CANADA EMERGENCY WAGE SUBSIDY (CEWS)
January 26, 2021
During December and January, details were confirmed for periods 11 to 13 of the CEWS program.
Non-furloughed employees
The maximum base subsidy rate will remain at 40% for these periods, while the maximum top-up subsidy rate will increase from 25% to 35%.
Furloughed employees
As of December 20, 2020, the maximum subsidy rate has been increased from $573 per week to $595 per week.
Period 11 reference period
The reference period for claim period 11 will be the same as period 10, namely December. This will allow for better alignment of the reference periods with the claim periods.
January 31, 2021 – Deadline for CEWS Applications
CEWS applications are due by:
The later of 180 days after the end of the period, and
January 31, 2021
This means that the final deadline for periods 1 to 5 is January 31, 2021.
January 31, 2021 – Deadline for CEWS Elections
January 31, 2021 is also the final deadline to amend or revoke elections related to the revenue decline computation for periods 1 to 5.
As some elections affect multiple periods (such as the cash basis revenue decline method, and the use of January and February’s average monthly revenue as a prior reference period), the decision made in Period 5 will lock in the chosen method for the remaining CEWS program periods.
CEWS FAQs
On January 13, 2021, the CRA updated the FAQs on the CEWS website:
Of note, in Question 17-5, the CRA provides some clarification around the payment of bonuses and determining eligible remuneration and baseline remuneration. In particular, the CRA indicates that in determining the baseline remuneration of a non-arm’s length employee, a proration will generally be necessary to determine a weekly amount if a bonus was paid in the baseline period.
Summary Tables
The following is a summary of the reference periods for revenue decline calculations and the subsidy rate structure for periods 8 – 13.
CEWS Reference Periods for Revenue Decline Calculations
*Alternatively, the average of Jan and Feb 2020 if an election is made for periods P5 and subsequent claim periods.
CEWS Rates
The Base Percentage (BP%) and Top-Up Percentage (TUP%) are calculated as follows:
Revenue Reduction Percent (RR%) means the percentage decline in Qualifying Revenue when comparing the Prior Reference Period to the Current Reference Period for a specific Claim Period.
Three Month Revenue Reduction Percent (Three Month RR%) means the percentage decline in average monthly Qualifying Revenue when comparing:
The last three calendar months before the Prior Reference Period for the specific Claim Period (or the average of Jan & Feb 2020 if election was made); and
The last three calendar months before the Current Reference Period for the Specific Claim Period.
November 23, 2020
On October 14, 2020, the Department of Finance released details on how periods 8, 9 and 10 of the CEWS program will work.
Non-furloughed employees
The maximum base subsidy rate will be set at 40% for these periods, and the maximum top-up subsidy rate will remain at 25%.
Instead of using the current three-month revenue-decline test for the top-up subsidy, both the base and top-up subsidies will be determined by the change in an eligible employer's monthly revenues, year-over-year, for either the current or previous calendar month.
For employers using the alternative revenue-decline test, both the base subsidy and the top-up subsidy will be determined by the change in an eligible employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues.
The wage subsidy program will include a “safe harbour” rule applicable from September 27 to December 19, 2020. This rule will entitle an eligible employer to a top-up subsidy rate that is no less than it would have received under the three month revenue-decline test.
Furloughed employees
As of October 25, 2020, the subsidy per week in respect of an arm’s length employee (or a non-arm’s length employee who received pre-crisis remuneration for the relevant period) will be: the amount of eligible remuneration paid in respect of the week; or, if the employee receives remuneration of $500 or more in respect of the week, the greater of $500 and 55% of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $573.
On November 2, 2020, legislation was introduced which included changes to the CEWS program:
The change to the top-up subsidy revenue decline calculation, and the freezing of period 8 CEWS calculations through to period 10, were included.
Applications are due by the later of January 31, 2021, and 180 days after the end of the qualifying period.
Several revenue recognition elections previously available only until Period 4 have been made available for all periods.
