On April 1, 2020 the Federal Government announced additional details on the $73 billion Canada Emergency Wage Subsidy (CEWS) program for employers impacted by COVID-19.

What is the CEWS

The Federal Government will cover up to 75% of each employee's salary on the first $58,700 that they earn this year, or up to $847 per week.

The program is effective for a 12-week period, from March 15 to June 6, 2020.


Eligible employers will include employers of all sizes and across all sectors of the economy, with the exception of public sector entities.

  • Eligible employers will include individuals, taxable corporations, and partnerships consisting of eligible employers, as well as non profit organizations and registered charities.
  • Public bodies will not be eligible for this subsidy, and these include municipalities and local governments, Crown corporations, public universities, colleges, schools, and hospitals.

A business's revenue has to have decreased by at least 15% for the month of March and by at least 30% for the months of April and May. This reduction is determined by comparing revenue to one of two benchmarks:

1. Compare March, April, and May 2020 revenues to revenues from those same months in 2019.
2. Compare March, April, and May 2020 revenues to the average revenues of January and February of 2020.
Please see the calculating revenue section below for more details.

Calculating Revenues

In determining eligibility for the CEWS, an employer's revenues would be those from its ordinary activities carried on in Canada earned from the sale of goods, the rendering of services, and the use by others of its resources. Revenues would be calculated using the employer's normal accounting method (either the accrual or cash method – but not both) and would exclude amounts from extraordinary items and amounts on account of capital.

Initially, the Federal Government indicated that revenue amounts derived from non-arm's length parties would not be included in revenues for the purposes of the CEWS. However, the new legislation now provides some exceptions.

The legislation now allows a group of affiliated entities to calculate consolidated revenue, with each member the group then using these consolidated amounts for the purposes of the revenue test. The new legislation also provides a special rule such that where all or substantially all of an employer's qualifying revenue is earned from non-arm's length entities, the employer may determine its decline in revenue based on the decline in arm's length revenue experienced by non-arms entities from which it earned revenue. And for a group of eligible entities that normally prepares consolidated financial statements, each member of the group may determine its qualifying revenue separately, provided that every member of the group determines its qualifying revenue on that basis.

These special rules and exceptions are introduced with the intent to provide the CEWS to businesses with employees employed by a separate entity or corporate group.

For non-profits and registered charities, revenue calculations must exclude those received from non-arm's length persons. These organizations can choose whether or not to include revenue from government sources in their calculations. Once chosen, the same approach will apply throughout the duration of the CEWS program.

Amount of Subsidy

The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 will be the greater of:

  • 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
  • the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee's pre-crisis weekly remuneration, whichever is less.

As described above, employers may be eligible for a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees, and such employers will be expected where possible to maintain their existing employees' pre-crisis employment earnings. The subsidy will also be available for salaries and wages paid to new employees.

The subsidy for a new hire is 75% of the amount of remuneration paid, up to a maximum of $847 per week per employee.

The pre-crisis remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

Eligible remuneration may include salary, wages, and other remuneration such as fees, commissions, or other amounts for employment services. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General as payroll taxes. However, eligible remuneration does not include severance pay, retiring allowances, or items such as stock option or certain other taxable benefits. In addition, accelerated remuneration paid in excess of an employee's base salary, with the main purpose of increasing the amount of the CEWS paid, will not be eligible.

A special rule will apply to employees that do not deal at arm's length with the employer, such as owner-managers, family corporations, and professional corporations. 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% of the employee's pre-crisis weekly remuneration. The subsidy will only be available in respect of non-arm's length employees employed prior to March 15, 2020. That is, the CEWS is not available for renumeration paid to non-arm's length employees hired after the COVID-19 crisis began.

There will be no overall limit on the subsidy amount that an eligible employer may claim and employers must make their best effort to top-up employees' salaries to bring them to pre-crisis levels.

Refund for Certain Payroll Contributions

The Government expands the CEWS by introducing a new 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.

In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.

This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS and there would be no overall limit on the refund amount that an eligible employer may claim.

For greater certainty, employers would be required to continue to collect and remit employer and employee contributions to each program as usual. Eligible employers would apply for a refund, as described above, at the same time that they apply for the CEWS.

Eligible Periods

Eligibility will generally be determined by the change in an eligible employer's monthly revenues, year-over-year, for the calendar month in which the period began. There are two benchmarks to use in determining eligibility:

1. Comparing 2020 revenues to 2019 revenues,
For example: if revenues in March 2020 were down 20% compared to March 2019, the employer would be allowed to claim the CEWS (as calculated above) on remuneration paid between March 15 and April 11, 2020.
2. Comparing 2020 revenues to the average revenues of January and February of 2020.
For example: ABC Inc. is a start-up that started its operations last September. It reported revenues of $100,000 in January and $140,000 in February, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March are 25% lower than $120,000, ABC inc. would be eligible for the CEWS for the first claiming period. To be eligible for the following claiming period, ABC Inc. revenues would have to be $84,000 or less for the month of April (that is, 30% lower than $120,000).

