Written by Enzo Morini, FCPA, FCA, TEP, Partner and Renaldo Heard, CPA, CA, LPA, CFP, Principal
Williams & Partners Chartered Professional Accountants LLP
As the COVID-19 pandemic continues to disrupt our workplaces and economy, the Government of Canada has announced a further extension of the Canada Emergency Wage Subsidy (CEWS), extending the program until December 19, 2020, although only details up to November 21, 2020 have been provided. These proposals enhance the CEWS to support workers and businesses for a longer period and minimize the applicants’ requirements to allow for a greater number of employers to qualify for assistance.
Effective July 5, 2020, the CEWS will consist of two parts:
- A base subsidy of up to 60% which will be available to all eligible employers that are experiencing a decline in revenues of any percentage and not restricted to the previously required 30% revenue reduction threshold, with the subsidy amount varying depending on the scale of revenue decline; and
- A top-up subsidy of up to an additional 25% for those employers that have experienced an average revenue decline of over 50% in the preceding 3 months.
Qualifying claim periods
The definition of qualifying claim periods remains unchanged and refers to the period in which an eligible employer can claim the wage subsidy for remuneration paid to eligible employees. The eligibility periods have been extended through to November 21, 2020 as follows:
|Period 5||July 5, 2020 – August 1, 2020|
|Period 6||August 2, 2020 – August 29, 2020|
|Period 7||August 30, 2020 – September 26, 2020|
|Period 8||September 27, 2020 – October 24, 2020|
|Period 9||October 25, 2020 – November 21, 2020|
The base subsidy is at a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on maximum remuneration of up to $1,129 per week. The rate of the base CEWS varies depending on the level of revenue decline. Employers that experience a revenue drop of 50% or more qualify for the maximum base CEWS rate. The maximum base subsidy rate will gradually decline from 60% for Periods 5 and 6 (July 5 to August 29), to 20% in Period 9 (October 25, 2020 to November 21, 2020). Employers with a revenue drop of less than 50% are eligible for a lower base CEWS rate on a similar declining scale.
Under the safe harbour provisions of the revised CEWS legislation, employers with a revenue decline of 30% or more in Periods 5 and 6 (July 5 to August 29) would still be eligible for the 75% wage subsidy consistent with the program rules prior to July 5, 2020.
For the purposes of the revenue test, the reference periods and comparative approaches for the base subsidy are as follows:
|Claim period||General approach||Alternative approach|
|Period 5||July 5, 2020 – August 1, 2020||July 2020 over July 2019 or June 2020 over June 2019||July 2020 or June 2020 over average of January and February 2020|
|Period 6||August 2, 2020 – August 29, 2020||August 2020 over August 2019 or July 2020 over July 2019||August 2020 or July 2020 over average of January and February 2020|
|Period 7||August 30, 2020 – September 26, 2020||September 2020 over September 2019 or August 2020 over August 2019||September 2020 or August 2020 over average of January and February 2020|
|Period 8||September 27, 2020 – October 24, 2020||October 2020 over October 2019 or September 2020 over September 2019||October 2020 or September 2020 over average of January and February 2020|
|Period 9||October 25, 2020 – November 21, 2020||November 2020 over November 2019 or October 2020 over October 2019||November 2020 or October 2020 over average of January and February 2020|
Employers that have experienced a 3-month average revenue drop of more than 50% can receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50%. The maximum top-up CEWS rate of 25% is attained where there is at least a 70% revenue decline. As with the base CEWS rate, the top-up CEWS rate would apply to remuneration of up to $1,129 per week.
The top-up CEWS rate for selected average revenue drop levels is illustrated in the table below.
|3-month average revenue drop||Top-up CEWS rate|
|70% and over||25%|
|50% and under||0.0%|
For the purposes of the revenue test, the reference periods and the comparative approaches for the top-up subsidy are as follows:
|Claim period||General approach||Alternative approach|
|Period 5||July 5, 2020 – August 1, 2020||April to June 2020 over April to June 2019||April to June 2020 average over January and February 2020 average|
|Period 6||August 2, 2020 – August 29, 2020||May to July 2020 over May to July 2019||May to July 2020 average over January and February 2020 average|
|Period 7||August 30, 2020 – September 26, 2020||June to August 2020 over June to August 2019||June to August 2020 average over January and February 2020 average|
|Period 8||September 27, 2020 – October 24, 2020||July to September 2020 over July to September 2019||July to September 2020 average over January and February 2020 average|
|Period 9||October 25, 2020 – November 21, 2020||August to October 2020 over August to October 2019||August to October 2020 average over January and February 2020 average|
Ability to change reference period revenue test
Employers that have elected to use the alternative approach for the first 4 periods of claims are now able to either maintain that approach for Period 5 and onward or revert to the general approach. Similarly, employers that have used the general approach for the first 4 periods are able to either continue with the general approach or elect to use the alternative approach for Period 5 and onward. Whichever approach they choose would apply for Period 5 and onward and would apply to the calculation of the base CEWS and the top-up CEWS.
This provides flexibility for employers to adjust their approach in light of new circumstances they may be experiencing as the CEWS is extended.
14-day test for employees
Effective July 5, 2020, the eligibility criteria would no longer exclude employees that are without remuneration in respect of 14 or more consecutive days in an eligibility period.
Continuation of deeming provisions
For Period 5 and all subsequent periods, an eligible employer will be able to use the greater of its percentage revenue decline in the current period and that in the previous period for the purpose of determining its qualification for the base CEWS and its base CEWS rate in the current period. This will provide certainty and a continuation of the rules for Periods 1 to 4 that allowed an employer that met the revenue test and eligible for CEWS in one period to automatically qualify for the following period.
Employers are reminded that CRA may publish the names of applicants. The submission deadline for the CEWS applications has been extended from September 30, 2020 to January 31, 2021 to provide applicants with more time to apply.