Author: Nadine Dyck
The Canadian Emergency Wage Subsidy (CEWS) program offers 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15th, 2020.
How to apply: Eligible employers are now able to apply for the CEWS through the Canada Revenue Agency's My Business Account portal. Employers will need to keep records demonstrating their reduction in arm's-length revenues and remuneration paid to employees. Click here for instructions on how to apply for My Business Account.
Eligible employers include:
The legislation of who will qualify for CEWS and how the calculation will be completed has been passed but they are still making changes. It is an extremely complicated piece of law to decipher.
If you have questions, please contact your Stark & Marsh Advisor to help you understand if you qualify or to help with the actual calculation.
Some summary points we have been given are as follows:
a. First question is “Did I have a payroll account with CRA on March 15, 2020” – if your answer is no, there is no subsidy available
b. Next ask yourself if your business saw a decline in revenue in March 2020. If your business had a reduction in revenue, you qualify. The decrease does not have to be attributable to COVID-19. Examples have been given of the oilfield or farming.
c. Then the test becomes “Did my March 2020 revenue drop more than 15% compared to either March 2019 or an average of January and February 2020?” If yes, you automatically qualify for April subsidy also without applying again. Even if your April month ends up being better than April 2019, you get the subsidy.
d. If your March did not drop 15% then you can look at applying for April. Again, you take April 2020 and compare it to either April 2019 or an average of January and February 2020. This time the decrease must be 30% (March was 15% as COVID-19 hit mid-month). If you qualify for April, you automatically get it for May
e. The payroll periods covered do not align with the month of revenue though.
Here is a chart:
So, this means you already will know if you qualify based on March revenue and it will cover the March 15 to April 11 payroll.
f. When you calculate your revenue, you can choose to do so based on accrual or cash method. This allows for consideration that not all customers you have billed are going to be able to afford to pay. If you choose the cash method to determine your 2020 results, you must convert the 2019 results to cash basis also.
g. “As the owner will your salary be included?” If you paid yourself in the January 1 to March 15th time period, then yes, your salary will be covered within the limits of the formula. However, the following scenarios are situations they are currently not providing subsidies for the owner. Only employees would be included in the calculation:
i. If the owner takes dividends as remuneration
ii. The owner only takes a salary at year end and does not send source deductions in during the January 1 to March 15th time period.
iii. The owner pays themselves contract and no payroll deductions are sent
iv. The owner has just been drawing down a shareholder loan
h. Are you considering hiring back staff you laid off already?
a. They must work for 14 consecutive days in that pay period to qualify for the subsidy. For example, you hired them back April 4th. As the pay period cuts off April 11th, their salary does not qualify, and you will have to fund 100% of it yourself until the next pay period calculation April 12th to May 9th.
Therefore, if you are considering hiring your staff back, do so before April 25th so they will have worked 14 consecutive days before May 9th cut-off.
b. Note, you do not have to have staff physically attend work. They can be on an unpaid leave and qualify for this. If they are not actively working the business owner is to qualify also to have the employer portion of CPP and EI refunded. Therefore, if they are actively working for you, they intend to have you still pay the employer portion of the CPP and EI.
c. Ask if they work anywhere else also as you will have to share the maximum $847 with the other business as one employee can not have more than $847 paid from CRA to employers.
d. The employee rehired will need to check into any overlap between CERB they have collected and restarting working for you and they may need to repay a portion.
e. You can not hire related people as employees that had not been on the payroll already.
i. The actual calculation is complicated, but the one common factor is you can not receive greater than $847 per week for each employee. Factors that effect the calculation include:
Is the employee unrelated to you?
Have they been continually working throughout this, even if at a reduced rate?
Were they laid off more than 14 days and then hired back?
Staff you had before March 16, 2020 – their pre-COVID salary becomes a baseline. Calculate the lesser of:
i. 100% of what you paid them in this pay period
ii. 75% of their baseline salary and
Staff you hired after March 16, 2020 – the CEWS is based on what you paid them; they have no baseline to compare to for pre-COVID so it is just 75% of what you paid them up to $847 max per week
i. Their hiring salary is $1,200 – 75% is $900; so max for the subsidy for that employee is the $847
ii. Non-arm’s length – if they were not on the payroll anytime between January 1 and March 15 – it is too late. You can’t hire them after and get the subsidy like you can with arm’s length people
The calculation is the same as it is for arm’s length staff that you had pre-COVID discussed above; the baseline is to ensure you don’t give yourself a raise after March 16.
j. SEVERE penalties to watch out for; can be up to 225% and time in jail if an assertation a business owner makes under this is found to not be correct. Another “penalty” may be when you apply you must accept that the government can use your name in any way they want associated with this program. This could be that they can name and shame you after. Basically, if you are asking yourself “is there a way I can make myself fit into the program”, I would advise you instead to check with your accountant to make sure you have done the calculations correctly or haven’t missed something in assessing your eligibility. Do not let the penalty scare you so bad you do not apply. Just do not try to “make it work”.
I have tried to cover some things to watch for and these will possibly change again before it is rolled out. If it seems complicated, yes, it is. But let us help you. We can arrange a time to discuss on the phone closer to the roll out time of the program.
10% wage subsidy
This is available to some businesses who did not meet the criteria of the 75% wage subsidy
If you applied for this subsidy and find out later, you qualified for the 75% subsidy they will just deduct the 10% from what they pay you on the 75% subsidy.
So, do not be afraid to reduce your current deductions for the 10% now since the 75% is still a few weeks away. Visit the frequently asked questions page below related to the 10% wage subsidy.
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