COVID-19 Government Support for Canadian Businesses

By Kristopher McEvoy, CPA, CGA

Posted in General

Updated (April 24, 2020) - Additional information available on the Canadian Emergency Wage Subsidy (CEWS) released. Click link below to learn more.

CEWS Update


Updated ( April 21, 2020) Canada Emergency Wage Subsidy (CEWS) – For eligible employers, the subsidy covers up to 75% of an employee’s wages for employers who have suffered a drop in gross revenues of at least 15% in March, and 30% in April and May. It was announced this morning that applications with open for this program on Monday, April 27th.



The Canada Emergency Wage Subsidy (Updated April 8th, 2020 at 5:45 pm)

What this means for Canadian Employers

To help employers keep and return workers to their payroll through the challenges posed by the COVID-19 pandemic, the Prime Minister, Justin Trudeau, announced the new Canada Emergency Wage Subsidy on March 27, 2020. This would provide a 75-per-cent wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.


This wage subsidy aims to prevent further job losses, encourage employers to re-hire workers previously laid off as a result of COVID-19, and help better position Canadian companies and other employers to more easily resume normal operations following the crisis. While the Government has designed the proposed wage subsidy to provide generous and timely financial support to employers, it has done so with the expectation that employers will do their part by using the subsidy in a manner that supports the health and well-being of their employees.

Eligible Employers

Eligible employers would include individuals, taxable corporations, partnerships consisting of eligible employers, non-profit organizations and registered charities.

Public bodies would not be eligible for this subsidy. Public bodies would generally include municipalities and local governments, Crown corporations, wholly owned municipal corporations, public universities, colleges, school and hospitals.

This subsidy would be available to eligible employers that see a drop of at least 15 per cent of their revenue in March 2020 and 30 per cent for the following months (see Eligible Periods). In applying for the subsidy, employers would be required to attest to the decline in revenue.

We encourage all eligible employers to rehire employees as quickly as possible and to apply for the Canada Emergency Wage Subsidy if they are eligible. To ensure that the Canada Emergency Response Benefit (CERB) applies as intended, the Government will consider implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.

Calculating Revenues


An employer’s revenue for this purpose would be its revenue in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method, and would exclude revenues from extraordinary items and amounts on account of capital.

Today, the government is clarifying that employers would be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers would select an accounting method when first applying for the CEWS and would be required to use that method for the entire duration of the program.

For registered charities and non-profit organizations, the calculation will include most forms of revenue, excluding revenues from non-arm’s length persons. These organizations would be allowed to choose whether or not to include revenue from government sources as part of the calculation. Once chosen, the same approach would have to apply throughout the program period.

Amount of Subsidy


The subsidy amount for a given employee on eligible remuneration paid for the period between March 15 and June 6, 2020 would be the greater of:

75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and

the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less.

In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.

The pre-crisis remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

Employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees.

Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.

A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75 per cent of the employee’s pre-crisis weekly remuneration. The subsidy would only be available in respect of non-arm’s length employees employed prior to March 15, 2020.

There would be no overall limit on the subsidy amount that an eligible employer may claim.

Employers are expected to make their best effort to top-up employees’ salaries to bring them to pre-crisis levels.

Refund for Certain Payroll Contributions


Today, the Government is proposing to expand the CEWS by introducing a new 100 per cent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100 per cent of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.

In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.

This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS. There would be no overall limit on the refund amount that an eligible employer may claim.

For greater certainty, employers would be required to continue to collect and remit employer and employee contributions to each program as usual.

Eligible employers would apply for a refund, as described above, at the same time that they apply for the CEWS.

Eligible Periods


Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began.

Today, the government is announcing that all employers would be allowed to calculate their change in revenue using an alternative benchmark to determine their eligibility. This would provide more flexibility to employers for which the general approach may not be appropriate, including high-growth firms, sectors that faced difficulties in 2019, non-profits and charities, as well as employers established after February 2019. Under this alternative approach, employers would be allowed to compare their revenue using an average of their revenue earned in January and February 2020. Employers would select the general year-over-year approach or this alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program

ABC Inc. is a start-up that started its operations last September. It reported revenues of $100,000 in January and $140,000 in February, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March are 25 per cent lower than $120,000, ABC inc. would be eligible for the CEWS for the first claiming period. To be eligible for the following claiming period, ABC Inc. revenues would have to be $84,000 or less for the month of April (that is, 30 per cent lower than $120,000).

