payroll source deduction remittances on. Further, these amounts are gross wages before any deductions take place.

Amount not considered as eligible remuneration are as follows:

Figure 8 Amounts that are not Eligible Remuneration – Canada Revenue Agency (2020)

Calculating the Wage Subsidy for Periods 1-4

Calculation assistance regarding the wage subsidy can be performed by our office (please call 780-532-4641 or e-mail office@fulcrumgroup.ca) , or alternatively you may visit https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsidy-amount.html for step-by-step instructions.

Further, the CRA has provided a spreadsheet for CEWS calculations. The spreadsheet for periods 1 to 4 can be downloaded here: https://www.canada.ca/content/dam/cra-arc/serv-info/tax/business/topics/cews/cews-calculation-p1-4.xlsx

Calculating the Wage Subsidy for Periods 5-6

Calculation assistance regarding the wage subsidy can be performed by our office (please call 780-532-4641 or e-mail office@fulcrumgroup.ca) , or alternatively you may visit https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsidy-amount.html for step-by-step instructions.

Further, the CRA has provided a spreadsheet for CEWS calculations. The spreadsheet for periods 5 to 6 can be downloaded here: https://www.canada.ca/content/dam/cra-arc/serv-info/tax/business/topics/cews/cews-calculation-p5-6.xlsx

Calculating the Wage Subsidy for Periods 7-8

Calculation assistance regarding the wage subsidy can be performed by our office (please call 780-532-4641 or e-mail office@fulcrumgroup.ca) , or alternatively you may visit https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsidy-amount.html for step-by-step instructions.

Further, the CRA has provided a spreadsheet for CEWS calculations. The spreadsheet for periods 5 to 6 can be downloaded here: https://www.canada.ca/content/dam/cra-arc/serv-info/tax/business/topics/cews/cews-calculation-p7-8.xlsx

Applying for the Subsidy

There are three ways to apply for the subsidy:

If you are not registered for any of the above, please register using the links below:

Should you have any further questions regarding the CEWS or wish for our firm to help with your application please call 780-532-4641 or e-mail office@fulcrumgroup.ca and it would be our pleasure to assist you.

References

Canada Revenue Agency. (2020, November 11). Frequently asked questions – Canada emergency wage subsidy (CEWS). Retrieved from Government of Canada: https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-frequently-asked-questions.html

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