Updated April 23, 2020
On March 27th, the Federal Government announced that it would vastly expand its original plan to provide wage subsidies for businesses struck by COVID-19 disruptions. The government announced that almost all businesses would receive subsidies of up to 75% of wages. The original proposal of 10% for only small businesses will continue to operate, but will be deducted from the subsidies of any employers participating in both programs.
On April 11, 2020, Parliament passed the COVID-19 Emergency Response Act, No. 2, turning the new Canada Emergency Wage Subsidy (“CEWS”) into law.[1] The new Act provided much needed clarity on the operation of the CEWS. This article reviews the publicly available details and discusses the implications for Developmental Services Sector (“DS Sector”) employers. Employers should also review the Government’s own brief on the CEWS.[2]
Before diving into the details, employers should be aware that applications for the CEWS open online on April 27, 2020 through the CRA’s My Business Account web portal. Further, the Federal Government has provided a detailed information page on the CEWS with a calculator tool employers can use to determine what amount of subsidy they are eligible to receive.
Latest Details on the Program
(a) How Will the CEWS Be Paid
The law as drafted indicates that the subsidy will be paid as a tax refund to eligible employers. The Government is empowered to make these payments at any time in the year.
(b) Eligibility for the Wage Subsidy
The CEWS would be available to all individuals, taxable corporations, partnerships, non-profits, and registered charities that have suffered a 15% revenue drop between March 15-April 11 and a 30% revenue Drop between April 12 to May 9 or May 10 to June 6. It will be available on a month-by-month basis to any employer that qualifies in any of these periods. If an employer qualifies in one month, they are deemed to qualify the next month (automatically ensuring at least two months of coverage).
The CEWS would not apply to public entities (such as local governments, Crown corporations, public universities, colleges, schools, and hospitals.), but will apply to many charities and non-profits in the DS Sector even if they receive public funding. For-profit companies will also be eligible. There is no cap on the number of employees who can receive the subsidy under a single employer.
The revenue-drop requirement will be evaluated by reference to an employer’s performance at this time last year or their performance in January and February. The employer can choose their comparator period from among these two options.
Qualifying revenue includes inflow of cash, receivables, or other consideration from ordinary activities (such as rendering of services). For registered charities, it includes revenue from related businesses, gifts, or other amounts (e.g. donations). For non-profits, it includes membership fees. For both registered charities and non-profits, the employer may elect to exclude funding received from government sources in determining if its revenue qualifies. Extraordinary items are also included for all entities. It excludes non-arm’s length revenues.
The fact that charities and non-profits can elect to exclude public funding from revenue calculations leads to an interesting result. It appears that such an organization could elect to calculate their revenue entirely through non-public funding sources, even if they are almost entirely publicly funded. This could lead to the wage subsidy applying to all employees even if there is in fact only a small drop in funding. When our firm contacted the CRA to inquire as to whether this was the case, they expressed surprise at the result but confirmed that they were unaware of any reason in the rules as to why this would not be the outcome. We will provide more information on this point if and when it becomes available.
In most cases, qualifying revenues determined in accordance with the entity’s normal accounting practices. However, there are special rules for entities that obtain all or substantially all of their qualifying revenue from non-arm’s length sources. Employers can choose to calculate their revenues under the accrual or cash method, but not both or a mix of both for some months but not others.
Finally, the Government recently announced that an employer that meets the qualifying threshold for revenue one month will be deemed to meet the next month. For example, if an employer qualifies in March, they will automatically be eligible for the benefit in April.
(c) How Long Does the Program Run For?
The wage subsidy program is presently scheduled to run for three month-long qualifying periods, retroactive to March 15th, 2020. Each qualifying period, employers will have to demonstrate that they qualify for that given month. The relevant qualifying periods are:
| Qualifying period | Reference period for eligibility | |
| Period 1 | March 15 – April 11 | March 2020 over March 2019 |
| Period 2 | April 12 – May 9 | April 2020 over April 2019 |
| Period 3 | May 10 – June 6 | May 2020 over May 2019 |
Employers will receive the benefits for the months where they do qualify, and will not receive the benefit for the months where they do not qualify. As stated above, however, the Government is now automatically deeming that an employer who qualifies on the merits in one qualifying period will be deemed to qualify for the next one (guaranteeing at least two months off coverage).
The program may be extended by the Government through regulation thereafter up until September 30, 2020.