Employers would select one of the revenue benchmarks in their first CEWS application, and be required to continue to use the same method for the entire duration of the program.

There are three four-week periods, with period one beginning March 15. Once an employer has qualified for a particular period, they would automatically qualify for the next period.

The amount of wage subsidy (provided under the COVID-19 Economic Response Plan) received by the employer in a given month would be ignored for the purpose of measuring year-over-year changes in monthly revenues.

The table below outlines each claiming period's eligibility.

Claiming Period Required Reduction in Revenue Reference period for eligibility
Period 1 March 15 - April 11 15% March 2020 over:
  • March 2019 or
  • Average of January and February 2020
Period 2 April 12 - May 9 30% April 2020 over:
  • April 2019 or
  • Average of January and February 2020
Period 3 May 10 - June 6 30% May 2020 over:
  • May 2019 or
  • Average of January and February 2020

Eligible Employees

An eligible employee is an individual who is employed in Canada.

Eligibility for the CEWS of an employee's remuneration, will be limited to employees that have not been without remuneration from the eligible employer for more than 14 consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6.

This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a four-week period for which the employee is eligible for the Canadian Emergency Response Benefit.

Application Process

Eligible businesses will be able to apply for this subsidy online through the Canada Revenue Agency's My Business Account portal, as well as a web-based application. Employers will be required to keep records demonstrating their reduction in arm's-length revenues and remuneration paid to employees. In addition, the employer must have had a business number registered with the CRA to make remittances for income tax source deductions as of March 15, 2020.

The Federal Government expects the application system will be live in approximately six to eight weeks. More details regarding how to apply for the program will follow.

Businesses Responsibilities

The Federal Government is asking businesses to do their best in paying the remaining 25% of wages that are not supported by the subsidy program.

Businesses are encouraged to rehire employees as quickly as possible and to apply for the Canada Emergency Wage Subsidy if they are eligible. To ensure that the CERB applies as intended, the Federal Government will consider implementing an approach to limit duplication. This could include a process to allow individuals rehired by their employer during the same eligibility period to cancel their CERB claim and repay that amount.

In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, the employer would be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements and pay their employees accordingly.

Employers who engage in artificial transactions to reduce their revenues in order to meet the CEWS eligibility could be subject to a penalty equal to 25% of the value of the CEWS amount claimed, in addition to having to repay the full amount of the CEWS that was improperly claimed.

Interaction with the Work-Sharing Program

In response to COVID-19 the Federal Government has extended the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

Government Assistance

The usual treatment of tax credits and other benefits provided by the government would apply. Accordingly, the wage subsidy received by an employer would be considered government assistance and be included in the employer's taxable income.

Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.

An Example of how Employers will Benefit from the CEWS

Maude and Stéphane own a corporation that operates an automobile repair shop in Saint Boniface, Manitoba. They are working full time, each drawing a salary of $1,300 per week, and have three part-time employees, each earning $800 per week, for a total weekly payroll of $5,000. Maude and Stéphane have reduced their opening hours due to decreased demand for their services. They had initially laid off their employees, but they have now decided to re-hire them following the announcement of the Canada Emergency Wage Subsidy. Their employees are not being asked to report to work during this challenging period.

Maude and Stéphane are now keeping their employees on the payroll, paying them 75% of their pre-crisis salary ($600 per week). Maude and Stéphane would be eligible for a weekly wage subsidy of $3,494 ($847 for each of themselves and $600 for each of their employees). Maude and Stéphane would also be eligible for a 100% refund of their employer-paid contributions to Employment Insurance and the Canada Pension Plan in respect of their employees, providing an additional benefit of up to $124 per week.

At the end of each claiming period, Maude and Stéphane would submit an application through the Canada Revenue Agency portal, attesting that their decline in revenues in each month is sufficient to qualify, when compared to the average of January and February. They would also report the total remuneration paid to themselves and their furloughed employees during the month. As Maude and Stéphane have access to direct deposits with the Canada Revenue Agency, they would receive their subsidy shortly after each application.

Original Wage Subsidy Program

Introduced on March 18, original subsidy program is still in effect, and those who do not qualify for the Canada Emergency Wage Subsidy, may be eligible for this previously announced program.

For employers that are eligible for both the Canada Emergency Wage Subsidy and the 10 % wage subsidy for a period, any benefit from the 10 % wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period.

Details on the 10% Wage Subsidy Program are as follows:

  • Eligible small employers will receive a temporary wage subsidy for a period of three months
  • The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
  • Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees' remuneration.
  • Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.

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.