We discussed the Canada Emergency Wage Subsidy (“CEWS”) in the May Tax Letter. The CEWS is one of the federal government’s responses to the COVID-19 situation in Canada.
As discussed in the May letter, the CEWS provides a 75% wage subsidy to certain eligible entities (employers) for up to 12 weeks, from March 15, 2020 and up to June 6, 2020.
On May 15, 2020, the Department of Finance announced that it was extending the eligibility period a further 12 weeks, to August 29, 2020. Each 4-week period from March 15 through August 29 is a “qualifying period”.
Under the CEWS criteria, an employer can receive a maximum subsidy of 75% of the amount of remuneration paid to each employee per week in a qualifying period, up to a maximum benefit of $847 per employee per week. If an employee’s average weekly remuneration from January 1, 2020 through March 15, 2020 (“baseline remuneration”) was greater than that paid during a qualifying period, 75% of the baseline remuneration average will apply, but still subject to the $847 maximum per week.
As originally announced, a special rule applied to non-arm’s length (e.g. related) employees. Under this rule, an employer could claim the CEWS for non-arm’s length employees only if they were employed prior to March 15, 2020, and the maximum subsidy for the remuneration paid for a week in a qualifying period was 75% of the baseline remuneration. In the May 15, 2020 announcement, the Department of Finance stated that it is changing this rule because it could lead to unintended outcomes in some situations, such as when non-arm’s employees were on parental, disability, or unpaid leave from January 1 to March 15, 2020.
Under this change, employers can choose one of two periods when calculating the baseline remuneration of their employees. They can continue to calculate the baseline remuneration as the average weekly remuneration paid to an employee from January 1 to March 15, 2020, or they can use the average weekly remuneration paid to the employee from March 1 to May 31, 2019. In either case, the calculation does not include any period of seven or more consecutive days without remuneration. Employers are allowed to choose which period to use on an employee-by-employee basis. This change is proposed to be retroactive to April 11, 2020. Although the change was not passed as law at the time of writing, we trust that it will be passed and will apply retroactively as the Department states it will.
The federal government also passed regulations that expand the category of eligible employers under the CEWS. Those eligible now include:
- Partnerships that are up to 50% owned by non-eligible entities;
- Indigenous government-owned corporations that are carrying on a business, and partnerships where the partners are Indigenous governments and eligible entities;
- Registered Canadian amateur athletic associations;
- Registered journalism organizations; and
- Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.
The expansion of the eligible entities is retroactive to April 11, 2020 (the date the CEWS was enacted by Parliament), which means that it applies retroactive to the first qualifying period starting March 15, 2020.
In the May 15 announcement, the Department also stated that it “will consult with key business and labour representatives over the next month on potential adjustments to the program to stimulate jobs and growth”. Unfortunately, at the time of writing, these other “potential adjustments” had not yet been released.