August 7, 2020
Below are additional proposed details pertaining to the extension of the Canada Emergency Wage Subsidy (CEWS), which was initially announced in July.
· The CEWS will be available through to December 19, 2020
· Starting July 5, 2020, through to November 21, 2020, the CEWS will consist of 2 parts:
1. A base subsidy
This is available to all eligible employers with revenue declines, and the subsidy amount will be based on the amount of revenue decline.
o The base would be a specified rate that is applied to the remuneration of employees for the eligibility period on remuneration up to $1,129/wk.
o The rate of the base CEWS would depend on the amount of decline of revenue, calculated as a factor (1.2 for Periods 5 & 6 | 1.0 for Period 7 | 0.8 for Period 8 | 0.4 for Period 9) x % revenue decline, to a specified maximum by Period, and eligibility would be extended to employers with revenues that do not meet the current 30% revenue decline threshold. As a result, all eligible employers with revenue declines would qualify for the CEWS benefit, with the benefit rate decreasing to 0% as revenue declines approach 0%.
o There is a Safe Harbour rule for Periods 5 & 6, where eligible employers with revenue declines of 30% or more can still receive a CEWS benefit rate of 75% if they would be better off under the CEWS rules that were in place for Periods 1-4, rather than the new rules for Periods 5 – 9.
o The following table summarizes the rate structure of the base CEWS subsidy:
2. A top-up subsidy
This will be an additional 25% for employers that have been impacted the hardest by COVID-19.
o Available to employers who have revenue drops for the preceding 3 months of greater than 50% compared to same 3 month period in the prior year, or the average of January and February 2020 (under the alternative method).
o The top-up rate is calculated as 1.25 x the average % revenue drop that exceeds 50%, up to a maximum top-up of 25% (which would occur at a 70% revenue decline).
o The top-up rate is applied to employee remuneration up to $1,129 per week.
The overall CEWS benefit rate would then equal the base subsidy rate plus the top-up subsidy rate (if applicable), applied to employee remuneration for the period, for a maximum weekly benefit of $960. Note that it is possible to have a revenue decline of less than 50% in a given period, but still have revenue declines greater than 50% in the preceding 3 month period, which would result in a decreased base subsidy rate while still being eligible for a top-up subsidy.
· For furloughed employees, the subsidy calculation will remain the same in Periods 5 & 6 as it has for Periods 1 – 4. Beginning in Period 7, the CEWS benefit for furloughed employees will change in order to align with benefits provided through the Canada Emergency Response Benefit (CERB) or Employment Insurance (EI).
· Eligible remuneration for the CEWS benefit under the new proposed rules will continue to be defined the same as under the old rules, which includes salary, wages and other remuneration like taxable benefits (amounts the employer would normally be required to withhold or deduct for payroll remittances).
· For non-arm’s-length employees in Periods 5 – 9, the wage subsidy would be based on the employee’s weekly eligible remuneration or their pre-crisis remuneration, whichever is less, to a maximum of $1,129, and would only be available if such an employee was employed prior to March 16, 2020.
While these proposed changes extend the CEWS benefit to all eligible employers with revenue declines, it is important to balance the benefits your business may receive (which are taxable) with the cost for your company to receive them. The costs to consider would be not only for your staff or accountant to gather the required information and submit the application, but also the time spent to record/account for the benefits, and for any potential future related activity, such as payroll reviews by the CRA, which are a possibility that should be anticipated for organizations accessing these benefits. Therefore, for organizations with marginal revenue declines, it is possible that the administrative cost to apply for, record and report the benefits may exceed the after-tax benefit of the CEWS subsidy itself, and so it would be prudent to consider this prior to applying.
These proposed changes introduce a number of additional considerations in the calculation of the wage subsidy to be applied. There is a wage subsidy estimator tool available here that can be used to estimate the wage subsidy that you would be eligible for, based on inputs specific for your organization. If you have any questions regarding the proposed changes to the CEWS, please let us know.
The information contained in this communication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
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