Updated May 26, 2020
New regulations now allow employers to elect for the temporary wage subsidy (TWS) to be lower than 10%. Previously, employers must have applied for the 10% TWS and then had to reduce their CEWS claim by that 10% TWS entitlement. Now, the employer may choose to claim 0% TWS and simplify their CEWS claim.
Updated May 15, 2020
Finance Minister Bill Morneau today announced that the Government of Canada will extend the CEWS by an additional 12 weeks to August 29, 2020. In addition, there has been a major change to the rules. If you thought the calculation was complicated before, just wait.
The News Release can be found HERE
Support for Seasonal Employees and Employees Returning from Extended Leave
Under the CEWS, the subsidy amount for a given employee on eligible remuneration paid in respect of the period between March 15 and June 6, 2020 is the greater of:
- 75 per cent of the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week; and
- the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week, or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less. The pre-crisis remuneration for a given employee is 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.
In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.
In addition, a special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in respect of any week in a qualifying period, up to a maximum benefit of the lesser of $847 per week and 75 per cent of the employee’s pre-crisis weekly remuneration. In effect, the subsidy is available in respect of non-arm’s length employees only for those employed prior to March 16, 2020.
These rules can lead to unintended outcomes in some situations, such as when employees were on parental, disability, or unpaid leave from January 1 to March 15 of 2020, or when individuals – whether dealing at arm’s length or non-arm’s length with their employer – are employed on a seasonal basis.
To bridge these gaps, the government proposes to amend the CEWS to allow employers to choose one of two periods when calculating the baseline remuneration of their employees. Specifically, employers would be allowed to calculate baseline remuneration for an employee as the average weekly remuneration paid to the employee from January 1 to March 15 of 2020 or, alternatively, as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019, in both cases excluding any period of 7 or more consecutive days without remuneration. Employers would be able to choose which period to use on an employee-by-employee basis.
This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.
Applications for the CEWS have now opened. Please ensure that you have registered for a My Business Account
CRA has released details on how to calculate the Wage Subsidy HERE
They have also provided an Excel spreadsheet to help you calculate the amount of the subsidy
However, after working through the CRA Excel schedule, we have found their template inadequate. We highly recommend downloading the following template from Tax Templates Inc.
Information on the CEWS is updating daily. Rather than reiterating CRA’s published information, we suggest you first read through the information posted by CRA, and then come back to this page for our comments.
So we’ve worked through our first application. One thing that stood out is that you have to input the amount you were eligible for under the 10% wage subsidy, even if you didn’t take it. Here is the explanation from the application:
The 10% Temporary Wage Subsidy for Employers reduces the amount of income tax source deductions that employers have to remit to CRA on behalf of their employees by up to 10% of their remuneration (to a maximum of $1,375 per employee up to $25,000 per employer).If you did not reduce the source deductions you remitted to the CRA, but you were entitled to the 10% Temporary Wage Subsidy for Employers, the CRA will treat you as having over-remitted your employee source deductions (so that normally you will be entitled to a refund). The CRA will require you to fill out a self-identification form, that will be published in the fall, in order for us to credit your payroll program account by the amount of the subsidy. In all cases, if you are eligible for the 10% Temporary Wage Subsidy, you must put the amount in the box for line F. (UPDATE MAY 26, 2020, – YOU CAN NOW CHOOSE NOT TO CLAIM THE 10% WAGE SUBSIDY AND INSTEAD CLAIM THE FULL 75% CEWS)
You should be able to double up on the 10% Wage Subsidy if you did not claim it on your first remittance, but remember, you only reduce your CEWS amount by the 10% Wage Subsidy WITHIN that claim period
We found the calculation quite complicated. When you are calculating the amount of pay within a claim period, it is NOT the amounts PAID within that claim period, it is the amount PAID IN RESPECT of that claim period. So, if you have hourly paid employees, you need to calculate the pay per day to ensure the correct amount of pay is within the proper claim period. For salaried employees, you will have to ensure that you are putting the correct pay in the correct week, regardless of when you actually paid them. Basically, you need to calculate a daily pay, which the Tax Templates spreadsheet allows you to do.
