Canada Emergency Wage Subsidy (CEWS) – Proposed Changes
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This page was last updated on July 23, 2020.
On April 11, 2020, the government established a wage subsidy program for Canadian employers whose businesses were affected by COVID-19. Eligible employers were able to receive a subsidy of 75% of employee wages from March 15, 2020, to June 6, 2020 under this original program. On May 15, 2020, the Prime Minister announced that the program would be extended until August 29, 2020.
On July 17th, the Finance Minister announced significant planned changes to the CEWS program. These proposed changes are currently with the Senate to approve. If they receive royal assent, the following changes to CEWS will become law. The most significant changes are:
- The program will be extended until December 19, 2020;
- Employers who have experienced any reduction in revenue will be able to access the CEWS beginning with the July 5 to August 1 period. It will no longer be limited to employers who have met specific revenue decline requirements;
- Employers who have experienced a reduction in revenue of 50% or more will be entitled to an additional “top-up” subsidy; and
- The amount of the available subsidy will decline in future periods.
Which Employees are Eligible?
The CEWs will still be calculated based on eligible remuneration paid to eligible employees.
Previously, the CEWS was not available for employees who have a period of 14 or more consecutive days in the period for which they are not entitled to remuneration. For periods after July 4, the CEWS will be available for these employees. This will allow claims for employees starting work, or ceasing work during the period. It may also be useful for some unusual employment arrangements.
Calculating Baseline Remuneration
Baseline remuneration plays an important role in the CEWS program. Non-arm’s-length employees must have received baseline remuneration to be eligible for the subsidy. Under the old rules, employers could receive up to a 100% subsidy for amounts paid to an arm’s-length employee if the employee was only paid up to 75% of their baseline remuneration up to a maximum of $847 per week. Under the new rules, starting with the period ended September 26, baseline remuneration will no longer play a role when determining the CEWS for arm’s-length employees but it will still be important when determining the CEWS for non-arm’s-length employees.
Under the old rules, baseline remuneration was calculated based on the average weekly eligible remuneration that was paid to eligible employees from January 1 to March 15, 2020. Under the new rules, there will be more options for determining baseline remuneration.
The period of January 1, 2020 to March 15, 2020 remains the default but you can now elect to use the March 1, 2019 to May 31, 2019 period for the first three periods (ended April 11, May 9 and June 6, 2020). For the fourth period (ended July 4, 2020), the period of March 1, 2019 to May 31, 2019 can be used, or the employer can choose the period of March 1, 2019 to June 30, 2019. For later periods, the employer may elect to use the period of July 1, 2019 to December 31, 2019.
Do I Qualify and How Much Do I Get?
The previous basic requirement to qualify was that your revenues must have declined by at least 15% in March, 2020, and 30% in April, May, or June 2020 against the applicable comparable period.
For the periods ended August 1 and August 29, you’ll be able to choose to use the old rules or the new rules. For subsequent periods, only the new rules can be applied. The proposed new rules will have two components: a base subsidy and a top-up subsidy.
The base subsidy payment will be a multiple of your percentage revenue decline for the month in comparison to either the same month in 2019, or your average revenues for January and February, 2020. You are able to select your preferred approach once for the first four periods (ended April 11 through July 4), and can choose again for all remaining periods. You may not change your approach period-by-period.
Your “base percentage” is your percentage revenue decline for the period, multiplied by a factor. For the two periods ended August 1 and August 29, the factor is 1.2, so if your revenue decline was 30%, your base percentage is 36%. The base percentage caps out at 50% multiplied by the factor, so it cannot exceed 60% for these periods. If your revenue decline was greater in the immediately preceding month, you are allowed to use that month’s revenue decline instead of the current month’s decline, so you can be guaranteed of a minimum base percentage each month.
Any employer whose revenues have declined qualifies for a base subsidy. If your revenue declined 0.025%, you would get a wage subsidy of 0.03%.
The proposed base subsidy factors and maximum base subsidy percentages for future periods are as follows:
Note – employers may choose to calculate the CEWS under the old rules for these two periods. The maximum weekly benefit for an employee under the old rules is $847.
You also get a top-up subsidy if your revenue decline exceeds 50%. This subsidy is computed as your percentage revenue decline, minus 50%, multiplied by 1.25. So, if your revenue decline was 60%, then 60% – 50% = 10% x 1.25 = 12.5%, and your top-up subsidy is 12.5%. The top-up subsidy cannot exceed 25%, which applies once revenues have declined by 70% or more.
Unlike the base subsidy, the top-up subsidy is not based on the change in month-to-month revenues. Instead, it is based on your average revenues for the three preceding months. So, for the period ended August 1, 2020, your base subsidy would look at your revenues for July, 2020, but your top-up subsidy will depend on your average revenues for April, May and June, 2020. This average is compared to the average for the same three months in 2019, or to your average revenues for January and February, 2020 if you are using those months to calculate the base subsidy.
The top-up factor is fixed at 1.25 and does not decline in future periods.
Take your base subsidy percentage, and add it to your top-up subsidy percentage and that is the percentage you will use to compute your wage subsidy. For each employee who works in the period, you get that percentage of the least of the following amounts:
(a) The eligible remuneration paid to the employee in respect of the period;
(b) $1,129; and
(c) If the employee is non-arm’s length, the employee’s baseline remuneration.
If, however, the employee is on paid leave (did no work for the week, but you still paid the employee), you get a bigger claim starting with the period ended September 26. This is available as long as your base percentage is above 0% for the period. For those employees, you get 100% of the least of the following amounts:
(a) The eligible remuneration paid to the employee in respect of the period; and
(b) An amount to be prescribed (this amount has not yet been released).
To determine the total amount of the subsidy you still must add up all the subsidy amounts calculated above for all the employees, subtract any claims under the 10% Temporary Wage Subsidy, subtract any Employment Insurance the employees received from the EI work sharing program, and add back the employer portion of EI and CPP paid for any employees that are on paid leave.
The proposal allows employers to look back to the revenues of the predecessor corporation(s) where amalgamations or wind-ups of subsidiaries have taken place to determine revenue declines for the purposes of the CEWS. In addition, an election will be available for business acquisitions undertaken by asset sale. This will require that the buyer acquired “all or substantially all” assets or property used by the seller in the course of carrying on business, and that the buyer elect, jointly with the seller if the seller is still in existence, to treat the seller’s revenues attributable to the assets transferred as being revenues of the buyer. For clients who acquired or expanded a business through an asset sale at some time between March 1, 2019 and today, this may allow them to access the CEWS.
The proposal allows employers who have no payroll account, and whose employees are administered by another party to apply for the CEWS. Rules were also relaxed somewhat for non-taxable entities (like businesses owned by First Nations) which were added to the list of eligible employees, ensuring that they can use the same rules as non-profit organizations or charities if they are themselves non-profit organizations or charities.
These changes will apply retroactively from the start of the program.
When Do I Need to File?
The proposal extends the deadline to file all CEWS claims from September 30, 2020 to January 31, 2021.