To support businesses that are facing revenue losses and to help prevent lay-offs, the government is proposing to provide eligible small employers a Temporary Wage Subsidy for a period of three months.
This subsidy will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (“CRA”).
Who is Qualified?
An eligible employer is defined as follows:
- a non-profit organization, registered charity, a Canadian-controlled private corporation (“CCPC”), an individual (other than a trust) and a partnership whose members consist of any combination of individuals (other than a trust), a registered charity and a CCPC;
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses, or other remuneration to an employee.
Note that a CCPC is only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million. A partnership will be disqualified if one of its members is a CCPC whose taxable capital (either alone or with associated group) exceeds the $15 million threshold.
The Temporary Wage Subsidy for Employers is limited to the eligible employers listed above. Corporations that are non-CCPC’s currently do not qualify.
How Much is The Subsidy and How Do I Calculate the Amount?
The subsidy will be equal to 10% of remuneration paid between March 18, 2020 and June 20, 2020, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
The subsidy must be calculated manually.
For example, if you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
How Do I Claim the Subsidy and When Does It Start?
Once you have calculated your subsidy, you can reduce your current remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy.
Note that you cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums.
For example, if you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.
You can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020.
For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
If the income taxes you deduct are not enough to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).
For example: If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.
Note that you will continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from salary, wages, bonuses, or other remuneration paid to your employees, as you currently do. The subsidy is only calculated when you remit these amounts to the CRA.
If you are an eligible employer but choose not to reduce your payroll remittances during the year, calculate the temporary wage subsidy on remuneration paid between March 18, 2020, and June 20, 2020. You can then ask for the subsidy to be paid to you at the end of the year or transferred to the next year’s remittance.
What Records Do I Need To Keep To Support The Claim for the Subsidy?
You will need to keep information to support your subsidy calculation. This includes:
- the total remuneration paid between March 18, 2020, and June 20, 2020;
- the federal, provincial, or territorial income tax that was deducted from that remuneration; and
- the number of employees paid in that period.
The CRA is currently updating reporting requirements. More information on how to report this subsidy will be released soon.
Is the Subsidy Considered Taxable Income?
Note that any subsidy claimed must be reported as income in the year in which the subsidy is received.
What if My Business is Closed?
If you did not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 20, 2020, you cannot receive the subsidy, even if you are an eligible employer.
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.