On July 17, 2020, the Government of Canada introduced legislation to extend and expand the Canada Emergency Wage Subsidy (“CEWS”) and it received royal assent on July 27, 2020. The CEWS was originally a 3 month program beginning in March to assist employers to maintain their employees and to rehire workers that had been temporarily laid off as a result of the impacts of COVID-19. The CEWS was expanded to a 4th month, and subsequently for a 5th and 6th month, with details to be provided in the future. The new legislation extends the CEWS to December 19, 2020 but details were only provided for the periods up to November 21.
Under the new CEWS provisions, eligible employers who have experienced a revenue decline have the potential to receive a subsidy. Under the original CEWS program only employers that had experienced a revenue decline of 30% or more (15% for period 1) were eligible for a subsidy. This revised program should allow for more employers to be eligible but it is a more complicated program.
Effective July 5, 2020 (Period 5), the CEWS consists of two parts:
- a base subsidy available to all eligible employers that are experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
- a top-up subsidy, of up to an additional 25 per cent for those employers that have been most adversely affected by the COVID-19 crisis.
The CEWS continues to be calculated as a percentage of eligible remuneration paid to the employee on the first $1,129 of remuneration per week of the eligibility period. Starting on July 5 (Period 5) a base CEWS subsidy is calculated using the actual revenue decrease percentage (max. 50%) relative to the same month in 2019, multiplied by a base rate factor which gradually decreases over the claim periods from 1.2 to 0.4. As a result any eligible employer who has experienced a revenue decline is now eligible for a subsidy beginning in period 5. As can be seen from the following table, the maximum base CEWS is 60% ($677 per week per employee) of eligible remuneration in period 5 and 6 and is reduced to 20% ($226 per week) in period 9. An employer who experiences a revenue decline of 20% will be eligible for a maximum base subsidy of 24% ($271 per week per employee) of eligible remuneration in periods 5 or 6, decreasing to 8% ($90 per week) in period 9.
Starting on July 5, 2020 (Period 5) a top-up CEWS of up to 25 per cent is available to employers that are the most adversely impacted by the pandemic. Generally, an eligible employer’s top-up CEWS is determined based on the revenue drop experienced when comparing revenues in the preceding 3 months to the same months in the prior year.
Employers that have experienced a 3-month average revenue drop of more than 50 per cent receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50 per cent, up to a maximum top-up CEWS rate of 25 per cent, which is attained at a 70‑per‑cent revenue decline. As with the base CEWS rate, the top-up CEWS rate applies to remuneration of up to $1,129 per week per employee. The top-up CEWS rate for selected average revenue drop levels is illustrated in the table below.
The combined maximum CEWS subsidy for employers that have experienced a 70% decline in revenue is outlined in the following table.
Safe Harbour Rule for Periods 5 and 6
For Periods 5 and 6, an eligible employer is entitled to a CEWS rate not lower than the rate that they would be entitled to if their entitlement were calculated under the original CEWS rules that were in place for Periods 1 to 4. This means that in Periods 5 and 6, an eligible employer with a revenue decline of 30 per cent or more in the relevant reference period would receive a CEWS rate of at least 75 per cent, or potentially an even higher CEWS rate using the new rules outlined above for the most adversely affected employers (up to 85 per cent).
Prior Reference Period
The revenue decline percentages for the CEWS claim periods continue to be based on comparative months in 2019 but an election can be made to use the average of January and February 2020. The election to use the alternative approach is separately made from periods 1 to 4 and 5 to 9. As a result, applicants should reconsider their choice of prior reference period as they complete their period 5 claims. The prior year reference periods are outlined in the following table:
The amendments to the CEWS legislation include a number of other technical amendments:
- extension of the filing due date to January 1, 2021;
- providing an appeal process based on the existing procedure for notices of determination that allows for an appeal to the Tax Court of Canada;
- providing continuity rules for the calculation of an employer’s drop in revenues in certain circumstances where the employer purchased all or substantially all the assets used in carrying on business by the seller;
- provide that companies formed by an amalgamation are deemed to be a continuation of the predecessor corporations when applying the CEWS provisions for revenue and remuneration;
- removal of baseline remuneration from the formula for arm’s length employees starting in period 5, but it is still necessary for non-arm’s length employees;
- ability to elect for an alternative baseline remuneration period that may be helpful for seasonal businesses;
- allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue;
- allow companies that use payroll service providers to qualify; and
- allowing entities that use the cash method of accounting to elect to use accrual based accounting to compute their revenues for the purpose of the CEWS.
The new CEWS provisions have increased the complexity of the subsidy program but also provide more opportunities for businesses to receive the support they need as the economy reopens.. KMSS has a team of professionals committed to interpreting the details of the CEWS program. We provide a wide range of services including determining your eligibility for the subsidy, analyzing the various alternatives and preparing, reviewing and submitting your claim.