CANADA EMERGENCY WAGE SUBSIDY – MODIFICATIONS TO EXISTING PROGRAM

On July 27, 2020 the federal government passed new legislation, modifying the existing Canada Emergency Wage Subsidy (“CEWS”) program.  Highlights of the changes include:

• Making the subsidy accessible to a broader range of employers by introducing a base subsidy available to all eligible employers that are experiencing a decline in revenues, including employers with a revenue decline of less than 30 per cent, with the subsidy amount varying depending on the scale of revenue decline;
• Introducing a top-up subsidy for employers that have suffered a decline in revenues exceeding 50%;and
• Addressing certain technical issues with respect to the CEWS.

As of November 19^th, 2020, the CEWS program is extended until June 2021.

• The maximum rate for top-up subsidy remains at 25% for the periods 8 to 10, but is increased to 35% for the periods 11 to 16.
• The top up subsidy starting from period 8 is calculated using the same one-month revenue drop as in the calculation of the base subsidy.  In particular, for periods 8 to 10 only, the applicant can use either the new top-up calculation (same month revenue drop) or the previous 3-month average revenue drop), whichever is more favourable.  For subsequent periods, the top-up subsidy is based on the same revenue drop determined for the base subsidy.
• The deadline to apply for each month’s application is January 31^st, 2021, or 180 days after the end of the claim period, whichever comes later.

Extension of CEWS Program

The CEWS program has been extended for additional periods and will cover the following dates:

• July 5 – August 1 (period 5)
• August 2 – August 29 (period 6)
• August 30 – September 26 (period 7)
• September 27 – October 24 (period 8)
• October 25 – November 21 (period 9)
• November 22 – December 19 (period 10)
• December 20 – January 16, 2021 (period 11)
• January 17 – February 13 (period 12)
• February 14 – March 13 (period 13)
• March 14 – April 10 (period 14)
• April 11 – May 8 (period 15)
• May 9 – June 5 (period 16)

Determining Decline in Revenues

For claim periods 5 and beyond, there is no minimum revenue reduction required to claim the CEWS.  The rate of the subsidy is based on the revenue drop used for that period.

The reference periods used to determine the revenue decline percentages for both the base subsidy and the top-up subsidy can be chosen by an eligible employer as follows:

• a “general” approach based on current monthly revenues compared to the same months’ revenues in the prior year; or
• an “alternative” approach based on current monthly revenues compared to the average of January and February 2020 revenues.

An eligible employer must use the same reference period approach to determine its revenue drop percentage for periods 5 and beyond, and this approach must be used for determining both the base CEWS and the top-up CEWS. Note that an employer does not have to continue using the same approach that it had used previously for periods 1 to 4.  Employers that have elected to use the alternative approach for the first 4 periods will be able to either maintain that election for Period 5 and onward or revert to the general approach. Similarly, employers that have used the general approach for the first 4 periods would be able to either continue with the general approach or elect to use the alternative approach for Period 5 and onward. Whichever approach they choose will apply for Period 5 and onward and will apply to the calculation of the base subsidy and the top-up subsidy.

For periods 5 to 10, while a change in eligible employer’s revenues for purposes of the base subsidy is measured on a month-by-month basis, for the purpose of the top-up subsidy, eligibility will generally be determined by the change in an eligible employer’s revenues for a 3-month period.  Starting from period 8, the revenue drop for the purpose of the top-up subsidy is the same as that used for the base subsidy.  That is, for periods 8 to 10 only, the applicant could choose between the two approaches.