The amount of wage subsidy (provided under the COVID-19 Economic Response Plan) received by the employer in a given month would be ignored for the purpose of measuring year-over-year changes in monthly revenues.

For example, if revenues in March 2020 were down 20 per cent compared to March 2019, the employer would be allowed to claim the CEWS (as calculated above) on remuneration paid between March 15 and April 11, 2020.
Alternatively, this employer could use its average revenue from the months of January and February 2020, instead of March 2019, to determine if it is eligible for the CEWS.
Once an approach is chosen, the employer would have to apply it throughout the program period.
The table below outlines each claiming period, the required reduction in revenue and the reference period for eligibility.

Eligible employees


An eligible employee is an individual who is employed in Canada. Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6.

This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit.

How to Apply


Eligible employers would be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.

More details about the application process will be made available shortly.

Ensuring Compliance


In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, the employer would be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements.


Penalties may apply in cases of fraudulent claims. The penalties may include fines or even imprisonment. In addition, anti-abuse rules would be put in place to ensure that the subsidy is not inappropriately obtained and to help ensure that employees are paid the amounts they are owed.


Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 per cent of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.

Interaction with 10 per cent Wage Subsidy


On March 25, 2020, the COVID-19 Emergency Response Act, which included the implementation of a temporary 10 per cent wage subsidy, received Royal Assent. For employers that are eligible for both the CEWS and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent 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


On March 18, 2020, the Prime Minister announced an extension of the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

For employers and employees that are 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.

Government Assistance


The usual treatment of tax credits and other benefits provided by the government would apply. As a consequence, the wage subsidy received by an employer would be considered government assistance and be included in the employer’s taxable income.

Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.

How employers will benefit from the CEWS


Maude and Stéphane own a corporation that operates an automobile repair shop in Saint Boniface, Manitoba. They are working full time, each drawing a salary of $1,300 per week, and have three part-time employees, each earning

$800 per week, for a total weekly payroll of $5,000. Maude and Stéphane have reduced their opening hours due to decreased demand for their services.

They had initially laid off their employees, but they have now decided to re- hire them following the announcement of the Canada Emergency Wage Subsidy. Their employees are not being asked to report to work during this challenging period.

Maude and Stéphane are now keeping their employees on the payroll, paying them 75 per cent of their pre-crisis salary ($600 per week). Maude and Stéphane would be eligible for a weekly wage subsidy of $3,494 ($847 for each of themselves and $600 for each of their employees). Maude and Stéphane would also be eligible for a 100-per-cent refund of their employer- paid contributions to Employment Insurance and the Canada Pension Plan in respect of their employees, providing an additional benefit of up to $124 per week.

At the end of each claiming period, Maude and Stéphane would submit an application through the Canada Revenue Agency portal, attesting that their decline in revenues in each month is sufficient to qualify, when compared to the average of January and February. They would also report the total remuneration paid to themselves and their furloughed employees during the month. As Maude and Stéphane have access to direct deposits with the Canada Revenue Agency, they would receive their subsidy shortly after each application.

Relief Measures for Businesses;  Updated April 8th, 2020 

Many Canadian businesses, along with non-profits and charities, may be particularly hard-hit by the financial fallout of COVID-19 and may experience a significant loss of revenue. The Government of Canada has put into place a variety of measures to help Canadian businesses facing hardship as a result of the COVID-19 outbreak to avoid layoffs of workers. Among the measures is a new loan program for businesses, wage subsidy programs for employers and deferred payment deadlines for income tax and GST/HST.

Here’s a brief summary of a few of the relief measures available to businesses and non-profits in Canada.

Canada Emergency Business Account


The Canada Emergency Business Account (CEBA) will provide interest-free loans of up to $40,000 to businesses and not-for-profits to help cover their operating costs during a period where their revenues have been temporarily reduced due to the economic impacts of the COVID-19 pandemic. The loans will be guaranteed by the Canadian government and administered by your financial institution.

To qualify, borrowers will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019, based on their 2019 T4 SUM Summary of Remuneration Paid. Up to $10,000 can be forgiven (25% of the loan amount) if the balance is repaid by December 31, 2022.

