CEWS Expansion Bill C-9

Top-up CEWS
Commencing with Period 5 (July 5, 2020), an additional subsidy of up to 25% of eligible remuneration is available where revenue decline is greater than 50%. See Table 2 for illustrations of the top-up subsidy.

Commencing with Period 8 (September 27), determination of revenue decline for the top-up CEWS is harmonized to match the determination of revenue decline for the base CEWS. See Tables 3 and 4 for details.

The maximum available subsidy for Periods 5 and 6, with the top-up, is 85% of eligible remuneration, to a maximum of $960 per week, per employee. For Period 7, the maximum subsidy with the top-up is 75%, to a maximum of $847 per week, per employee. And for Periods 8 to 10, the maximum subsidy with the top-up is 65% of eligible remuneration, to a maximum of $734 per week, per employee.

Prior Reference Periods
Under the original CEWS legislation, the prior reference period against which a revenue decline is measured is the current month compared to the same month in 2019 (general approach), unless the employee elected to compare the current month revenue to that of the average of January and February 2020 (alternative approach). Employers are bound to the chosen approach for all of claim Periods 1 through 4.  Employers are effectively permitted change their choice of prior reference period – the general approach or alternative approach – for claim Periods 5 through 10, if desirable. Once again, whichever approach is chosen for claim Period 5 must be used for the remaining claim periods.

Prior Reference Period – Base CEWS:

Prior Reference Period – Top-up CEWS:

Eligible Employees
The definition of “eligible employee” has been modified for claim Periods 5 forward such that an employee is permitted to be without remuneration for 14 or more consecutive dates in a qualifying period. For claim Periods 1 to 4, an eligible employee cannot be without pay for 14 or more consecutive days. As noted above, Bill C-9 expands the definition of “eligible employee” to include individuals employed primarily in Canada throughout the qualifying period (or the portion of the qualifying period during which the individual was employed by the eligible employer).

Baseline Remuneration
An additional election under the definition of “baseline remuneration” is now available in order to accommodate eligible employees who are seasonable or who are returning from parental leave.

Commencing with claim Period 5, eligible remuneration is no longer tied to baseline remuneration for arm’s length employees. The amount of remuneration for active arm’s length employees will be based solely on actual remuneration paid in respect of the period.

For active non-arm’s length employees, the wage subsidy for Period 5 and subsequent periods will be based on the lesser of an employee’s weekly eligible remuneration or pre-crisis remuneration, up to a maximum of $1,129. For Period 5 and subsequent periods, pre-crisis remuneration is based on the average weekly remuneration paid from Jan 1 to March 15, 2020, or from July 1, 2019 to Dec 31, 2019. The method chosen can be made on an employee by employee basis.

What has not changed?

• Periods 1 – 4: No new changes have been made. Please see our previous post on eligibility for Periods 1 through 4.
• Eligible remuneration: There are no changes to the definition of eligible remuneration.
• Maximum overall subsidy per employer: There continues to be no overall limit on the amount of subsidy that an eligible employer can claim.
• Taxability of CEWS: CEWS received is taxable to the eligible employer.
• Revenue methodology: Eligible employers are allowed use of accrual or cash method to compute revenues for purposes of CEWS eligibility when an election is filed. Once a method is selected with the first claim, that method must be used for all Periods 1 through 10.
• Furloughed employees: The employer portion of EI and CPP in respect of furloughed employees will continue to be refunded to the employer.

Other Changes

Previously announced changes including, and as modified, by Bill C-9:

• Allowing entities to amend or revoke elections on or before the application due date for the first qualifying period to which the election applies
• Providing continuity rules for revenue declines on an asset purchase of a businesses or on an amalgamation
• Allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government source revenue in computing revenue declines
• Allowing entities that use the cash method of accounting to elect to use accrual based accounting in computing revenue
• Allow employers with paymaster arrangements to qualify
• Provide an appeals process based on the existing procedure for notices of determination

CEWS Application Note

The CEWS application has been recently updated such that the applicant is required to indicate whether any elections have been made under subsection 125.7(1) or 125.7(4) of the CEWS program. We anticipate this question will be expanded to encompass the revised election options beginning with claim Period 5. For Period 1 to 4 claims, the applicant must select “yes” where any of the following elections have been made:

• a joint election, along with each other member of the group that prepares consolidated financial statements, to determine revenue on a non-consolidated basis for members of the employer’s group (125.7(4)(a))
• a joint election, along with each other member of the affiliated group, to determine revenue on a consolidated basis for the employer’s group (125.7(4)(b))
• an election for joint ventures (125.7(4)(c))
• a joint election, along with each person or partnership with which the employer does not deal at arm’s length and from whom the employer earns all or substantially all of its qualifying revenue under paragraph 125.7(4)(d) of the Income Tax Act
• an election to determine revenue using the cash method (125.7(4)(e))
• an election to determine the prior reference period using the alternative approach (125.7(1)(b)(ii))
• an election by a registered charity or not-for-profit to exclude government funding (125.7(1)(a)(ii) or (b)(ii)).

If none of these elections have been made, the question should be answered “no”. Form RC661 must be completed to certify and attest that the wage subsidy application is complete and the appropriate elections have been made (or no election is required).