The ability to revoke or amend elections was also added.
On November 6, 2020, the Department of Finance released a “Backgrounder” which included changes to calculations for periods 8, 9, and 10 in respect of both furloughed and non-furloughed employees. The link to the Backgrounder is as follows:
On November 19, 2020, the draft legislation introduced on November 2 received Royal Assent.
October 7, 2020
On September 23, 2020, the government announced that the CEWS program has been extended through to the summer of 2021. Details of how the subsidy amounts will be calculated after November 2020 have not been released.
On September 25, 2020, the government proposed to extend the current treatment of furloughed employees for the four-week period, from September 27 to October 24, 2020. This means employers who qualify for the wage subsidy would be able to continue to claim up to a maximum benefit of $847 per week per employee to support remuneration of their furloughed workers until October 24, 2020.
July 28, 2020 – CEWS Program Revised and Extended
The federal government has revised the Canada Emergency Wage Subsidy (CEWS) and extended the program until December 19, 2020.
The changes to the CEWS program became law on July 27, 2020.
For additional commentary on the revised rules and examples that show how they work, see the link below to the background material from the Department of Finance Canada.
https://www.canada.ca/en/department-finance/news/2020/07/adapting-the-canada-emergency-wage-subsidy-to-protect-jobs-and-promote-growth.html
In this update we refer to the rules that apply for periods 1 to 4 as the “original rules” and those that apply for periods 5 to 9 as the “new rules.” Under a safe harbour provision, both the original rules and the new rules will be applicable for periods 5 and 6. As such, employers can continue to apply the original rules for periods 5 and 6 if this results in a greater subsidy. The rules applicable to period 10 (Nov. 22 to Dec. 19, 2020) have not been released at this time.
How do the new rules work?
The new rules have two different CEWS rate structures – one calculated based on remuneration paid to active employees and the second for employees that are furloughed (i.e. on leave).
The subsidy rate for active employees is based on a two-part calculation that determines:
a base subsidy rate designed to apply to most employers who have seen a business decline; plus
a top-up subsidy rate for employers affected more severely.
The total subsidy rate is then applied to eligible weekly remuneration. The eligible remuneration amount for each arm’s length employee is the amount paid in respect of the week, up to a weekly maximum of $1,129 per employee. For arm’s length employees, baseline remuneration is no longer part of the calculation; however, it remains relevant for non-arm’s length employees.
The overall CEWS subsidy for each week for active employees equals the base subsidy rate plus the top-up subsidy rate multiplied by the total eligible remuneration.
We discuss the rate structure for furloughed employees later in this post.
How is the base subsidy rate calculated?
For periods 5 through 9, employers with a revenue decline, even of less than 30%, will be eligible for a base subsidy rate for active employees. The rate depends on the actual decline in revenue – the higher the decline, the higher the rate. Where the decline is 50% or more, the base subsidy rate is capped at 60% for periods 5 and 6, 50% for period 7, 40% for period 8, and 20% for period 9.
As with the original rules, employers can compare their current revenue to:
their revenue from the same month in 2019 (“general approach”); or
their average monthly revenue from January and February 2020 (“alternative approach”).
For this test, employers can use their revenue from either the current or prior month, so they can automatically qualify for the subsequent period using the same revenue drop from the prior period when this is to their benefit.
The comparison test chosen for period 5 claims must then be used for the balance of the program for calculating both the base and top-up subsidy rates. The choice made for periods 1 to 4 under the original rules does not affect the decision for period 5.
The following chart shows the base subsidy rates and comparison test alternatives for periods 5 to 9:
For example, if the revenue drop calculated for period 5 was 40%, the base subsidy rate would be 48% (1.2 × 40%).
How is the top-up subsidy rate calculated?
The top-up portion of the subsidy aims to help employers whose revenue has dropped by more than 50%. Like the base subsidy, the top-up subsidy rate varies based on the amount of the revenue drop and is subject to a cap of 25%. This cap applies if the three-month average revenue drop is 70% or more. However, unlike the base subsidy, the rate and cap amounts do not decline over time.