Other Loan and Guarantee Programs


Some businesses may also be able to obtain financing to assist with operational cash flow requirements through new co-lending and loan guarantee programs set up through the Business Development Bank of Canada and the Export Development Bank of Canada. Loans under each of these programs will be for incremental credit amounts up to $6.25 million. Further details of these programs will be released later in April.

Wage subsidy programs


To help prevent lay-offs, the government has announced two separate wage subsidy programs. The newly- announced Canada Emergency Wage Subsidy provides both large and small employers with a subsidy that may be up to 75% of employee wages, to help employers to keep their workers when they have had a decline in revenues of 30% or more. The second program, the Temporary Wage Subsidy, was passed into law on March 25, 2020, and is aimed at assisting small- and medium-sized employers with their payrolls by offering qualifying employers a wage subsidy of 10% through reduced payroll remittances.

Detailed information on these two wage subsidy programs may be found in our report, “Wage subsidy programs for employers: Canada’s COVID-19 response plan.

Tax payment and filing deadlines


The government announced extensions of certain deadlines for filing tax returns and paying balances owing.

 
Income taxes


The tax return filing deadlines for some corporations and partnerships have been extended. A T2 Corporation Income Tax Return is normally due six months after the corporation's year-end. For corporations that would otherwise have a filing due date after March 18 and before June 1, 2020, the filing deadline has been extended to June 1, 2020. For partnerships, a T5013 Partnership Information Return is normally due on the earlier of March 31 after the calendar year in which the fiscal period of the partnership ended and five months after the end of the fiscal period. The filing date for 2019 T5013 Partnership Information Returns has been extended to May 1, 2020. The filing deadline for a 2019 T1 Income Tax and Benefit Return for self-employed individuals and their spouses or common-law partners remains unchanged and these returns must still be filed by June 15, 2020.

There has also been an extension in the time to make certain payments. The Canada Revenue Agency ("CRA") will allow all businesses to defer, until September 1, 2020, the payment of any income tax amounts that become owing on or after March 18, 2020, and before September 2020. This relief applies to tax balances due, as well as corporate income tax instalments. The government made it clear that no arrears interest or penalties will accumulate on these amounts during this period.

GST/HST Remittances


The CRA has also pushed back the deadline for GST/HST remittances. Normally, GST/HST amounts collected by businesses are due by the end of the month following the vendor’s reporting period. For example, if your business is a monthly filer, the GST/HST amounts collected on its February sales are due by the end of March.

The CRA has announced that it will extend the remittance deadline until June 30, 2020. The result is that monthly filers can delay remitting amounts collected for the February, March and April 2020 reporting periods until June 30 while quarterly filers have until that date to remit amounts collected for January 1, 2020, through March 31, 2020 reporting period. Annual filers, whose GST/HST return or instalments are due in March, April or May 2020, can now remit amounts collected and owing for their previous fiscal year as well as instalments of GST/HST for the current fiscal year by June 30, 2020.

Audits


Finally, the CRA confirmed it won’t be contacting any small- or medium-sized businesses to initiate any post-assessment GST/HST or income tax audits for the next four weeks.

