Canada Emergency Wage Subsidy (CEWS) has been providing significant support to Canadian jobs by covering 75% of employee’s wages (sometimes up to 85%, see new CEWS rules).
A total of $35.31 billion has been paid under CEWS to unique applicants of 312,750 against 1,094,330 applications made by them (see updated statistics here).
To protect the integrity of COVID-19 support programs from the government of Canada, audits were expected! Canada Emergency Wage Subsidy Audits have started mid of September 2020, much earlier than many would have anticipated previously.
Canada Emergency Wage Subsidy Claims Audits
Canada Revenue Agency (CRA) requests access to taxpayers’ records under subsection 231.1(1) of the Income Tax Act. Based on the recent access to documents requests to audit CEWS claims a very tight timeline of 10 business days is given to taxpayers. Though taxpayers may discuss the reason for anticipated delays with the auditors directly.
RC4188 explains in detail what you should know about CRA audits and can be accessed here.
What is required in a CEWS Audit?
Based on the initial cases, a long list of documents is required under the “Required Books and Records”. Some of these are summarized below. This list is a summarized version of the recent requests and not conclusive.
Corporate Minute Books
Many small businesses in Canada often tend to ignore maintaining corporate minute books. Corporate minute books play an important role in any audit.
Corporate minutes should have documents related to CEWS such as shareholder registers, related party and intercompany loans/advance, shareholder’s registry, agreements and resolutions, corporate structure with all the entities within the corporate group, and any corporate restructuring, employees and shareholder loans.
Revenue for 2019 & 2020
CEWS eligibility is based on the revenue drop for the current periods compared to past periods using either a year-on-year approach or an alternative approach.
- Revenue for 2019 tax year
- Revenue for 2020 tax year
- Workings and calculations showing how qualifying revenues were determined
For revenue audits, taxpayers can expect to make available:
- Sales reports and sales journals, broken down per period
- Bank statements, deposits and cash receipts information
- Journal entries affecting the sales accounts
- Revenue reconciliation between trial balance and financial statements
- Detailed working papers showing the determination of qualifying revenues
- Revenue analysis
- Revenue recognition policies
- Deferred revenues, unearned revenues, or holdbacks etc
CEWS is based on the salaries and wages paid to employees, detailed payroll and employees records can be normally requested:
- Payroll Journal showing a detailed breakdown of payroll calculations, CEWS calculations and reconciliation of payroll data and CEWS application.
- CEWS is calculated on weekly basis, so irregular periods such as monthly pay periods are converted to weekly. Detailed workings of these calculations
- Furloughed employees’ data; listing, breakdown of their payroll information especially related to Lines D & E of the CEWS application
- Employment contracts
- Bank statements and disbursement journals as proof of payments to employees
- Temporary wage subsidy calculations if taken
- Works-sharing amounts
Some of the other information which is usually requested:
- Signed RC661 – signed attestation for CEWS
- Elections made on the CEWS application and detailed information related to them
- Information on independent contractors
- Information on employees dealing at non-arms length with business, nonresident employees and the employees not getting paid for more than 14 days
- Exclusions from qualifying revenues such as extraordinary items, non-arms length transactions, non-resident related parties and government subsidies
How to transmit information needed for CEWS audits
Taxpayers are encouraged to transmit the information to CRA using the electronic portal. CRA my business account or Represent a client for accountants to submit on the client’s behalf.
Are you contacted by CRA for CEWS Audit? You must start collecting the information requested by CRA and submit within the time given, usually 10 business days. If you have processed your CEWS applications yourself without the assistance of an accountant or bookkeeper, you can look for some professional help with CEWS audits.
CEWS Audit Assistance
Maroof HS CPA Professional Corporation provides a range of services for income taxes, accounting and business consultancy. If you are contacted by the CRA for a CEWS audit, you can seek CEWS audit assistance by reaching out to us. If you are not contacted yet, you are recommended to arrange the books and records in order to be ready for any potential CEWS audit.