Canada: COVID-19 Wage Subsidy

Effective October 24, 2021, the Canada Emergency Wage Subsidy was replaced by two new programs.

Update: On December 17, 2021, Bill C-2 received Royal Assent which ended the Canada Emergency Wage Subsidy program and implemented measures to continue to provide wage subsidy support through the Tourism and Hospitality Recovery Program and the Hardest-Hit Business Recovery Program.

The blog post below has been updated to reflect these changes. With different rules and different programs potentially applying to the various benefit periods, MLT Aikins LLP would be pleased to assist you in determining whether you are eligible for these programs and the amount of the subsidy that you may qualify for.

New Wage Subsidy Programs

Effective October 24, 2021, the Canada Emergency Wage Subsidy (CEWS) was replaced by two new programs: the Tourism and Hospitality Recovery Program (THRP) and the Hardest-Hit Business Recovery Program (HHBRP). Eligible employers may continue to apply for CEWS claim periods that are still open.

Eligibility

The wage subsidy under the new programs are available to a wide range of employers, including:

• taxable corporations and trusts;
• individuals;
• registered charities;
• non-profit organizations;
• partnerships, provided that at least 50% of the fair market value (FMV) of all interests in the partnership are held by partners that would otherwise be eligible for the subsidy;
• certain Indigenous government-owned corporations that carry on business;
• registered Canadian amateur athletic associations;
• registered journalism organizations; and
• private schools or private colleges.

The wage subsidy is not available to public institutions, including municipalities, local governments, Crown corporations, public universities and colleges, and hospitals. The wage subsidy is also not available for publicly traded companies or subsidiaries of publicly traded companies for claim periods in which taxable dividends were paid to individual common shareholders.

There are further eligibility requirements for each program. As with the CEWS, organizations must demonstrate a certain drop in revenue during a specified 28-day period (the "Qualifying Period"). Additional Qualifying Periods have been added so that the programs are available until May 7, 2022.

To qualify for the THRP, an organization must meet one of the following lists of conditions:

1. More than 50% of the organization's revenue comes from one or more tourism, hospitality, arts, entertainment, or recreation activities supported by the program; the organization experienced a 12-month average drop in revenue from March 2020 to February 2021 of at least 40%; and the organization has a revenue drop of at least 40% during the Qualifying Period; or
2. Regardless of sector, the organization was affected by a qualifying public health restriction; and the organization has a revenue drop of at least 40% during the Qualifying Period.

To qualify for the HHBRP, the organization must have experienced a 12-month average drop in revenue from March 2020 to February 2021 of at least 50%, and the organization must have a revenue drop of at least 50% during the Qualifying Period.

The CEWS rules still apply for any Qualifying Period that ended prior to October 24, 2021. Organizations may continue to apply up to 180 days after the end of the Qualifying Period:

Employers can choose to demonstrate their revenue drop in one of two ways, either by comparing the applicable month to the corresponding month in a specific earlier year (e.g. December 2021 to December 2019) (the "General Approach") or with reference to their average revenue in January and February of 2020 (the "Alternative Approach"). Employers have some flexibility in choosing between these approaches, provided that the same method is used to calculate their reduction in revenues for all Qualifying Periods. Employers will have to apply separately for each Qualifying Period.

For the THRP and HHBRP, a one time 12-month average revenue drop calculation is done by calculating the average of the organization's applicable revenue drops from March 2020 to February 2021. Employers may choose to use the General Approach or the Alternative Approach when calculating the 12-month average revenue drop. That one time calculation is used for all Qualifying Periods from 22 onward. Recall that if an organization qualifies under the THRP as being affected by a public health restriction, the 12-month average revenue drop calculation is not required.

Calculating Revenue

As a general rule, revenue for the purposes of the CEWS, the THRP and the HHBRP is calculated according to the employer's ordinary accounting practices. Qualifying revenue includes inflows received in the ordinary course of the entity's business and excludes extraordinary items and amounts received from non-arm's length entities.  Registered charities and non-profits can elect to exclude government funding from their calculation of revenue.

