Updated: Canada Emergency Wage Subsidy

UPDATED – APRIL 22, 2020

Bill C-14 dealing with the Emergency Wage Subsidy received Royal Assent on April 11, 2020. Please see below an updated version of the subsidy details based on the enacted legislation.

Who is eligible

  • The subsidy is available to eligible employers which include individuals, public and private taxable corporations (i.e. corporations that are exempt from Part 1 tax are specifically excluded), partnerships consisting of eligible employers, registered charities and NPOs (other than public institutions which include municipalities, universities, colleges, schools and hospitals). Unlike the 10% wage subsidy, even non-Canadian controlled companies could qualify for this subsidy.
  • Furthermore, the employer must have had a payroll remittance account registered with CRA on March 15th

Eligibility Criteria

  • The criteria will be based on a measurement of whether there is a minimum decrease in qualifying revenues, as defined. Specifically, there must be at least a 15% decrease in qualifying revenues for March and at least a 30% decrease in qualifying revenues for April and May. Employers will be required to attest to the decline in revenue.
  • There are now two benchmarks against which this decrease can be measured –
  • (a) Revenues can be measured against the same period last year. For example, qualifying revenues for the month of March this year would be compared to the qualifying revenues for the month of March last year and if there is at least a 15% decrease, the benefit will apply; or
  • (b) The average of qualifying revenues for January and February 2020  can be used to compare to revenues for March, April and May. An election is required in order to use this method.
  • Once the comparison method is chosen that method will have to be used for the entire subsidy period.
  • Once an employer determines it is eligible for the subsidy for a specific period, the employer will automatically qualify for the subsidy for the next period. For example if an employer determines they are eligible to receive the subsidy in respect of their March revenues, they will automatically qualify in respect of their April revenues. In this case, in order to qualify for May, the employer could use either their May revenues or their April revenues as a determinant.
  • Employers will need to re-apply for each eligible period. See “How to Apply” further in the document for further information.

Calculating revenues

  • An employer’s qualifying revenue would typically be its revenue in Canada earned from arm’s length sources. The calculation will be based on the employer’s normal accounting method and would exclude revenues from extraordinary items and amounts on account of capital. Employers would be allowed to calculate their revenues under the accrual or cash method, but not a combination of both. Employers would select an accounting method (i.e. between cash and accrual) when first applying and would be required to use that method for the duration of the program. Revenues under the cash method need to be determined in accordance with the rules set out in subsection 28(1) of the Income Tax Act
  • To offer flexibility to NPO’s and charities, they can choose whether or not they want to include government funding when calculating their revenues. Once chosen, the same approach would have to apply throughout the program.

Calculating Revenues  – Consolidated Financial Statements

  • An exception has been provided for situations where eligible entities normally prepare consolidated financial statements. These entities will be entitled to determine their qualifying revenue  separately as long as all members of the group determine their qualifying revenue on that basis. i.e. If group ABC usually prepares its financial statements on a consolidated basis each of A, B and C can elect to determine their eligibility separately but in that case either all would have to determine their eligibility separately or all would have to determine their eligibility together. This could be beneficial in situations where as a group the revenues have not declined at a rate that would qualify for the subsidy but separately some members of the group have sufficient decline in their revenues to qualify for the subsidy. There is no requirement that the method used to report consolidated revenues be used consistently throughout the period. I.e. the consolidated group can decide each period which method – consolidated or separate- would be more beneficial depending on the revenue levels.

Calculating Revenues  – Affiliated Groups

  • An exception has also been provided for affiliated eligible entities. Affiliated eligible entities can jointly elect to determine the qualifying revenue on a combined basis for the entire group. Examples of affiliated persons include an individual and their spouse, two corporations controlled by the same person or group of affiliated persons, and two partnerships if the same person is a majority – interest partner of both partnerships. Note that entities may be associated and not be affiliated. For example two corporations controlled by the same group of persons would be associated but unless the group of persons consists of affiliated persons (i.e. spouses or affiliated companies) the two corporations would not be affiliated. Family members other than spouses are not considered to be affiliated.
  • For example Company A and Company B are owned by the same individual, Bob and both companies have employees. Company A has not seen a decline in revenue but Company B has. The rules will allow Bob to combine Company A’s revenue with Company B’s revenue for the purpose of determining whether the affiliated group is eligible for the subsidy. If based on the combined revenue of the two companies the decline is such that the affiliated group qualifies for the subsidy, the subsidy will be available in respect of all eligible employees of both Company A and Company B.

    As in the case of consolidated groups, affiliated groups can choose whether to consider their revenue on an affiliated basis or separately each period. They would not be confined to using the same method (i.e. combined vs. separate) each period.  

Calculating Revenues  – Joint ventures

  • There is a special rule for eligible entities that are participants in a joint venture. If all or substantially all (i.e. 90% or more) of the qualifying revenue of the entity for a qualifying period is in respect of the joint venture, then the entity can use the qualifying revenue of the joint venture to determine if it is eligible for the subsidy.

