Canada: COVID-19 - Federal government plans to create Canada emergency wage subsidy

In brief

On April 1, 2020, the Canadian government provided further details about its plan to help Canadian employers by providing a 3-month, 75% wage subsidy, retroactive to March 15, 2020.


Contents

Parliament will likely soon be recalled to consider, debate, and pass legislation to create the wage subsidy program. For now, the preliminary plan for the Canada Emergency Wage Subsidy is as follows:

  • The subsidy will be 75% of the first $58,700 normally earned by employees, or a maximum benefit of $847 per week, per employee. There is no limit on the amount that employers can claim, although entitlement will be based on the actual wages paid to employees.
  • Employers of all sizes will be eligible to participate, provided they meet the remaining criteria. As a result, the program will be available to sole proprietors, taxable corporations, and partnerships. Special rules are expected for employees who do not deal at arm’s length with the employer. Public sector entities will be excluded from the program, but it is unclear if the program will apply to “quasi-public” or “broader public” sector employers who receive a small percentage of funding from the government.
  • To be eligible, employers must show a drop in gross revenues of at least 30% in March, April, or May 2020, when compared to the same month in 2019. While details have yet to be released, gross revenue will generally include amounts from business carried on in Canada from arm’s length sources, as computed using the normal accounting method for that business. (The government has promised to work with non-profit organizations and registered charities to determine an appropriate definition of revenue for that sector.)
  • The subsidy is thought to be a cash grant, rather than a tax or remittance credit, and is not expected to be paid until mid-May 2020. It will be considered part of the employer’s taxable income.
  • Employers will be expected to make best efforts to “top up” employees’ salaries, although top-ups are not strictly required, and will be asked to attest to that fact.
  • Penalties and anti-abuse measures will be implemented to discourage “fraudulent claims” or other misuse, but details are not yet available. If the government later determines that an employer received the wage subsidy without meeting the eligibility requirements, the employer will be required to repay any amounts received. Employers should keep detailed records of revenues generated and remuneration paid.
  • Employers will not be entitled to claim a subsidy for employees who are eligible to receive the previously-announced Canada Emergency Response Benefit. It remains unclear if this exclusion will apply to employees who are being paid by their employers while on lay-off/furlough, but would otherwise be entitled to receive the CERB.
  • Eligible employers will be able to access the Canada Emergency Wage Subsidy by applying through the Canada Revenue Agency’s “My Business Account” While details about the application process are forthcoming, employers who are interested in participating in the program, but do not have an online account, should register now.
  • Certain small employers continue to qualify for the Temporary Wage Subsidy for Employers, a previously-announced wage subsidy equal to 10% of remuneration paid from March 18, 2020 to June 19, 2020, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Employers who are eligible for both wage subsidy programs can expect an off-set in the benefits.

Further details of the Canada Emergency Wage Subsidy are expected in coming weeks. Given the significant cost of the program, it is likely that there will be considerable debate and changes before it is implemented. As a result, employers who are pressed to make time-sensitive decisions may need to move ahead regardless of the subsidy, but should be mindful to keep accurate records in case they later become eligible.

With special thanks to Andrew Morreale for his contribution to this post. Andrew is a member of the firm’s Tax Practice Group in Toronto.


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