The revenue drop is determined under the general approach by comparing revenues from the three preceding months to revenues from the same three months in the prior year. Under the alternative approach, the revenue drop is determined by comparing the average monthly revenue from the three preceding months to the average monthly revenue from January and February 2020.
The following chart shows the top-up subsidy rates and comparison test alternatives for periods 5 to 9:
For example, if the revenue drop calculated for period 5 was 60%, the top-up subsidy rate would be 12.5% [1.25 × (60% - 50%)].
How will the subsidy apply for furloughed employees?
The new rules set out a separate calculation for employees who have been furloughed. For periods 5 through 9, the CEWS for furloughed employees will be available to eligible employers who qualify for the base or top-up rates for active employees in the relevant period.
The subsidy amount for furloughed employees depends on the claim period:
For periods 5 and 6, the subsidy is the same as it was for periods 1 to 4 which, generally, is the lessor of (A) the amount of remuneration paid to a maximum of $847 per week, and (B) 75 % of the employee’s baseline weekly remuneration.
Beginning in period 7, CEWS support for furloughed employees will be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI).
The employer portion of contributions for furloughed employees to the Canada Pension Plan, EI, Quebec Pension Plan and Quebec Parental Insurance Plan will continue to be refunded to the employer.
Other CEWS Changes
Along with the new subsidy rate calculations, employers and their advisers need to consider other important changes to the program, including the following amendments:
Updates to CEWS application guide
The CEWS application guide has been updated to include more information on how to correct a prior claim, which must include an amended attestation form – Form RC661. When completing this form, it is important that part II, “CEWS Program Rules Elections” be accurately completed to indicate which elections, if any, have been made in respect of the reporting period. The CRA has not provided guidance on what constitutes a valid election, other than to say that it must be retained with the eligible employer’s other books and records in support of its wage subsidy claim and eligibility. We suggest that such an election take the form of a letter to CRA stating the intention to make the election in question, which should be signed by an authorized representative of each entity that is party to the election.
Eligible employee definition modified
Beginning in period 5, an employee is no longer required to be paid for 14 consecutive days to meet the definition of an eligible employee.
Deadline to submit claims extended
Qualifying entities may still apply for the CEWS retroactively, as long as their applications are received before February 2021 (the previous deadline was September 30, 2020).
Entities using the cash method of accounting can elect to use the accrual method for CEWS
Under the new rules, entities that use the cash method of accounting can elect to use the accrual method for the CEWS. Once this election has been made, it must be applied to all qualifying periods. This change applies to all periods.
Formal appeals process now in place
The rules will provide for an appeal process based on the existing procedures for notices of determination which allow for appeals to the Tax Court of Canada.
Baseline remuneration periods expanded
The baseline remuneration periods have been expanded to accommodate seasonal workers and those that may have been on leave at the start of 2020. In addition to the original baseline remuneration period of January 1 to March 15, 2020, there are now three alternative baseline periods available on an elective basis:
The period that begins on March 1, 2019 and ends on May 31, 2019 (for periods 1 to 3);
The period that begins on March 1, 2019 and ends June 30, 2019 (for period 4); and
The period that begins on July 1, 2019 and ends December 19, 2019 (for periods 5 to 10 – relevant for non-arm’s length employees only).
Key considerations
The accuracy of monthly revenue calculations will be more important under the new rules as the specific decline in revenue will directly impact the CEWS subsidy rate.
Given the safe harbour rule for periods 5 and 6, employers should apply both the original rules and the new rules to determine which approach produces the best result.
In period 5, employers must decide whether to adopt the general approach or the alternative approach to calculate their revenue drop for the remainder of the CEWS periods.
For the new base subsidy and top-up subsidy calculations, baseline remuneration is no longer relevant for active arm’s-length employees. Both subsidy amounts will be based on the amount actually paid for that week, to a maximum of $1,129. However, baseline remuneration will continue to be relevant when calculating the CEWS for non-arm’s length employees.