Calculating Revenues  – Non-Arm’s Length

  • As noted above, qualifying revenue only includes revenue from arm’s length sources. However, where an eligible entity derives all or substantially all (i.e. 90% or more) of its revenue from one or more persons with whom it does not deal at arm’s length, there is a special rule that will allow the entity to calculate its eligibility for the subsidy based on the revenue calculation of the person(s) with whom it does not deal at arm’s length. For example say SubCo derives all of its revenue from its parent,  ParentCo, a non-arm’s length source. If ParentCo calculates its qualifying revenue from worldwide sources (i.e. this rule requires the calculation to use worldwide income and not just Canadian sourced income) and the decline in revenue falls within the “eligible criteria” amount then SubCo would be eligible for the subsidy for that period. If in this example SubCo derived it’s revenue from multiple non-arm’s length sources say 50% came from ParentCo and 50% came from a sister company, SisterCo, then SubCo would calculate its eligibility for the subsidy based on the percentage of its revenue (including non-arm’s length revenue) derived from each source. So in this case say ParentCo realized a 50% decline in revenue and SisterCo realized a 20% decline in revenue, SubCo would calculate its eligibility based on a 35% decline in revenue. Therefore SubCo would qualify for the subsidy since the calculated revenue declined exceeds the required amount in respect of the period.

Eligibility Periods

  • The benefit will be available for a twelve week period from March 15, 2020 to June 6, 2020. Eligibility would generally be determined by the change in an eligible employer’s monthly revenues. The amount of wage subsidy (provided under COVID-19 Economic Response Plan) received by the employer in a given month would be ignored for the purpose of measuring year over year changes in monthly revenues.

Eligible Periods

Claiming period

Required reduction in revenue

Reference period for eligibility

Period 1

March 15
April 11


March 2020 over:

  • March 2019 or
  • Average of January and February 2020

Period 2

April 12
May 9


Eligible for Period 1
April 2020 over:

  • April 2019 or
  • Average of January and February 2020

Period 3

May 10
June 6


Eligible for Period 2
May 2020 over:

  • May 2019 or
  • Average of January and February 2020

Calculation of the Subsidy

  • For the purpose of calculating the subsidy eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. However, it does not include severance pay, a retiring allowance or items such as stock option benefits or the personal use of a corporate vehicle
  • The baseline remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven day periods in respect of which the employee did not receive remuneration.
  • The subsidy amount for an arm’s length employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:
    • 75 per cent of the amount of remuneration paid during the eligible period, up to a maximum benefit of $847 per week; and
    • the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s baseline remuneration, whichever is less.
  • In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of an employee’s baseline remuneration or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ baseline remuneration.
  • If the same employee works for more than one entity within a non-arm’s length group of entities, the total subsidy claimed in respect of that employee cannot exceed the maximum benefit that would have applied to the combined wage if paid by one entity in the group.  
  • An employer cannot artificially increase the remuneration of an arm’s length employee for the purpose of the subsidy calculation. I.e. an employer can’t temporarily increase an employee’s wage for the purpose of increasing the subsidy and then require the employee to “repay the increase” though a reduced wage in a subsequent period.
  • A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration (i.e. the subsidy cannot be earned on amounts paid in excess of the baseline remuneration) paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s baseline remuneration. The subsidy would only be available in respect of non-arm’s length employees employed prior to March 15, 2020. For greater clarity, if no remuneration was paid in January through March 15, 2020, no subsidy would be available.
  • Employers will also be eligible for a subsidy of up to 75% of salaries and wages paid to new employees.
  • There is no overall limit on the subsidy amount that an eligible employer may claim.
  • The Government has indicated that employers should make their best efforts to top-up employees’ salaries to bring them to their baseline levels. There is no provision within the legislation concerning  the government’s “best efforts” comment.

Supplemental refund for payroll taxes for employees on leave with pay

  • In order to encourage employers to hire back employees, the government is now introducing 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 throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees. In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week.
  • This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.
  • The refund would not be subject to the weekly maximum benefit per employee. There would be 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. Eligible employers would apply for a refund at the same time that they apply for the CEWS.

How to Apply for the Subsidy

  • The program will be run by CRA. A prescribed form (not yet available) will be required and will enable businesses to apply on-line through the My Business Account CRA portal or as a web-based application.  Employers will have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees. More details about the application process will be made available shortly.
  • Funds are expected to be available within six weeks and the portal is expected to be ready in approximately three weeks. The government has suggested that businesses sign up for direct deposit in order to get their money faster.
  • Eligible employers will have until the end of October 2020 to apply for the subsidy.
  • The employer will have to attest that the application is complete and accurate.
  • Payments to subsidy applicants is expected within the next 2 to 4 weeks.
  • The legislation contemplates allowing the government to extend the CEWS to the end of September 2020 if the circumstances require additional support.

What about the 10% Wage Subsidy?

  • The 10% wage subsidy announced last month will still be available to those who qualify for it even if they don’t qualify for the 75% wage subsidy. If the employer qualifies for both subsidies, the 75% subsidy will be reduced proportionately for any amounts eligible to be received under the 10% subsidy.

Integration with the Canadian Emergency Response Benefit (CERB)

  • Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period (i.e. from March 15 – April 11, from April 12 to May 9 and from May 10 to June 6. ) This replaces the previously announced restriction that an employer will not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit.
  • The government is encouraging employers to rehire employees as quickly as possible and to apply for this benefit. To ensure that the CERB applies as intended, the government is considering implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.

Interaction with the Work-Sharing Program

  • On March 18, 2020, the Prime Minister announced an extension of the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.
  • For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

Is the Subsidy Taxable?

  • The 75% wage subsidy will be taxable for employers. Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.

What about the “Bad Actors”?

  • Severe consequences have been promised for “bad actors” who try to take advantage of the system. Employers will be required to repay amounts paid under the Canada Emergency Wage Subsidy if they do not meet the eligibility requirements.
  • Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.
  • Furthermore, in situations involving gross negligence, a 50% penalty could apply to any amount claimed in excess of the eligible amount.

Please be in touch with your Welch LLP representative with any questions surrounding this program and how we can help you access it.

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