COVID-19: Emergency wage subsidy increased to 75%.

Program analysis

The Emergency Wage Subsidy is available for a 24-week period to companies that have experienced a reduction in gross revenues due to the COVID-19 crisis. This program will take the form of a wage subsidy at a rate of 75% on the first $58,700 normally received by an employee, representing a maximum weekly benefit of $847 per employee.

There is no limit to the number of employees eligible for the subsidy.

Measurement objective

The aim of the measure is to enable employers to retain their employees, and even to rehire workers who have been laid off, so that companies can emerge from this crisis in a strong position.

Program details and specifications

• The program runs for 24 weeks, from March 15 to August 29, 2020.
• The law provides for the possibility of extending the program.
• To be eligible, an employer must have suffered a minimum reduction in income of 15% of eligible income for the month of March and 30% of eligible income for the months of April and May.
• For the months of June, July and August, the minimum reduction has not yet been announced.
• Since the analysis must be carried out on a monthly basis, an eligible entity could be eligible for the subsidy in one month and not in another.
• An eligible entity will be able to claim the subsidy for employees who worked for it before the crisis, as well as for new employees.
• The wage subsidy received by an eligible entity will be considered government assistance and should be included in the employer’s taxable income.
• The assistance received from the wage subsidy will reduce the amount of expenses eligible for other federal tax credits calculated on the same remuneration.

Eligible entities

1. Company, with the exception of a company whose income is exempt from Part 1 tax or a public institution;
2. Individuals;
3. Registered charities other than public institutions;
4. Non-profit organizations (NPOs) other than public institutions;
5. Corporations owned by an Aboriginal government that operate a business, as well as partnerships whose partners are Aboriginal governments and eligible employers;
6. Registered journalistic organizations;
7. Registered Canadian amateur athletic associations (i.e., associations responsible for promoting sport at the national level);
8. Non-public colleges and schools (for-profit or not-for-profit);
9. Partnerships where all partners qualify as eligible entities;
10. Partnerships in which 50% or less of the fair market value of the interests is owned by ineligible members;
11. Prescribed organizations.

To be eligible, the entity must also have, as at March 15, 2020, a business number used for amounts to be remitted under source deductions (business number ending with RS000).

The original interpretation to the effect that companies and organizations that have received public funding are not eligible for the subsidy has been replaced by the reference stipulating that public sector entities are not eligible for the subsidy. Public sector entities include, among others, municipalities and local governments, state-owned companies, public universities and hospitals.

Entities must apply for the wage subsidy via the prescribed form before October 2020. In addition, the person with primary responsibility for the entity’s financial activities must certify that the application 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 compensation subsidy will be limited to employees who have not been without pay for at least 14 consecutive days during the eligibility period, i.e. from March 15 to April 11, April 12 to May 9, May 10 to June 6, June 7 to July 4, July 5 to July 1, and July 10 to July 10.^August and from August 2 to 29.

Eligible compensation paid to an employee

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

However, eligible compensation does not include :

• a 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 manner whatsoever, to the specified entity, to a person or partnership not dealing at arm’s length with the specified entity, or to a person or partnership in accordance with the specified entity’s instructions;
• any amount paid to an employee if, as part of an arrangement with the employer, it is stipulated that:

• • the amount eligible for the wage subsidy exceeds the average weekly earnings of the eligible employee prior to March 15,
  • after the eligibility period, it is reasonable to expect that the eligible employee will receive lower weekly earnings than during the wage subsidy eligibility period,
  • one of the main aims of the arrangement is to increase the amount of the wage subsidy.

Income calculation

For the purposes of analyzing the 15% reduction in qualifying income for March and the 30% reduction for April and May, the term “qualifying income” corresponds to :

• Income established in accordance with the company’s usual accounting practices;
• Cash receipts and other consideration received or receivable in the normal course of the entity’s business in Canada;
• Don’t understand extraordinary items;
• Does not include amounts obtained or derived from a person or partnership with whom the specified entity does not deal at arm’s length;
• The reduction in eligible income must be analyzed on a monthly basis by comparing eligible income for the month concerned in 2020, i.e. March/April/May, with the same month in 2019. For example, a company would be eligible if its eligible revenues for the month of April 2020 have decreased by at least 30% compared to its eligible revenues for the month of April 2019.
• If the eligible entity makes an election, the entity may use an alternative method by comparing, on a monthly basis, the eligible income for the relevant month of 2020, i.e. the months of March/April/May, with the average monthly eligible income for the months of January and February 2020. If a choice is made, it will apply to all periods.
• If the entity did not operate a business or carry on normal activities on March 1, 2019, it is mandatory to compare the decrease in eligible income to the average monthly eligible income for January and February 2020.
• If an eligible entity qualifies for a given eligibility period (example: April), it will automatically qualify for the eligibility period immediately following the given eligibility period (May for the purposes of this example).
• The entity will be eligible for the wage subsidy if it meets the criterion of a decrease in gross revenues using one of the two methods.
• In recognition of the wide variation in the timing between when income is earned and when it is received in certain sectors of the economy, qualifying entities may elect to calculate the amount of their qualifying income on a cash basis instead of an accrual basis.
• As regards both the choice of revenue recognition method (cash or accrual) and the revenue comparison method (for the purposes of the % reduction), entities will have to select a method and retain it for the duration of the program.
• Amounts received from wage subsidies do not have to be taken into account when calculating gross income for subsidy purposes.

