On July 17, 2020, the government of Canada (the "Government") released details, as well as draft legislation, in respect of a redesigned Canada Emergency Wage Subsidy (the "CEWS") program effective from July 5, 2020. Pursuant to the backgrounder, the estimated total fiscal cost in 2020-21 for the CEWS program as announced on July 17, 2020 is $83.6 billion.
Below are highlights of the key changes, which are subject to the approval of Parliament.
- Extension of the CEWS: The CEWS will be extended until December 19, 2020. The redesigned CEWS program will apply to:
- Period 5 - July 5, 2020 to August 1, 2020;
- Period 6 - August 2, 2020 to August 29, 2020;
- Period 7 - August 30, 2020 to September 26, 2020;
- Period 8 - September 27, 2020 to October 24, 2020; and
- Period 9 - October 25, 2020 - November 21, 2020.
The Government has not released full details for Period 10 (i.e., November 22, 2020 to December 19, 2020).
- Elimination of 30% Revenue Decline Threshold: The Government has eliminated the 30% revenue decline threshold for Period 5 and onwards, with the amount of the CEWS now being correlated to the extent of an employer's decline in revenue (subject to a safe harbour for Periods 5 and 6, as described more particularly below).
- Two-Part Subsidy Amount for Active Employees: For Period 5 and onwards, the CEWS for a week in respect of an "active" employee (i.e., an employee who is not on leave with pay for the particular week) will consist of two parts:
- A base CEWS amount will be available to all eligible employers who have experienced a decline in revenue, determined by comparing monthly revenue in the month to the same month in 2019 or the prior month to the prior month in 2019 (or, in certain circumstances, monthly revenue in the month or the prior month to average monthly revenue in January and February 2020). The base CEWS amount will be computed as a specified rate (which will vary based on revenue decline) applied to the amount of eligible remuneration of up to $1,129 paid to an eligible employee per week. Eligible employers with a revenue drop of 50% or more will be eligible for the maximum base CEWS rate, while those experiencing less than a 50% revenue drop will be eligible for a lower base CEWS rate. The maximum base CEWS rate will be reduced gradually over the qualifying periods from 60% in Periods 5 and 6, to 50% in Period 7, to 40% in Period 8 and to 20% in Period 9. Accordingly, the maximum weekly base CEWS amount (i.e., the amount payable in respect of an employer experiencing a 50% or greater revenue drop) will be $677 in Periods 5 and 6, $565 in Period 7, $452 in Period 8 and $226 in Period 9.
- A top-up CEWS amount of up to an additional 25% will be available for eligible employers who have experienced a revenue drop of more than 50%, determined by comparing average monthly revenue in the preceding three months to the same months in 2019 (or, in certain circumstances, to their average monthly revenue in January and February 2020). The top-up CEWS rate will be equal to 1.25 times the average revenue drop that exceeds 50%, up to a maximum top-up CEWS rate of 25%, which is attained at a 70% revenue drop. The top-up CEWS amount will be computed as the applicable top-up CEWS rate applied to the amount of eligible remuneration (not exceeding $1,129) paid to an eligible employee per week.
Under the proposed amendments, the overall CEWS rate will be equal to sum of the top-up CEWS rate and the base CEWS rate. The maximum weekly CEWS benefit per employee for eligible employers experiencing an average revenue drop of 70% or more in the preceding three months, would be $960 for Periods 5 and 6, $847 for Period 7, $734 for Period 8 and $508 for Period 9. Under CEWS rules applicable to Periods 1 to 4, it is possible for the CEWS to fully fund wages paid to an eligible employee (up to a maximum of $847) for a particular week in certain circumstances. However, under the redesigned CEWS rules, for Period 7 and onwards, the possibility of the CEWS fully funding an active employee's wages no longer exists.
- Safe Harbour for Periods 5 and 6: For Periods 5 and 6, eligible employers who have experienced a decline in revenue of 30% or more and who would have been better off under the CEWS rules in place for Periods 1 to 4 will be eligible for the subsidy amount computed under those rules.
- CEWS for Furloughed Employees: For Periods 5 and 6, the CEWS computation for furloughed employees (i.e., who are on leave with pay for the particular week) will remain the same as for Periods 1 to 4, and eligible employers who would qualify for the base CEWS rate or the top-up CEWS rate for active employees in such periods will be eligible for the CEWS for furloughed employees. While specifics have yet to be released, the Government's backgrounder provides that beginning in Period 7, the CEWS for furloughed employees will be "adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI)". According to the backgrounder, this change is being made to "ensure equitable treatment of employees on furlough between both programs, provide greater clarity to workers as to their compensation as compared to a changing subsidy rate based on their employer's revenue in a given month and, when combined with draft legislative changes to the interaction with the CERB [.], make it easier to transition employees on to CEWS so that they are reconnected with their employer". The employer portion of contributions for the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees will continue to be refunded to eligible employers.
- Employee Eligibility: For Periods 5-9, the criteria for an eligible employee will no longer exclude an employee who is without remuneration in respect of 14 or more days in the particular qualifying period.
The draft legislative proposals also include the following changes, which would generally be applicable as of March 15, 2020 (and deemed to come into force on April 11, 2020): (i) providing an appeal process based on the existing procedure for notices of determination that allows for an appeal to the Tax Court of Canada; (ii) providing continuity rules for the calculation of an employer's drop in revenues in certain circumstances where the employer purchased all or substantially all the assets that were used in carrying on business by the seller; (iii) allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue; and (iv) allowing entities that use the cash method of accounting to elect to use accrual based accounting to compute their revenues for the purpose of the CEWS.
Other changes, which were previously announced, are also included in the draft legislative proposals, including amendments to deal with: (i) seasonal employees and employees returning from extended leave; (ii) amalgamations and wind-ups; (iii) tax-exempt trusts; and (iv) eligible employers that use payroll service providers.
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.