Canada Emergency Wage Subsidy (“CEWS”) Update

April 15, 2020
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On April 11, 2020, the Canada Emergency Wage Subsidy (“CEWS”) received Royal Assent and came into force.  Here are the highlights.  Feel free to reach out to any of the lawyers at Turnpenney Milne to review its impact on your organization.

What Is CEWS

  • The CEWS is a 75% wage subsidy to eligible employers for up to 12 weeks.
  • The CEWS aims to prevent further job losses, encourage employers to re-hire workers previously laid off as a result of COVID-19 and help employers more easily resume normal operations following the crisis.
  • The CEWS is considered government assistance and will be included in the employer’s taxable income.

Eligible Employers

  • Any individuals, taxable corporations, partnerships consisting of eligible employers, non-profit organizations and registered charities (unless they are a public institution).
  • Must have a decline in revenue of 15% for the month of March, and 20% for the months of April or May as compared to the same month in the prior year, or as compared to the company’s average revenue for January and February 2020.
  • NOTE: Public institutions, including municipalities, municipality owned corporations, local governments, Crown corporations, wholly owned municipal corporations, public universities, colleges, schools and hospitals are not eligible.

Eligible Employees

  • An eligible employee is an individual who is employed in Canada.
  • Eligibility for the CEWS of an employee’s remuneration is available except those employees who have been without remuneration for 14 or more consecutive days in the eligibility period.

Qualification Periods

  • Starting March 15, 2020, four-week periods.
  • A business that meets the criteria to qualify in on period is automatically deemed to meet the criteria for the next four-week period.

How Revenue is Determined

  • Revenue earned by the employer in Canada from arm’s length sources.
  • Revenue is calculated using the employer’s normal accounting and excludes revenues from extraordinarily items and amounts on account of capital.
  • Employers may calculate their revenue under either the accrual method or the cash method, but not both.
  • A choice of method of calculation must be made by the employer when first applying for the CEWS, and then used for the entire duration of the program.
  • For registered charities and non-profit organizations, the calculation will include most forms of revenue excluding revenue from non-arm’s length persons.
  • Special rules of the computation of revenue would be provided to take into account certain non-arm’s length transactions, such as where an employer sells all of its output to a related company that then earns arm’s length revenue.
  • Affiliated groups are able to compute revenue on a consolidated basis.

Wages Paid to Employees

  • Wages paid to a pre-existing employee or a new hire may qualify for the CEWS, except with respect to employees who do not deal at arm’s length with the employer. Employees who are not at arm’s length with the employer must have been employed before March 15, 2020.

Calculating the Subsidy

  • The amount of the subsidy depends on whether the employee was employed before March 15, 2020, or a new hire.
  • For pre-existing employees, the subsidy is the lesser of 75% of the average weekly remuneration paid from January 1, 2020 until March 15, 2020 and $847 per week.
  • For new hires the subsidy is 75% of the remuneration paid, up to a maximum of $847 per week.
  • If the employee works for more than one related employer, the total amount of the subsidy received by those employers cannot exceed the amount of the subsidy calculated as though the employee had worked for only one of the employers.

Penalties

  • A business that takes artificial steps to qualify for the CEWS, or fails to take steps to mitigate, will be subject to a requirement to repay any subsidy received, plus a 25% penalty if it is reasonable to conclude that one of the main purposes for doing so was qualification.

How to Apply

  • Apply via CRA’s “My Business Account” portal or via a web-based application. The CEWS will be delivered via cheque or direct deposit.
  • Application for the subsidy must be made before October 2020.

Refund for Certain Payroll Contributions

  • The CEWS allows for a 100% refund for certain employer-paid contributions to EI, the CPP, the QPP and the QPIP.
  • This refund will cover 100% of employer-paid contributions for eligible employees for each week throughout which those employers are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.

Interaction with 10% Wage Subsidy

  • For employers that are eligible for both the CEWS and the previously implemented 10% wage subsidy under the COVID-19 Emergency response Act that came into force on March 25, 2020, any benefit for both the CEWS and the 10% wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.

Interaction with the Work Sharing Program

  • For employers and employees participating in a work-sharing program, EI benefits received by employees through the work-sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.