COVID-19: 75% Emergency Wage Subsidy

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The Program

The emergency wage subsidy is available for a period of three (3) months for companies that have sustained a loss of 30% in their gross revenues due to the COVID-19 crisis. This program will take form as a wage subsidy of 75% for the first $ 58,700 normally received by an employee, representing a maximum benefit of $ 847 per week.

This new measure has no limit on the number of employees eligible.

The Objective

The objective is to allow employers to keep their employees, or even rehire workers who had been laid off, so they can overcome this crisis.

Details and Precision

  • The program is available for 12 weeks, from March 15 to June 6, 2020.
  • The law provides the possibility that the program may be extended.
  • Minimum decrease of 15% of the eligible income for the month of March.
  • Minimum decrease of 30% of the eligible income for the months of April and May.
  • An employer can apply for the subsidy for employees who worked before the crisis and for new employees.
  • The wage subsidy received by an employer will be considered as a government assistance and should be included in the employer’s taxable income.
  • The assistance received from the wage subsidy will reduce the amount eligible expenses for other federal tax credits calculated on the same remuneration.

Eligible Entities

  1. Corporation, except a corporation for which its income is exempt from tax of the Part 1 tax or a public institution
  2. Individuals
  3. Registered charities other than a public institution
  4. Non-profit organizations other than a public institution
  5. Partnerships for which all the partners are listed in items 1 to 4
  6. Prescribed organization

To be eligible, the entity must also have, as of March 15, 2020, a business number used for the amounts to be remitted under source deductions.

The previous interpretation that companies and organizations that have received public funding are not eligible for the subsidy has been replaced by the reference that public sector entities are not eligible for the subsidy. Public sector entities include, but are not limited to, municipalities and local governments, crown corporations, public universities and hospitals.

Entities must apply for the wage subsidy using the prescribed form before October 2020. In addition, the person with the main responsibility for the entity’s financial activities must certify that the request is based on accurate and complete financial information.

Eligible Employees

An eligible employee is an individual who is employed in Canada.

Eligibility for the employee wage subsidy will be limited to employees who have not been without pay for at least 14 consecutive days during the eligibility period, i.e. March 15 to  April 11, from April 12 to May 9 and May 10 to June 6.

Eligible compensation paid to an employee

The subsidy will be determined based on the wages and salaries actually paid to employees. This includes salaries, wages and other remuneration as well as fees, commissions and other amounts for services.

However, the eligible compensation does not include:

  • retirement allowance;
  • severance pay;
  • an amount deemed to have been received by the employee under a stock option plan;
  • any amount that can reasonably be expected to be returned, directly or indirectly, in any way, as the case may be, to the specified entity, to an arm’s length person or partnership with it or to a person or partnership in accordance with its instructions;
  • any amount paid to an employee if, as part of an arrangement with the employer, it is expected that:
    • the amount eligible for the wage subsidy exceeds the average weekly earnings that the eligible employee received before March 15,
    • after the eligibility period, it is reasonable to expect that the eligible employee will receive a weekly remuneration lower than the remuneration he receives during the wage subsidy eligibility period,
    • one of the main purposes of the arrangement is to increase the amount of the wage subsidy.
  • The weekly compensation the employee received before the crisis will be based on an average of his weekly compensation paid between January 1 and March 15, excluding periods of 7 consecutive days when the employee has received no compensation.

Income Calculation

To analyze the 15% decrease in eligible income for the month of March and the 30% for the months of April and May, the expression “eligible income” corresponds to:

  • Income established in accordance with the company’s usual accounting practices;
  • Cash income and other considerations received or receivable during normal activities of the entity in Canada;
  • Do not include extraordinary positions;
  • Do not include the sums obtained or derived from a person or partnership with which the specified entity is at arm’s length;
  • The eligible income decrease must be analyzed on a monthly basis by comparing the eligible income for the month concerned in 2020, i.e. March / April / May, to the same month in 2019. For example, a business would be eligible if its eligible revenues for the month of April 2020 have decreased by at least 30% compared to the eligible revenues for the month of April 2019.
  • If the eligible entity makes a choice, the entity can use an alternative method by comparing, on a monthly basis, the eligible income for the month concerned in 2020, i.e. the months of March / April / May, to the average of monthly eligible income for the months of January and February 2020. If a choice is made, this will be applicable for all periods.
  • If the entity did not carry on its business and did not carry on its normal activities on March 1, 2019, the entity must necessarily compare the decrease in its eligible income with the average of the monthly eligible income in January and February 2020.
  • If an eligible entity qualifies for an eligibility period (example: April), the latter will automatically qualify for the eligibility period immediately following the given eligibility period (May for the purposes of the example).