You have to also be extremely careful of the dates you enter if you hired or laid off employees during a claim period – (see the example below). Inputting the wrong amount could affect an employee’s CERB application.
An employer’s revenue for this purpose is its revenue in Canada earned from arm’s-length sources (ie unrelated people). Revenue is calculated using the employer’s normal accounting method, and exclude revenues from extraordinary items and amounts on account of capital.
Employers are allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers select an accounting method when first applying for the CEWS and require to use that method for the entire duration of the program.
CRA has stated that in order to be a qualified entity, an employer only needs to file an application for CEWS in respect of a qualifying period before October 2020. Since the employer has the choice to elect to calculate their revenues under the accrual or the cash method, or has the choice of using the month in the previous year or an average of January and February 2020, an employer may want to wait until these periods are over to the determine with elections are the most advantageous. For example, if you qualify under the accrual AND cash method for March, you automatically qualify for April. However, you may want to wait to see how May shakes out before you decide which method to use for March.
Amount of Subsidy
The subsidy amount for a given employee on eligible remuneration paid for the period between March 15 and June 6, 2020 is the greater of:
- 75% of the amount of remuneration paid, 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% of the employee’s pre-crisis weekly remuneration (referred to as baseline remuneration), whichever is less.
The pre-crisis remuneration for a given employee is 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. This could get tricky for many owner-managers who may pay themselves in irregular intervals. If a business owner did not pay themselves in January or February, but paid themselves $10,000 on March 8, is the average remuneration $10,000 divided by 10 weeks, or did they simply not compensate themselves for the work they did in January and February, so their baseline compensation is $10,000 weekly? Was the March payment in “respect of” work done in January, February, and March or just March?
A special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75% of the employee’s pre-crisis weekly remuneration. The subsidy is only available in respect of non-arm’s length employees employed prior to March 15, 2020. Therefore, for business owners, they must have been on payroll prior to March 15, 2020. If you were paying yourself dividends, it appears that for now, you will not qualify. This does not seem fair.
This baseline remuneration is an important number to calculate. A reasonable method would be to take the total amount PAID (not in respect of) between January 1, 2020, and March 15, 2020, and multiply by 7/75 to get the average weekly baseline remuneration.
Refund of CPP and EI
This refund covers 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. This refund is not available for eligible employees that are on leave with pay for only a portion of a week.
Eligibility is determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began.
All employers are allowed to calculate their change in revenue using an alternative benchmark to determine their eligibility. This provides more flexibility to employers for which the general approach may not be appropriate, including high-growth firms, sectors that faced difficulties in 2019, non-profits and charities, as well as employers established after February 2019.
Under this alternative approach, employers are allowed to compare their revenue using an average of their revenue earned in January and February 2020. Employers can select the general year-over-year approach or this alternative approach when first applying for the CEWS and are required to use the same approach for the entire duration of the program.
In order to provide certainty to employers, once an employer is found eligible for a specific period, the employer automatically qualifies for the next period.
- ABC Inc. is a start-up that started its operations last September. It reported revenues of $100,000 in January and $140,000 in February, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March are 25% lower than $120,000, ABC Inc. would be eligible for the CEWS for the first and second claiming period. To be eligible for the third claiming period, ABC Inc. revenues would have to be $84,000 or less for the month of April or May (that is, 30% lower than $120,000).
The amount of wage subsidy (provided under the COVID-19 Economic Response Plan) received by the employer in a given month is ignored for the purpose of measuring year-over-year changes in monthly revenues.
- For example, if revenues in March 2020 were down 20% compared to March 2019, the employer would be allowed to claim the CEWS (as calculated above) on remuneration paid between March 15 and April 11, 2020, as well as between April 12 to May 9.
- Alternatively, this employer could use its average revenue from the months of January and February 2020, instead of March 2019, to determine if it is eligible for the CEWS.
- Once an approach is chosen, the employer would have to apply it throughout the program period.