Reference periods for the top-up subsidy

	Claim period	General approach	Alternative approach
Period 5	July 5 to August 1, 2020	July 2020 over July 2019 or June 2020 over June 2019	July 2020 or June 2020 over average of January and February 2020
Period 6	August 2 to August 29, 2020	August 2020 over August 2019 or July 2020 over July 2019	August 2020 or July 2020 over average of January and February 2020
Period 7	August 30 to September 26, 2020	September 2020 over September 2019 or August 2020 over August 2019	September 2020 or August 2020 over average of January and February 2020
Period 8	September 27 to October 24, 2020	October 2020 over October 2019 or September 2020 over September 2019	October 2020 or September 2020 over average of January and February 2020
Period 9	October 25 to November 21, 2020	November 2020 over November 2019 or October 2020 over October 2019	November 2020 or October 2020 over average of January and February 2020
Period 10	November 22 to December 19, 2020	December 2020 over December 2019, or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 11	December 20, 2020 to January 16, 2021	December 2020 over December 2019, or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 12	January 17 to February 13, 2021	January 2021 over January 2020, or December 2020 over December 2019	January 2021 or December 2020 over average of January and February 2020
Period 13	February 14 to March 13, 2021	February 2021, over February 2020 or   January 2021 over January 2020	February 2021 or January 2021 over average of January and February 2020

Reference periods for the top-up subsidy

	Claim period	General approach	Alternative approach
Period 5	July 5 to August 1, 2020	April to June 2020 over April to June 2019	April to June 2020 average over January and February 2020 average*
Period 6	August 2 to August 29, 2020	May to July 2020 over May to July 2019	May to July 2020 average over January and February 2020 average*
Period 7	August 30 to September 26, 2020	June to August 2020 over June to August 2019	June to August 2020 average over January and February 2020 average*
Period 8	September 27 to October 24, 2020	Greater of July to September 2020 over July to September 2019, October 2020 over October 2019, and September 2020 over September 2019.	Greater of July to September 2020 average, October 2020, and September 2020 over January and February 2020 average*
Period 9	October 25 to November 21, 2020	Greater of August to October 2020 over August to October 2019, November 2020 over November 2019, and October 2020 over October 2019	Greater of August to October 2020 average, November 2020, or October 2020 over January and February 2020 average*
Period 10	November 22 to December 19, 2020	Greater of September to November 2020 average over September to November 2019 average, December 2020 over December 2019, and November 2020 over November 2019	Greater of September 2020 to November 2020 average, December 2020, or November 2020 over January and February 2020 average*

Reference periods for the top up subsidy for periods 11 – 13 are the same as those for the base subsidy per above

* The calculation will equal the average monthly revenue over the 3 months of the reference period divided by the average revenue for the months of January and February 2020.

Calculation of Base Subsidy

Effective July 5, 2020 (i.e., Period 5 and subsequent periods), employers will be eligible for a base subsidy amount for active employees. This base subsidy will be a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on remuneration of up to $1,129 per week. The rate of the base subsidy will now vary depending on the level of revenue decline, and its application will be extended to employers with a revenue decline of less than 30 per cent. This expansion will mean that all eligible employers with a revenue decline would now qualify for CEWS support.

The specified rate would be determined based on the change in an eligible employer’s monthly revenues, as described further below.  The maximum base CEWS rate would be provided to employers with a revenue drop of 50 per cent or more. Employers with a revenue drop of less than 50 per cent would be eligible for a lower base subsidy rate.

The maximum base CEWS rate will be gradually reduced from 60 per cent in Periods 5 and 6 (July 5 to August 29) to 50% in period 7, and 40% in periods 8 to 10.  No change in the maximum base subsidy rate has been announced for periods 11 to 16.

Rate Structure of the Base Subsidy

Timing	Period 5*: July 5 – August 1	Period 6*: August 2 – August 29	Period 7: August 30 – September 26	Period 8 to 16: September 27 – June 5
Maximum weekly benefit per employee	Up to $677	Up to $677	Up to $565	Up to $452
Revenue drop
50% and over	60%	60%	50%	40%
0% to 49%	1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)	1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)	1.0 x revenue drop (e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)	0.8 x revenue drop (e.g., 0.8 x 20% revenue drop = 16% base CEWS rate)

Top-up subsidy

A top-up subsidy of up to 25 per cent (a maximum of 35% for periods 11 to 16) will be available to employers that were the most adversely impacted by the pandemic. Generally, an eligible employer’s top-up subsidy will be determined based on the revenue drop experienced when comparing revenues in the preceding 3 months to the same months in the prior year for periods 5 to 10. Under the alternative approach to the calculation of baseline revenues, an eligible employer’s top-up CEWS will be determined based on the revenue drop experienced when comparing average monthly revenue in the preceding 3 months to the average monthly revenue in January and February 2020. Starting from period 8, the revenue drop for the purpose of the top up subsidy is the same as that used for the base subsidy.  That is, for periods 8 to 10 only, the applicant can choose between the two approaches.

