June 30, 2020

To support businesses through these tough economic times, the Government has introduced a wage subsidy of 75 per cent for qualifying businesses retroactive to March 15, 2020.

The federal government announced that the CEWS will be extended by an additional twelve weeks, to August 29, 2020.

The Canada Emergency Wage Subsidy (“CEWS”) 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 was done 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, registered charities, entities that are exempt from corporate tax (such as non-profit organizations, boards of trade, non-profit corporations for scientific research and experimental development, labour organizations, benevolent or fraternal benefit societies)  and partnerships consisting of eligible employers and partnerships that are up to 50% owned by non-eligible employers.  Note that in order to be considered an eligible employer, the employer must have had a registered payroll account with CRA on or before March 15, 2020.

On May 15, 2020, the Federal Government announced the eligibility for the CEWS will be retroactively extended to the start of the program to the following five additional groups: (i) partnerships that are up to 50% owned by non-eligible members; (ii) Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers; (iii) registered Canadian amateur athletic associations; (iv) registered journalism organizations; and (v) non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.

Public bodies, except for those above, would not be eligible for this subsidy. Public bodies include municipalities and local governments, Crown corporations, public universities, colleges, schools, and hospitals.

On May 15, 2020, the Federal Government announced that it intends to better align the treatment of trusts and corporations for the purpose of determining CEWS eligibility. This change will apply n respect of the third qualifying period (May 10th to June 6th 2020) and any subsequent qualifying periods.

Eligible employees

An eligible employee is an individual who is employed in Canada by an eligible employee, other than an individual who is without remuneration by the eligible entity in respect of 14 or more consecutive days in the qualifying period (see below for eligible periods).

Employees who have been laid off or furloughed can become eligible retroactively, as long as you rehire them and their retroactive pay and status meet the eligibility criteria for the claim period. You must rehire and pay such employees before you include them in your calculation for the subsidy. Rehired individuals may have received, or continue to receive, the Canada Emergency Response Benefit (CERB). Depending on the specific situation, these individuals may be required to repay some or all of the amounts they received.

Eligible Revenue Reduction

This subsidy would be available to eligible employers that incur an eligible revenue reduction for a particular period. If the eligible employer qualifies for the CEWS for one claim period, it will automatically qualify for the following claim period. To determine if there has been an eligible revenue reduction, one must compare their current months reduction with the baseline revenue. The baseline revenue is either:

  • the revenue earned in the corresponding month in 2019, or
  • the average of the revenue earned in January and February 2020

One must choose one of these baseline revenue options for your method of comparison and will not be able to change it for your subsequent calculations for the other 2 periods.

On May 15, 2020, the Federal Government announced that it intends to propose legislative amendments to provide flexibility for employers of existing employees who were not regularly employed in early 2020, such as seasonal employees. This change will apply retroactively to the start of the program.

Eligible Periods

Period dates Baseline revenue Eligibility period revenue Required reduction
March 15, 2020 to April 11, 2020 March 2019, orAverage of January and February 2020 March 2020 15%
April 12, 2020 to May 9, 2020 April 2019, orAverage of January and February 2020 April 2020 30%
May 10, 2020 to June 6, 2020 May 2019, orAverage of January and February 2020 May 2020 30%
June 7, 2020 to July 4, 2020 June 2019, orAverage of January and February 2020 June 2020 30%

The Government announced on May 15, 2020 an extension of the CEWS to August 29, 2020.

The Government has not announced whether the eligibility criteria for period 5 (July 5, 2020 to August 1, 2020) and period 6 (August 2, 2020 to August 29, 2020) would include any changes from periods 1 through 4.

Calculating Qualifying Revenue

An employer’s qualifying revenue for this purpose would be its revenue from its business carried on in Canada. Revenue would be calculated using the employer’s normal accounting method and would exclude revenues from extraordinary items and amounts on account of capital.

Employers would be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers wishing to use the cash method must elect when first applying for the subsidy and would be required to use that method for the entire duration of the program.

All members of an affiliated group of eligible entities can jointly elect to report their income on a consolidated basis in accordance with relevant accounting principles. The election is to be made when the first member applies for the subsidy and is to be used for the subsequent periods.

Employers who are participants in joint ventures and whose revenue is substantially from the joint venture can utilize the qualifying revenues of the joint venture (rather than their own) to determine if they qualify for the subsidy.

In situations where an employer’s revenue is substantially all derived from a non-arm’s length person or partnership (such was where a company performs management or administrative services for another entity in the group), the employer’s revenue from such non-arm’s length sources may qualify as revenue if the non-arm’s length person or partnership experiences a revenue loss from arm’s length sources based on the applicable threshold amounts described below. This is intended to allow businesses to receive the CEWS where the employees are employed by a separate entity in the corporate group.  Note that the employer and all non-arm’s length persons and partnerships must jointly elect to have this provision apply.

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.

On May 15, 2020, the Federal Government announced that it intends to propose legislative amendments to ensure that the subsidy applies appropriately to corporations formed on the amalgamation of two predecessor corporations. This would apply to the calculation of benchmark revenue. This change will apply retroactively to the start of the program.

