The federal government of Canada has announced a 75% wage subsidy for employers. The purpose of this is to support businesses of all sizes to either re-hire laid-off workers or to not lay-off workers due to decreased demand. Previously the federal government had announced a 10% subsidy for small businesses, that subsidy is still in effect also.
Important Note: This post is not being updated anymore. Canada Emergency Wage Subsidy (CEWS) has its own dedicated page with all the resources. We recommend you to check the same here. In case if you have questions related to the calculation and need assistance with the application process, you can contact us for these services.
Important update: The government has reduced the revenue drop threshold (for March only) in order to qualify for 75% wage subsidy.
Canada Emergency Wage Subsidy Extension
Update July 27, 2020. The government has extended Canada Emergency Wage Subsidy until the end of 2020.
Update May 15, 2020:
What employer support programs are announced by the government in Canada?
There are two types of programs at the time of update of this post:
- 75% wage subsidy to all employers, regardless of size and type if they see a drop of 30% in revenue
- 10% wage subsidy for small businesses
The government has also announced financing programs such as Canada Emergency Business Account.
(a) 75% Wage subsidy for employers in Canada
Who is it for?
Any employer of any size and type is eligible for 75% wage subsidy if it sees a drop of 30% (15% for March) in revenue. It includes all sole proprietorships, partnerships, and corporations. Corporations that are Canadian controlled corporations or foreign-controlled corporations are eligible for 75% subsidy. Public sector entities are excluded. The only condition is that they meet 30% (15% for March) drop in revenue as compared to the same period the previous year. For new businesses and startups, there might be some exceptions but not yet announced.
So, two important focal points are; 30% (15% for March) drop in revenue
How the 75% wage subsidy will be paid to employers?
The government will make direct payments to employers for 75% of the total salaries. Employers are needed to top up the remaining 25%. If an employer cannot top-up despite all the efforts 75% paid by the government can be passed on to the employees.
Employers need to apply on the Canada Revenue Agency (CRA) website through an online portal, my business account.
When the 75% wage subsidy will be paid (how long)?
It is expected that that direct payments will start flowing after mid of April, 2020. The program will run for three months.
Do businesses need to demonstrate 30% (15% for March) drop in revenue?
Yes, businesses need to demonstrate drop in the revenue as compared to the previous periods in 2019, or average of Jan and Feb 2020. There are not many details available at this time. We shall update the post as soon as we receive more information.
What are the penalties for taking 75% wage subsidy if not qualified?
The government has issued warnings that it will take strict action against the employers who will abuse the system. As of now, the government is working on compliance and fraud prevention. More details are expected soon.
How to calculate 30% (15% for March) drop in revenue to get 75% wage subsidy in Canada?
Revenue is defined as revenue from business in Canada from arm’s length sources. Arm’s length is specifically mentioned here, so if you are dealing with related parties that kind of revenue needs to be excluded, for an obvious reason.
Revenue in the month of 2020 needs to be compared with the revenue for the same period in 2019 to determine the drop in revenue, or an average of Jan and Feb 2020. Employers need to attest to the drop in revenue while applying for this subsidy.
Update April 08, 2020: The Government said only 15% drop in revenue is needed to qualify for 75% wage subsidy (for the month of March 2020).
The businesses has the option to compare drop in revenue in March 2020 with January and February of 2020 average instead of March 2019. This brings lot of businesses previously not-eligible to be eligible for 75% wage subsidy.
What are the eligible periods for 75% wage subsidy?
Three periods are identified:
- Period No. 1 > Claim period March 15 to April 11 > To be eligible compare March 2020 with March 2019 (or an average of January & February 2020)
- Period No. 2 > Claim period April 12 to May 09 > To be eligible compare April 2020 with April 2019 (or an average of January & February 2020)
- Period No. 3 > Claim period May 10 to June 06 > To be eligible compare May 2020 with May 2019 (or an average of January & February 2020)
How is Canada Emergency Wage Subsidy Calculated?
CEWS is calculated as greater of below:
- 75% of current remuneration with a maximum amount $875/week
- Amount of remuneration paid, $875 per week or 75% of pre-crisis remuneration, whichever is less
CEWS – No change in salary
If your employee had $1,000 weekly wages and there is no change in this amount currently. The subsidy will be $750.
CEWS – remuneration is dropped
If your employee had $1,000 weekly wages and now getting $800 due to reduced working hours.
The subsidy is calculated as:
- Pre-Crisis remuneration = $1000 (75% = $750)
- Current remuneration = $800 (75% = $600)
- Subsidy is higher of $750 and $600 with a maximum limit of $875, so CEWS = $750
CEWS – remuneration is increased
If your employee had $1,000 weekly wages and now getting $1,100.
The subsidy is calculated as:
- Pre-Crisis remuneration = $1000 (75% = $750)
- Current remuneration = $1,100 (75% = $825)
- Subsidy is higher of $750 and $825 with a maximum limit of $875, so CEWS = $825
Can an owner of a corporation claim 75% of his salary under wage subsidy?
Department of finance says, “A special rule will apply to employees that do not deal at arm’s length with the employer”.
Owners of a corporation, if they draw salary, are non-arm’s length employees. Those who draw “dividends only” are not employees, hence, not covered under the wage subsidy program. Read here the difference between salary and dividend.
What is the special rule for owner-managers?
Owner-managers are special cases of wage subsidy. If you pay yourself a salary, yes you are eligible for a 75% subsidy if you meet the eligibility criteria as mentioned above. In case, if an employer wants to take benefit of this subsidy and increases his/her “remuneration”, (s)he will be still entitled to get the subsidy as per the previous remuneration paid to him/her.
For example, if you were paying yourself from your corporation $1000 per week in the pre-crisis period, you cannot increase it to 1500 during the crisis to get the advantage of the system.
There are more details to come in coming days.
Special Rule is as below:
A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration.
(b) 10% Wage subsidy for small businesses in Canada
Previously the government had announced 10% temporary wage subsidy for small businesses. This is still in effect even after the announcement of a 75% wage subsidy.
Who is it for?
The program is only for Canadian controlled small businesses (CCPCs) and other small businesses. Foreign-controlled or owned corporations in Canada are not eligible for 10% temporary wage subsidy.
How the 10% wage subsidy will be paid to employers?
There is no direct payment to employers. Instead, employers will deduct 10% of Gross salaries out of the payroll remittances. An important note to this is that employers can only deduct from federal, provincial or territorial taxes element of payroll remittances. All the CPP and EI remittances still need to be done.
Employers who are not able to deduct the subsidy from remittances in three months can carry it forward to the next periods.
Is there any revenue or other test for businesses to get a 10% subsidy?
No, as long as you are an eligible employer, you can claim it. There is no requirement for the revenue test.
COVID-19 is an unprecedented and evolving phenomenon. The government is trying to counter the economic effects of this crisis and providing daily updates.
Disclaimer: This article is not meant to be considered as a tax or business advice. If you have any questions related to your eligibility to the wage subsidy program or calculation of subsidy, you are recommended to always consult your corporate tax accountant.
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