Most employers will calculate revenue on an accrual basis, that is, by treating revenue as earned when goods are delivered or services are performed, not when they are actually paid for.  However, employers can also elect to calculate revenue on a cash basis, as earned only when payment is actually received.  An employer will have to use the same calculation method for all Qualifying Periods.

For employers who are part of a larger corporate group, revenues can be calculated on a consolidated group-wide basis or for each individual entity, if every member of the group agrees to use the same method.  Where an entity's revenues come from non-arm's length payments (e.g. the sales division pays a transfer price to the manufacturing division), the revenue decline may be calculated group-wide (to prevent inter-group payments from being used to manipulate the amount of the revenue decline) in applicable circumstances.

Special rules apply if two corporations have amalgamated or if an employer has acquired the business assets of another person or partnership.  In these cases, it may be possible to use the pre-transaction revenues of the other corporation or business to calculate eligibility.

Subsidy Amount and Limits

THRP and HHBRP Wage Subsidy

For each Qualifying Period, the wage subsidy amount under the THRP and the HHBRP is calculated as the eligible remuneration paid to eligible employees multiplied by the appropriate rate for that Qualifying Period, less the total amounts received by eligible employees as Work-Sharing program benefits under the Employment Insurance Act.

The appropriate subsidy rates for Qualifying Periods are tied to the employer's revenue drop, with the maximum subsidy being provided to employers with a revenue reduction of at least 75%.

The rates for the THRP are as follows:

The rates for the HHBRP are as follows:

There is no general limit on the total subsidy that an eligible employer can claim under either program.

CEWS Variable Subsidy Rate

For CEWS periods beginning after July 4, 2020, the CEWS consists of two parts: a base subsidy and a top-up subsidy. The base subsidy is available to all employers who have experienced any revenue reduction, with the subsidy amount varying based on the scale of revenue decline. The CEWS is available for both active employees as well as those on leave.

The amount of the base subsidy for an employer in a given period is tied to the changes in the employer's monthly revenues, with the maximum subsidy being provided to employers with a revenue reduction of at least 50%. As set out in the following table, the base rate for a particular Qualifying Period will decrease during the remaining 2021 claim periods until it is phased out entirely.

For wages paid after July 4, 2020, an additional top-up subsidy is available to employers who have experienced a revenue reduction of more than 50%.  For wages paid from July 5, 2020 to September 26, 2020, eligibility for the top-up subsidy is determined by looking at the employer's average revenue drop over the three prior months.  For Qualifying Periods beginning after September 26, 2020, employers may choose to use their revenue decrease in the current month to determine their eligibility for the top-up subsidy (e.g. using the same revenue reduction number as their base subsidy calculations). The top-up subsidy rates are outlined in the table below:

For qualifying employers, the top-up subsidy rate equals 1.25 times their applicable revenue drop exceeding 50%, with a maximum top-up of 25% in Qualifying Period 18. The top up rate then decreases as the periods increase in number.

While there is no limit on the total benefit that an employer may receive from the CEWS, employers are required to include CEWS benefits received in their taxable income. Under the original program rules, if an employee was eligible for the Canada Emergency Response Benefit (a $2,000 payment for those who do not earn remuneration for 14 or more consecutive days during a Qualifying Period), the employer could not claim the CEWS in respect of that employee for that period. For the Qualifying Periods beginning after July 4, 2020 the CEWS eligibility criteria no longer excludes employees who do not earn remuneration for 14 or more consecutive days.

Delivery Mechanism

The amount of the CEWS, THRP and HHBRP wage subsidies that an employer qualifies for will be paid directly to the employer by the Canada Revenue Agency (the "CRA").  Once an employer applies and provides the CRA with proof that the qualifying remuneration has been paid to eligible employees, the CRA will pay the subsidy amount to the employer.

Next Steps

Employers can apply for the remaining CEWS periods and the THRP and HHBRP via their CRA My Business Account  or through an online portal on the CRA's website. The CRA's goal is to process CEWS applications within seven to ten business days.  Employers are encouraged to ensure they are able to receive direct deposits from the CRA to speed up the delivery of payments.  Employers have 180 days from the end of a Qualifying Period to apply for the CEWS, THRP and HHBRP.

As you evaluate your employee compensation policies during this difficult time, you should consider the subsidies that may be available to your organization.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.