Anti-avoidance — Qualifying Revenues

Anti-avoidance rules have been drafted to prevent eligible employers from lowering their revenues for an eligible period. If an eligible employer enters into a transaction or participates in an event (or a series of transactions or events) or takes an action or fails to take an action that has the effect of reducing their qualifying revenues for the period and it is reasonable to conclude that one of the main purposes of the above was to allow the employer to qualify for the subsidy, the employer will be required to repay any subsidy received.  In addition. the employer will be subject to a penalty of 25% of the CEWS received. As well, under existing provisions of the Income Tax Act, persons making, or participating in making, a false or deceptive statement could be prosecuted with a summary or indictable offence. Anyone found guilty could be sentenced to prison for up to 5 years.

Amount of Subsidy

The subsidy amount for a given employee on eligible remuneration paid in the eligible period would be the greater of:

  • 75 per cent of the amount of remuneration paid to an arm’s length employee, 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 baseline renumeration, 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’ baseline remuneration.

The baseline remuneration for an eligible employee would be based on the average weekly remuneration paid during the period that begins on January 1, 2020 and ends on March 15, 2020, excluding any periods of seven or more consecutive days for 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 arm’s length employees.

The subsidy would only be available in respect of non-arm’s length employees employed prior to March 15, 2020.

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, death benefits, retiring allowances, or stock option benefits. Amounts received by the eligible employee that can be reasonably be expected to be paid or returned to the employer, a party related to the employer or to someone that the employer directs will not be considered eligible remuneration.

Eligible remuneration will also exclude any salary paid during the qualifying periods if, as part of an arrangement involving the eligible employee and the eligible employer:

  1. the amount of remuneration is in excess of the eligible employee’s baseline remuneration
  2. after the qualifying period, the eligible employee is reasonably expected to be paid a lower weekly amount than the baseline remuneration, and
  3. one of the main purposes for the arrangement is to increase the amount of the subsidy the employer would otherwise be entitled to.

The maximum subsidy for arm’s length employees who earn $1,129.33 a week or more during the claim period will be $847. The maximum subsidy for arm’s length employees who earn less than $1,129.33 a week during the claim period and have not had a reduction in pay will be 75% of their weekly gross pay during the claim period, to a maximum of $847. The maximum subsidy for arm’s length employees who earn less than $1,129.33 during the claim period and have had a reduction in pay will be the lesser of 100% of the weekly gross pay during the claim period, 75% of their average weekly gross pay during the period January 1, 2020 to March 15, 2020, and the maximum subsidy of $847.

The maximum subsidy available to non-arm’s length employees will be based on the lower of 75% of their average weekly earnings from January 1, 2020 until March 15, 2020 and 100% of their weekly gross pay during the claim period, subject to maximum weekly claim of $847. If the non-arm’s length employee average weekly salary from January1 ,2020 to March 15, 2020 was $nil, then that employee will not be eligible for any subsidy.

If you have an employee that also works for one or more related eligible employers, the combined total CEWS amount that can be claimed for that employee between yourself and any related eligible employers for each week is $847.

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

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

Refund for Certain Payroll Contributions

The CEWS has been expanded to include a 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.

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 Canada Emergency Wage Subsidy 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.

How to Apply

Starting on April 27, 2020, eligible employers will be able to apply for the CEWS through CRA’s My Business Account portal as well as a separate online application form. The CEWS will be processed at the payroll program (RP) account level, so an eligible employer will have to file a separate application for each RP account.

You will need to know the amount of the subsidy you wish to claim when applying for the CEWS. The CRA has created a webpage to assist eligible employers to calculate the subsidy amount. The webpage, which includes an Excel spreadsheet to calculate the amount of the potential subsidy available, can be found at the following link:  https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsidy-amount.html

In order to use the calculator, the eligible employer will need to provide the following information:

  • Total number of employees
  • Gross payroll and eligible remuneration amounts
  • Refund of employer contributions for any employees on leave with pay
  • Employees receiving a Work-Sharing benefit through Employment Insurance
  • The amount the employer is eligible for under the 10% temporary wage subsidy program for the relevant claim period.

Employers who are expecting a payment of $25 million or more are required to enroll in direct deposit on their payroll account and register for the large value transfer system.

If your business is not yet registered for the Canada Revenue Agency’s My Business Account portal, you can register at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/business-account.html

Those who are unable to register for My Business Account will be able to use an alternative online application form. In order to use this form an online web access code must be obtained through the following website:


To sign up, you need the account number and the date of registration for that account. If a return for that account had been filed in the past you may be asked to provide information from that return.

Note that an application for the subsidy for any of the three eligible periods must be filed before October 1, 2020.

Information to Be Communicated

The Minister may communicate or otherwise make available to the public, in any manner that the Minister considers appropriate, the name of any person or partnership that makes an application under the 75% wage subsidy.

Ensuring Compliance and Record Keeping

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.

It is recommended that employers maintain supporting documentation and records with respect to any claims made under the Canada Emergency Wage Subsidy. This would include (but not limited to):

  • Clear documentation to substantiate the reduction in gross revenues for the period in which the subsidy is claimed
  • Documentation showing that the entire subsidy has been passed on to eligible employees and if not, the reasons as to why this was not possible

The CRA has also stated that they may require an applicant to provide a full list of its employees and their Social Insurance Numbers.

Government Assistance

The usual treatment of tax credits and other benefits provided by the government would apply. Thus, 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.

Disclaimer:  The COVID-19 Canadian tax policies in the above article are changing rapidly as the governments introduce new measures. Certain details have yet to be published. We will aim to update them as soon as they are available.