The table below outlines each claiming period, the required reduction in revenue and the reference period for eligibility.
|Claim periods||Required reduction in revenue||Reference periods for comparison under the general approach||Reference periods for comparison under the alternative approach|
|Period 1||March 15 to April 11, 2020||15%||March 2020 over March 2019||March 2020 over average of January and February 2020|
|Period 2||April 12 to May 9, 2020||30%1||April 2020 over April 2019||April 2020 over average of January and February 2020|
|Period 3||May 10 to June 6, 2020||30%||May 2020 over May 2019||May 2020 over average of January and February 2020|
Eligibility for the CEWS of an employee’s remuneration is available to employees other than those who have been without remuneration for 14 or more consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, or from May 10 to June 6.
This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS 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.
An “eligible employee” – defined in new subsection 125.7(1) – means an individual employed in Canada by the employer in the Claim Period, other than an individual who is without remuneration by that employer in respect of 14 or more consecutive days in the Claim Period. In other words, if the employer has not paid any wages (or other remuneration) to that employee in respect of 14 or more consecutive days in a Claim Period, the employee is not an “eligible employee” and any wages the employer does pay in respect of the rest of the same Claim Period do not qualify for CEWS. This seems to be an imperfect measure to prevent the government from having to pay the Canada Emergency Response Benefit (“CERB”) to the employee while paying CEWS to the employer for part of the same four-week period. However, it also appears to prevent an employer from claiming CEWS for some new employees initially.
For example, let’s assume an employer (Krusty Krab) hires a new employee (Patrick) on April 26, 2020 and then applies for the CEWS for Claim Period 2 (April 12 to May 9, 2020) in respect of the wages it paid to Patrick for April 26 to May 9, 2020. Krusty Krab will not be allowed to do so, since there were 14 or more consecutive days in Claim Period 2 for which Patrick was “without remuneration” by Krusty Krab. Contrast this with another employee (Spongebob) whom Krusty Krab hired on April 25, 2020. Spongebob was only without remuneration by Krusty Krab for 13 consecutive days in Claim Period 2, being April 12 to April 24, 2020. Therefore, Spongebob is an eligible employee and Krusty Krab gets CEWS for the wages it paid Spongebob during Claim Period 2, from April 25 to May 9, 2020.
In this scenario, both Patrick and Spongebob could have applied for CERB, but the employer is denied the CEWS for only one of them. Treating Spongebob and Patrick differently just because Spongebob – being Spongebob – is a keener and started one day earlier with Krusty Krab than Patrick appears to be an unintended consequence of these rules.
SSL Group Comments
The eligibility criteria and rules have changed so much since the initial proposal, that many business owners are so confused and frustrated, that they may simply not participate because of fear of not qualifying and out of utter confusion. I would argue that it would be virtually impossible for a business owner, who does not have extensive bookkeeping, accounting, or payroll experience to calculate the CEWS accurately.
Employers should note that this program does not come without costs. Although it’s possible to have your most if not all of your wages, CPP and EI subsidized, the wage subsidy will be considered taxable income! There will be tax owing on the subsidy you receive.
Finally, we are getting many questions from corporate business owners asking whether the wage subsidy applies to their own wages. The answer is yes, subject to the same limitation of $847 per week or 75% of pre-crisis remuneration. However, if you were not receiving a salary prior to March 15, 2020, the CEWS will NOT be available to you. Also, you cannot increase pre-crisis wages to benefit from a larger subsidy. For business owners that have compensated themselves through dividends, they are being shut out. The type of remuneration chosen should not dictate eligibility.
10% Wage Subsidy
Prior to the Canada Emergency Wage Subsidy, CRA had released details on the The Temporary Wage Subsidy for Employers
I think the best way to understand this is with an example:
If you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
You would then reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $1,375 per employee ($25,000 total), for all remuneration paid before June 20, 2020. So, for 5 employees, the maximum subsidy you can receive is $6,875.
Note: you cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums.
When we initially read this, we thought that each individual employee would be subject to their own $1,375 maximum. This does not appear to be the case.
The maximum subsidy is the lower of:
$25,000 per employer
The total number of eligible employees employed during the period from March 18 – June 19, multiplied by a fixed amount of $1,375.
10% of the remuneration paid to eligible employees during the period
Therefore, you will only need the total number of eligible employees and the baseline pay
Each employee DOES NOT HAVE an individual subsidy balance. Instead, each eligible employee simply increases the wage subsidy available to the employer by $1,375.
What if subsidies exceed the remittances?
If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).
For example: If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.