For periods 1 to 4, employers should review the alternative baseline remuneration periods and determine the impact on the amount of the CEWS and consider amendments as appropriate.
For periods 5 to 10, employers should review the alternative baseline remuneration periods available and consider the impact on the amount of the CEWS for non-arm’s length employees.
May 26, 2020
Since our last update on May 4, 2020, the federal government has extended and expanded certain previously announced COVID-19 economic measures, as well as clarifying program rules and administrative issues through the Frequently Asked Questions section of CRA’s website.
On May 15, 2020, the government announced that the CEWS program will be extended to the end of August 2020.
Starting June 1, 2020, you will be able to amend previously filed applications through Represent a Client and My Business Account. The CRA has stated that errors in previously filed applications should be corrected and not simply flowed through a subsequent period’s application.
The CRA has provided further updates to its CEWS FAQ page.
https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-frequently-asked-questions.html
Of note:
Question 6-1 Does qualifying revenue include investment income? (It depends, but generally yes.)
Question 21 Will I be eligible for the Canada Emergency Wage Subsidy and the 10% Temporary Subsidy for Employers? (Until now it was mandatory that the 10% subsidy automatically reduce the CEWS. The CRA will now allow an employer to claim any amount between 0% and 10% for the temporary subsidy in calculating the CEWS – see expanded numerical example #13.)
Question 26-1 How do my bi-weekly, monthly, or semi-monthly pay periods align with the eligible remuneration paid in respect of a week? (Two examples have now been provided.)
Question 26-2 Can I use an average daily wage if my payroll cycle does not align exactly with the wage subsidy claim period or do I have to use an exact daily figure? (If remuneration fluctuates from day to day, no.)
May 4, 2020
On April 24, 2020, the CRA updated their frequently asked questions page for the CEWS program. The following additions are of note:
Examples of how the wage subsidy should be computed when an employee is paid on a monthly basis were provided at Question 26, Examples 16 and 17.
Guidance on how to repay Canada Emergency Response Benefit (CERB) payments to which employees are no longer entitled was provided at Question 15B. Repayments may be required where an employee has been rehired, found alternate employment, or received payments in error.
On April 25, 2020, the CRA also released the CEWS application guide.
https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-apply-guide.html
Retroactively hiring and paying employees
The CRA has clarified that employees who have been laid off or furloughed can become eligible retroactively, as long as you rehire them and their retroactive pay and status meet the eligibility criteria for the claim period. You must rehire and pay such employees before you include them in your calculation for the subsidy.
April 21, 2020
Since our last update, the Government has continued to expand its COVID-19 relief measures for Canadians. Highlights are as follows:
Legislation relating to the CEWS (the 75% wage subsidy program) was passed on April 11, 2020.
Special rules now allow for the computation of revenue to take into account certain non-arm’s length transactions.
Companies within an affiliated group can now compute revenue on a consolidated basis.
On April 21, 2020, the CRA released additional information to help employers calculate their subsidy entitlement for the first qualifying period of March 15 – April 11, 2020.
The CEWS calculator and related information can be found on CRA’s website at the following address:
https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/
Beginning April 27, 2020, eligible employers will be able to apply for the CEWS via CRA’s My Business Account or through a separate online application form.
Payments are targeted to begin on May 5, 2020.
April 02, 2020
Update on COVID-19 Relief Measures – Wage Subsidies
On April 1, 2020, the Government provided additional details pertaining to the 75% wage subsidy program that was announced last week. The Canada Emergency Wage Subsidy is available to eligible employers that have experienced a decline of at least 30% of their revenue. Please click the following link for more details:
https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html
Please note that organizations that do not qualify for the Canada Emergency Wage Subsidy may still qualify for the previously announced Temporary Wage Subsidy for Employers which provides a wage subsidy of up to 10% of remuneration paid from March 18 to June 19, 2020. Please click the following link for more details:
We will continue to provide updates as more information becomes available.