  • PM Trudeau announced a slew of new measures this morning intended to help the Canadian economy weather the impact of the COVID-19 pandemic. Finance Minister Morneau followed on early this afternoon with more details.
  • Front and center was an increase in the wage subsidy offered to small and medium-sized businesses, to 75%, up from 10% previously announced. The change will be back-dated to March 15th. More details, such as the conditions for a firm to qualify, are to come on Monday. Costing was not available at the time of writing – by comparison, the government had estimated that the prior 10% subsidy would carry a cost of $3.8 billion.
  • Also introduced are new Canada Emergency Business Accounts aimed at small businesses, non-profits, and the self-employed. Delivered via banks, these will be $40k loans, government-backed, interest-free for the first year, and with the first $10k forgivable if repaid on schedule. FM Morneau estimated that the total cost of this support will up to $25 billion.
  • The $10bn in business supports being delivered by BDC and EDC will be more than doubled, to a new total of $22.5bn. Both organizations will also partner with banks in providing loans of up to $6.25 million to help SMEs continue to function. 
  • HST, GST, and other tax payments will be deferred to June, estimated to free up $30 billion in near-term liquidity for businesses.  
  • FM Morneau estimated that, excluding the wage subsidy, the measures announced today represent roughly $95 billion in support, including the $30 billion in liquidity from tax deferrals.
  • With all of the announcements to date, it can be hard to keep track of how much support is now in play. Including the measures, today that had cost estimates, roughly $202bn of support is now on the table. $85bn of this is in the form of tax deferrals, roughly $52bn in direct support measures, and the remaining $65bn in lending operations. A rough calculation based on earlier estimates suggests that the 75% wage subsidy will add an additional $25 billion to this total. 
  • Key Implications
  • Today will be another one for the record books. Not long after the Bank of Canada cut its policy rate back to the crisis low and expanded asset purchases (see commentary), the Federal Government again stepped up its coronavirus response. The big announcement today, a 75% wage subsidy for small and medium-sized firms, appears to have largely met calls for greater support to help prevent layoffs.
  • Between today's measures and the Canada Emergency Response Benefit (CERB) announced earlier this week, there is now a decent level of support both for firms to keep employees on and for those employees who are let go should the math still not make sense for their employers. Today's subsidy should help mitigate some of the upside risks on the unemployment rate, and the CERB will help blunt the income shock for those who are laid off.
  • It was also encouraging to see an expansion of BDC and EDC support measures, including a broadening of the channels by which firms can access the funds. Wrapping up the self-employed in what appears to be a fairly generous program of short-term support loans is also helpful.  
  • The Canadian COVID-19 response is being fleshed out day by day, and to date, the measures have been largely (much needed) stop-gaps. We continue to look for further announcements aimed at sectors such as travel/tourism and energy that are likely to face longer-term challenges even after economic life returns to 'normal'.  
  • Government introduces Canada Emergency Response Benefit to help workers and businesses

News release
March 25, 2020 - Ottawa, Ontario - Department of Finance Canada

The Government of Canada is taking strong, immediate and effective action to protect Canadians and the economy from the impacts of the global COVID-19 pandemic. No Canadian should have to choose between protecting their health, putting food on the table, paying for their medication or caring for a family member.

To support workers and help businesses keep their employees, the government has proposed legislation to establish the Canada Emergency Response Benefit (CERB). This taxable benefit would provide $2,000 a month for up to four months for workers who lose their income as a result of the COVID-19 pandemic. The CERB would be a simpler and more accessible combination of the previously announced Emergency Care Benefit and Emergency Support Benefit.

The CERB would cover Canadians who have lost their job, are sick, quarantined, or taking care of someone who is sick with COVID-19, as well as working parents who must stay home without pay to care for children who are sick or at home because of school and daycare closures. The CERB would apply to wage earners, as well as contract workers and self-employed individuals who would not otherwise be eligible for Employment Insurance (EI).

Additionally, workers who are still employed, but are not receiving income because of disruptions to their work situation due to COVID-19, would also qualify for the CERB. This would help businesses keep their employees as they navigate these difficult times, while ensuring they preserve the ability to quickly resume operations as soon as it becomes possible.

The EI system was not designed to process the unprecedented high volume of applications received in the past week. Given this situation, all Canadians who have ceased working due to COVID-19, whether they are EI-eligible or not, would be able to receive the CERB to ensure they have timely access to the income support they need.

Canadians who are already receiving EI regular and sickness benefits as of today would continue to receive their benefits and should not apply to the CERB. If their EI benefits end before October 3, 2020, they could apply for the CERB once their EI benefits cease, if they are unable to return to work due to COVID-19. Canadians who have already applied for EI and whose application has not yet been processed would not need to reapply. Canadians who are eligible for EI regular and sickness benefits would still be able to access their normal EI benefits, if still unemployed, after the 16-week period covered by the CERB.

The government is working to get money into the pockets of Canadians as quickly as possible. The portal for accessing the CERB would be available in early April. EI eligible Canadians who have lost their job can continue to apply for EI here, as can Canadians applying for other EI benefits.

Canadians would begin to receive their CERB payments within 10 days of application. The CERB would be paid every four weeks and be available from March 15, 2020 until October 3, 2020.

This benefit would be one part of the government’s COVID-19 Economic Response Plan, to support Canadian workers and businesses and help stabilize the economy by helping Canadians pay for essentials like housing and groceries, and helping businesses pay their employees and bills during this unprecedented time of global uncertainty.

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