Additional rules applicable to groups of entities :

• If a group of specified entities normally prepares consolidated financial statements, each member of the group may determine its qualifying income separately to the extent that each member of the group determines its qualifying income on that basis.
• If a specified entity and each member of an affiliated group of specified entities of which it is a member make a joint election to this effect, the qualifying income of the group, determined on a consolidated basis in accordance with applicable accounting practices, is used by each member of the group.
• Special rules also apply to joint ventures.
• If all or substantially all of an entity’s qualifying income, i.e. 90% or more, for an eligibility period is derived from one or more particular persons or partnerships with whom it does not deal at arm’s length, and if each of these persons or partnerships makes a joint election, additional rules will apply for calculating income. Further details will be provided.

Additional rules applicable to NPOs and NPOs :

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

Subsidy calculation

The grant will correspond to the highest of the following amounts:

1. a) 75% of the amount of earnings paid for the week, up to a maximum weekly benefit of $847
2. b) The lesser of the earnings paid for the week, up to the amount of $847, or 75% of the weekly earnings the employee was receiving prior to the crisis.

• The maximum weekly subsidy per employee is $847.
• If an employee works for several employers who are not at arm’s length from each other, the employers together cannot claim a weekly benefit of more than $847 for this employee.
• Eligible entities must do their utmost to pay the missing 25%. The government is aware, however, that this will not always be possible, and there will be some “flexibility” in this respect.
• The employee’s pre-crisis weekly earnings will be based on an average of weekly earnings paid between January 1 and March 15, excluding periods of 7 consecutive days when the employee received no earnings.
• A special rule will apply to employees who do not deal at arm’s length with the employer. The amount of the subsidy for these employees will be limited to eligible earnings paid during any earnings period between March 15 and June 6, 2020, up to the lesser of the maximum weekly benefit of $847 or 75% of the weekly earnings the employee was receiving prior to the crisis. It will not be possible to obtain a subsidy for a non-arm’s-length employee who was not receiving compensation prior to the crisis.
• An employer who has received wage subsidies under the temporary 10% wage subsidy program will have to reduce the amount of this other subsidy by the amount that can be claimed under the Canada Emergency Wage Subsidy (at a rate of 75%) during the same period.

• • Technically, a company eligible for the temporary 10% wage subsidy is deemed to have claimed this subsidy first, and then to deduct it from the amount of the 75% subsidy to which it would be entitled, even if the temporary 10% wage subsidy has not been claimed.
  • However, CRA representatives have clarified that it will be possible to opt out of the 10% temporary wage subsidy and claim only the 75% emergency wage subsidy. To date, however, the mechanism surrounding such a choice is not yet known.
  • For more details on the temporary 10% wage subsidy, please refer to the text below.
• The original criterion stated that an employer could not claim the wage subsidy on the salary of one of its employees who would have received the Canada Emergency Benefit (CEP) for the same period. This criterion has been replaced by the ineligibility for an employer of remuneration paid to employees if they have been without pay for more than 14 days. The government now plans to set up a process to allow workers to cancel their ECP applications and repay the amounts received, so that they can be rehired by their employer.
• If an employer implements the Work-Sharing program in his company, the EI benefits received by his employees will directly reduce the amount of the wage subsidy.

Calculation example :

An employer has two employees. Their remuneration before and during the crisis remains identical. One of them earns $1,500 a week, while the other earns $800 a week. Provided the other criteria are met, the employer could receive a subsidy of $1,447 per week ($847 for the first employee and $600 for the second).

Reimbursement of employer contributions

• Entities eligible for the subsidy will also be reimbursed for employer contributions to Employment Insurance (EI), the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP) and the Quebec Parental Insurance Plan (QPIP) for amounts paid in respect of remuneration paid to an employee for a week during which the employee is on paid leave.
• An employee is considered to be on paid leave when he is paid for a full week, but does not perform any work for his employer during that week.
• The reimbursement of employer contributions would not be subject to any maximum, i.e. it would be in addition to the maximum wage subsidy of $847 per week.
• Employers will still have to calculate contributions on their employees’ wages and remit them to the tax authorities. The refund would be issued to eligible employers at the same time as payment of the wage subsidy.

Potential changes

In addition, the government announced on May 15 that it is currently studying the possibility of amending the Act to :

• provide flexibility for employers who currently employ employees who were not regular employees at the start of 2020, such as seasonal employees;
• ensure that the SSUC applies appropriately to corporations formed by the amalgamation of two corporations (or the winding-up of one corporation) by allowing their combined incomes to be used in calculating their benchmark income for the purposes of the decrease-in-income test;
• better harmonize the treatment of trusts and corporations for SSUC eligibility purposes.

How to apply

• Requests must be made each month by companies via the Canada Revenue Agency’s online portal.
• It is possible to submit a request for a period once it has been completed.
• There are three ways to submit an application:
  • With the “My Company File” portal
  • With the “Represent a customer” portal
  • With the Web form
• Grant funds will be disbursed within 3 to 10 days of application processing. The three (3) day period will apply to companies registered with the CRA for direct deposits.
• Records must be kept of income and eligible compensation calculations.

Potential penalties

In the event that an employer fraudulently claims the subsidy and it is determined, a posteriori, that the employer was not eligible for the wage subsidy, penalties of up to 225% of the subsidy claimed, as well as imprisonment, may be applicable.