On March 18, 2020, the Government of Canada announced the Temporary Wage Subsidy for Employers: a three (3) month measure to assist eligible employers to reduce payroll deductions by 10% up to $1,375 per employee to a maximum of $25,000.
In response to the increased challenges posed by the COVID-19 pandemic, on March 30, 2020, the Government announced what were then-believed to be changes to the program that would increase the 10% wage subsidy to 75%.
On April 1, 2020, the Government announced the new Canada Emergency Wage Subsidy that would be available alongside the previously announced Temporary Wage Subsidy for Employers.
The Canada Emergency Wage Subsidy would provide a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.
Eligible employers include employers of all sizes, including non-profit organizations and registered charities that can attest to a decrease of at least 30% of their revenues in the months of March, April or May compared to the same month in 2019. As per the example provided in the Government press release:
If revenues in March 2020 were down 50 per cent compared to March 2019, the employer would be allowed to claim the Canadian Emergency Wage Subsidy on remuneration paid between March 15 and April 11, 2020.
Employers will be required to re-apply for the subsidy in each month that they experience a decrease of at least 30% compared to the same month in the prior year. It is unclear at this time how eligibility will be determined for non‑profits and charities.
An employer’s revenue for this purpose of determining eligibility would be revenue from business carried on in Canada earned from arm’s-length sources, calculated using the employer’s normal accounting method, and excluding revenues from extraordinary items and amounts on account of capital.
The subsidy will be 75% of eligible remuneration normally earned by an employee between March 15 and June 6, 2020 up to a maximum of $847 per week. In contrast to the Temporary Wage Subsidy for Employers program, there would be no overall limit on the subsidy amount that an eligible employer may claim.
Eligible remuneration includes salary, wages, and other remuneration for which employers are generally required to withhold or deduct amounts to remit on account of the employee’s income tax obligation. Eligible remuneration does not include severance pay, or remuneration in the form of stock option benefits or the personal use of a corporate vehicle. Special rules will apply to employees that do not deal at arm’s length with the employer.
Calculating the subsidy on remuneration normally earned is one of the key differences between the Canada Emergency Wage Subsidy and the Temporary Wage Subsidy for Employers (which calculates the subsidy on remuneration actually paid). If an employer normally paid an employee $1,000 per week prior to March 15, 2020, the employer would receive a subsidy of $750 during the eligible period even if it only paid the employee $750 during such period. Employers are expected to maintain existing employees’ pre-crisis employment earnings where possible.
Eligible employers will be able to apply for the subsidy through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. More details about the application process will be made available shortly. Any amounts received by a business under the Temporary Wage Subsidy for Employers will reduce the amount that can be claimed under the Canada Emergency Wage Subsidy.
Employers will be responsible for keeping records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees. Employers will be required to repay the subsidy if it is subsequently determined that they do not meet the eligibility requirements. There may also be penalties in cases of fraudulent claims, or where employers provide false or misleading information or misuse subsidy funds.
The Canada Emergency Wage Subsidy will be considered taxable income and will reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
The draft legislation to implement the Canada Emergency Wage Subsidy has not yet been made available for review. More details will follow once the legislation has been released.
Employers that do not qualify for the Canada Emergency Wage Subsidy may continue to qualify for the Temporary Wage Subsidy for Employers. Further details on the Temporary Wage Subsidy for Employers can be found on our website.