  • The entity will be eligible for the wage subsidy if it meets the criteria of decreased gross revenues using one of the two methods.
  • In recognition of the great variation in the period between the time when income is earned and when it is received in certain sectors of the economy, eligible entities can choose to calculate the amount of their eligible income using the cash accounting instead of the accrual method. If this choice is made, it is applicable to all periods of eligibility.
  • Both in terms of the choice of revenue recognition method (cash or accrual accounting) and for the revenue comparison method (for the purposes of the % reduction), the entities must choose a method and keep it for the duration of the program.
  • The amounts received from wage subsidy will not have to be taken into account in the gross income calculation.

Additional rules applicable to groups of entities:

  • If a group of specified entities normally prepare consolidated financial statements, each member of the group can establish its eligible income separately but each member of the group must establish its eligible income on this basis.
  • If a specific entity and each member of an affiliated group of specific entities of which it is a member, makes a joint election to this effect, the group’s eligible income established on a consolidated basis in accordance with applicable accounting practices, is used by each member of the group.
  • Special rules are also provided for joint ventures.
  • If all or almost all of the eligible income, i.e. 90% or more, of an entity for an eligibility period comes from one or more given persons or partnerships with which it has an at arm’s length, and if each of them makes a joint election, additional rules will apply for the calculation of income. Additional details will be communicated to this effect.

Additional rules applicable to charities and NPOs:

  • For charities, eligible income includes income from a complementary business activity, donations and amounts received in the normal course of business.
  • For NPOs, eligible income includes fees for membership fees (registration fee or other) and other sums received in the normal course of business.
  • Both charities and NPOs can also choose to exclude government funding from their eligible income, for the purposes of grant calculations.

Subsidy Calculation

The grant will be the higher of the following amounts:

a) 75% of the amount of remuneration paid, up to a maximum weekly benefit of $ 847
b) The smaller of the compensation paid, up to the amount of $ 847, or 75% of the weekly compensation that the employee received before the crisis.

  • The maximum weekly subsidy per employee is $ 847.
  • If an employee works for several non-arm’s length employers, they cannot, together, claim a weekly benefit greater than $ 847 for this employee.
  • Employers must do their best to pay the missing 25%. The government is, however, aware that this will not always be possible and there will be a certain “flexibility” at this level.
  • A special rule will apply to employees who deal at arm’s length with the employer. The amount of the subsidy for these employees will be limited to the eligible compensation paid during any compensation period between March 15 and June 6, 2020, up to the lesser of the maximum weekly benefit of $ 847 or 75% the weekly earnings the employee was receiving before the crisis. It will not be possible to get a subsidy for an arm’s length employee who was not paid before the crisis.
  • The initial criteria said that an employer could not claim the wage subsidy from the salary of one of its employees who would have received the Canadian Emergency Response Benefit for that same period. This criterion has been replaced by the non-admissibility for an employer of the remuneration paid to employees if those who have been without remuneration for more than 14 days. The government is now planning to put in place a process to allow workers to cancel their CERB request and reimburse the amounts received so that they can be rehired by their employer.
  • If an employer sets up the Work-Sharing program in his business, the employment insurance benefits received by his employees will directly reduce the amount of the wage subsidy.

Calculation example:
An employer has two employees and their revenue before and during the crises is the same. One of whom has a weekly salary of $ 1,500 and the other has weekly earnings of $ 800. Subject to meeting the other criteria, the employer could receive a subsidy of $ 1,447 per week ($ 847 for the first employee and $ 600 for the second).

Refund of Employer Contributions

  • Eligible entities for the subsidy may also receive reimbursement of employer contributions under employment insurance, the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP) and the Quebec Plan parental insurance (QPIP) for amounts paid in relation to the remuneration paid to an employee for a week during which the employee is on paid leave.
  • An employee is considered on paid leave when he is paid for a full week but does not do any work during this week for his employer.
  • The refund of employer contributions would not be subject to any maximum, i.e.  this refund will be in addition to the maximum wage subsidy of $ 847 per week.
  • Employers will have to continue to calculate the contributions on the wages of their employees and remit them to the tax authorities. The reimbursement would be issued to eligible employers at the same time as the payment of the wage subsidy.

How to Apply

  • Applications must be made monthly by businesses via the Canada Revenue Agency online portal (the portal will be available within three (3) to six (6) weeks).
  • The funds relating to the grant will be disbursed within 3 to 10 days after processing the request. The three (3) day period will apply for businesses registered with the CRA direct deposits.
  • Registers must be kept regarding the calculation of income and the calculation of eligible remuneration.

Potential Penalties

If an employer fraudulently requests the subsidy and that he would determine, a posteriori, that the latter was not eligible for the wage subsidy, penalties up to an amount of 225% of the subsidy claimed as well as imprisonment may be applicable.

Wage Subsidy of 10% – still available

Organizations that are not eligible for Canada’s 75% emergency wage subsidy may be eligible for the previously announced 10% wage subsidy: the remuneration paid from March 18 to June 20, up to a maximum grant of $ 1,375 per employee and $ 25,000 per employer.

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