UPDATE – CEWS Expansion
CEWS Program Expands Eligibility
On July 17, 2020, draft legislation was released related to the previously announced extension of the Canada Emergency Wage Subsidy (“CEWS”). The legislation contemplates significant changes to the CEWS program beginning with period 5 (which commenced July 5, 2020) that are intended to expand eligibility to all employers with revenue declines, including those that do not meet the previous threshold of 30%. The 30% revenue decline threshold still applies for periods 1 through 4 (March 15 to July 4, 2020).
Below is a brief overview of the significant changes. For full details see https://www.canada.ca/en/department-finance/news/2020/07/adapting-the-canada-emergency-wage-subsidy-to-protect-jobs-and-promote-growth.html
What has changed?
It was announced in early July 2020 that the CEWS would be extended to December 19, 2020; however, the draft legislation released on July 17th only provides details to November 21, 2020. Presumably, the government will address this anomaly in the near future.
Eligible employers will now have until January 31, 2021 to apply for CEWS.
Subsidy rate structure and eligibility thresholds
The draft legislation proposes extensive changes to the subsidy rate and revenue thresholds. Effective for periods starting July 5, 2020 (claim period 5), CEWS for eligible employees who are active, i.e., not furloughed, will continue in two parts: a base CEWS and a top-up CEWS.
- Base CEWS: rate of base CEWS will vary depending on the level of revenue decline as noted below. The maximum base CEWS results where revenue declines 50% or more as compared to the reference period (see below for details).
- Top-up CEWS: up to an additional 25% subsidy is available where revenue decline is greater than 50% as compared to the average of the immediately preceding 3 months (see below 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. For periods 7, 8 and 9 the maximum subsidy, with top-up, is 75%, 65% and 45%, respectively.
A “safe harbour” rule ensures that, for claim periods 5 and 6 (only) eligible employers will be entitled to at least the 75% CEWS rate available under the period 1 through 4 rate structure (see our summary of original CEWS program for further details https://www.davismartindale.com/updated-cews/ ). For example, if the eligible employer qualified under original CEWS program for the 75% CEWS, the CEWS rate that could be claimed for periods 5 and 6 will be the greater of 75% and the amount determined under the new CEWS rate structure.
Under a separate CEWS rate structure for furloughed employees, the subsidy calculation will remain the same for claim periods 5 and 6 as it was for periods 1 to 4. Beginning in period 7, CEWS for furloughed employees will be adjusted to align with CERB and/or EI benefits.
Under the original CEWS legislation, the prior reference period against which revenue declines are 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. The draft CEWS legislation allows employers to effectively change their choice of prior reference period – using the general approach or alternative approach – for claim periods 5 through 9, if desirable. Once again, whichever approach is chosen for claim period 5 must be used for the remaining claim periods.
- Reference period – Base CEWS:
- Reference period – Top-up CEWS:
The definition of “eligible employee” has been modified for claim periods 5 and on 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.
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 employee’s weekly eligible remuneration or pre-crisis remuneration, whichever is less, 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 changes were announced related to the first 4 qualifying periods. Please see our previous post on eligibility https://www.davismartindale.com/updated-cews/
- Eligible remuneration: There are no proposed changes to the definition of eligible remuneration.
- Maximum overall subsidy per employer: There is no overall limit on the amount of subsidy that an eligible employer can claim
- Taxability of CEWS: CEWS 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.
- Furloughed employees: The employer portion of EI and CPP in respect of furloughed employees will continue to be refunded to the employer.
The draft legislation also encompassed other previously announced changes including:
- 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).