(d) How Much Will Be Paid and to Which Employees
Wage subsidies are available for both current employees and new employees. Eligible employees are those that are employed in Canada by the employer for the relevant qualifying period but does not include those who have no remuneration from the employer for 14 or more consecutive days in the qualifying period (e.g. employees in receipt of the Canada Emergency Response Benefit or “CERB” for that month).
Employees who were hired before the crisis will be eligible for up to 75% of their pre-crisis weekly remuneration or $847 a week, whichever is less. Pre-crisis remuneration is the average remuneration received by the employee from January 1, 2020 to March 15, 2020, excluding any 7 or more consecutive days not working.
Employees who are hired during the crisis are eligible for the wage subsidies and can receive 75% of their wages under the benefit (up to a maximum of $847 a week).
There are special rules for employees who do not deal at arm’s length with the employer.
Eligible remuneration will include wages, salary, and other remuneration that would normally have withholdings or deductions applied for income tax (excluding some forms of remuneration such as retiring allowances and stock options).
Note, employers cannot apply the benefit towards any employee receiving the Canada Emergency Response Benefit in the relevant pay period.
Employers will have to attest to making best efforts to top up the remaining 25% of compensation. It remains unclear at this time what measures will be in place to require this beyond the attestation. However, Finance Minister Bill Morneau has suggested that there will be flexibility in enforcing this in recognition of the difficult times facing some employers.
Employees do not have to actually perform work to receive the subsidy, and will be on a paid leave if they do not. However, the treatment of working and non-working employees is slightly different, per the next section on Employment Insurance (“EI”) and Canada Pension Plan (“CPP”) refunds under the CEWS.
(e) EI and CPP Refunds Under the CEWS
The CEWS was also recently expanded to include EI and CPP contribution refunds for employers of employees who are on paid leave with CEWS eligible income and who are not performing work. Employers must still withhold and remit EI and CPP deductions for these employees, but can apply for a refund when applying for the CEWS.
This additional benefit will not apply for employees who are performing work.
(f) How and When Do Employers Apply
As stated, staring on April 27, 2020, Employers can apply through the CRA My Business Account portal as well as through a web-based application (details of this application have not yet been released). They would need to keep records demonstrating a reduction in revenues and records of remuneration paid to employees. At present, the law states that employers must apply no later than October 30, 2020. However, employers should monitor Government CEWS webpages to determine if earlier deadlines are announced.
(g) Other Considerations and Details
The wage subsidy will be taxable income. Further, as government assistance, it will reduce the amount of remuneration expenses that are eligible for other federal tax credits calculated using the same remuneration.
Employers that receive the benefits without actually meeting the qualifications will have to pay the benefits back. There are also anti-avoidance clauses that deem a corporation ineligible for the benefit if they try to deliberately change their revenues to qualify. A penalty of 25% of the subsidy that they would have received will be applied against them as well. There will also be penalties in cases of fraud.
Implications for Organizations in the DS Sector
These new subsidies will be very useful to many organizations in the DS Sector. This is particularly the case for organizations who have experienced reduced revenues due to program closure and/or charitable donations. It will have less immediate effects on organizations who have not yet seen substantial drops in their non-government funding revenue.
Employers who are reliant on fee-for-service to fund their operations and who have seen their operations grind to a halt will be the clearest beneficiaries of the wage subsidies in the DS sector. Programs may include fee-for-service day supports, day cares, respite programs, passport-funded community participation programs, and other programs that have been suspended or eliminated.
In these turbulent times, with the prospect of an economic recession in the news daily, organizations that are reliant on donations may also be seeing declining revenues and may therefore be eligible for the wage subsidies.
Finally, organizations that primarily rely on government funding are unlikely to see falls in such funding at this time (based on assurances from the Provincial Government). However, they can elect to determine if they are eligible solely on their other forms of revenue. Further, if their funding is time-limited or they are also substantially funded through other means, they may see reductions in revenue that qualify them for wage subsidies based on their government funding. This is a large benefit for them as well.
PooranLaw will continue to monitor legal developments related to the Canada Emergency Wage Subsidy. In the meantime, if you require legal assistance, we encourage you to reach out to your regular PooranLaw lawyer, or any member of our team.
[1] https://www.parl.ca/DocumentViewer/en/43-1/bill/C-14/third-reading
[2]https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html
Note: This article provides general information only and does not constitute, and should not be relied upon as, legal advice or opinion. PooranLaw Professional Corporation holds the copyright to this article and the article and its contents may not be copied or reproduced in any form, in whole or in part, without the express permission of PooranLaw Professional Corporation.