• For example, if an employer had $600,000 in revenue between April 1 and June 30, 2019, and $210,000 in revenue between April 1 and June 30, 2020, the employer would have a 3-month revenue drop of 65 per cent.
• Under the alternative approach, if an employer had $400,000 in revenue between January 1 and February 29, 2020 (average monthly revenue of $200,000), and $210,000 in revenue between April 1 and June 30, 2020 (average monthly revenue of $70,000), the employer would have a 3-month revenue drop of 65 per cent.

Employers that have experienced a revenue drop of more than 50 per cent will receive a top-up subsidy rate equal to 1.25 times the revenue drop that exceeds 50 per cent, up to a maximum top-up subsidy rate of 25 per cent, which is attained at a 70‑per‑cent revenue decline (or 1.35 times /max 35% for periods 11 to 16).  As with the base subsidy rate, the top-up subsidy rate will apply to remuneration of up to $1,129 per week. The top-up subsidy rate for selected average revenue drop levels is illustrated in the table below.

Rate Structure of the Top-Up Subsidy for Periods 5 to 10

3-month average revenue drop	Top-up CEWS rate	Top-up calculation = 1.25 x (3-month revenue drop – 50%)
70% and over	25%	1.25 x (70%-50%) = 25%
65%	18.75%	1.25 x (65%-50%) = 18.75%
60%	12.5%	1.25 x (60%-50%) = 12.5%
55%	6.25%	1.25 x (55%-50%) = 6.25%
50% and under	0.0%	1.25 x (50%-50%) = 0.0%

The overall CEWS rate will be equal to the top-up CEWS rate plus the base CEWS rate.

CEWS for Furloughed Employees

Beginning in Period 7, CEWS support for furloughed employees will be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI).

For Period 5 and subsequent periods, the CEWS for furloughed employees will be available to eligible employers that qualify for either the base rate or the top-up rate for active employees in the relevant period.

The employer portion of contributions in respect of the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan, and the Quebec Parental Insurance Plan in respect of furloughed employees will continue to be refunded to the employer.

Eligible Remuneration

No changes are proposed to the definition of eligible remuneration. Eligible remuneration may include salary, wages, and other remuneration like taxable benefits other than non-cash 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, or items such as stock option benefits or the personal use of a corporate vehicle.

For active arm’s-length employees, the amount of remuneration will be based solely on actual remuneration paid for the eligibility period, without reference to the pre-crisis remuneration concept used for earlier CEWS periods.

A modified special rule will apply to active employees that do not deal at arm’s length with the employer. For Period 5 and subsequent periods, the wage subsidy for such employees will be based on the employee’s weekly eligible remuneration or pre-crisis remuneration, whichever is less, up to a maximum of $1,129. The subsidy will only be available in respect of non-arm’s-length employees that were employed prior to March 16, 2020. 

For Period 4, the pre-crisis remuneration of an employee was based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020; from March 1, 2019 to May 31, 2019; or from March 1, 2019 to June 30, 2019. For Period 5 and subsequent periods, the pre-crisis remuneration of an employee will be based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020 or from July 1, 2019 to December 31, 2019. In all cases, the calculation of average weekly remuneration will exclude any period of 7 or more consecutive days without remuneration. Employers can choose which period to use on an employee-by-employee basis.

Eligible Employers and Employees

Eligible employers include individuals, taxable corporations and trusts, partnerships consisting of eligible employers, non‑profit organizations and registered charities. Public institutions are generally not eligible for the subsidy. As announced on May 15, 2020, eligible employers also include the following groups:

• Partnerships that are up to 50-per-cent owned by non-eligible members;
• Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;  
• 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.

An eligible employee is an individual who is employed in Canada. Effective July 5, 2020, the eligibility criteria will no longer exclude employees that are without remuneration in respect of 14 or more consecutive days in an eligibility period.

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.