COVID-19 – Canadian Tax and Business News, release #8
Our COVID-19 Canadian Tax and Business News updates are our way of informing our clients, friends and business associates with recent information that may help businesses and individuals while coping with the outcomes from the COVID-19 pandemic.
Our goal is to monitor the news and release relevant information as it becomes available.
The summary below is based on our understanding and interpretation of the announcements made by the government. The information below is in summary form and subject to change until the proposals are passed as legislation. Contact one of our professionals to discuss these matters in the context of your situation before acting upon such information.
“The only thing we have to fear is fear itself” – Franklin D. Roosevelt
The New Wage Subsidy
On March 27, 2020, Prime Minister Trudeau announced the temporary wage subsidy will increase to 75% of remuneration paid. The increase is to help businesses keep individuals on payroll during this economic downturn. The subsidy will be backdated to March 15, 2020. The program would be in place for a 12-week period from March 15, 2020 to June 6, 2020.
On April 1, 2020, Finance Minister Bill Morneau finally announced the cost of the subsidy, as well as high-level details on eligibility for the support. Unfortunately, the announcement today and subsequent press releases did not provide the certainty businesses need to make significant business decisions. Links to the press releases are at the end of this update. The Finance Minister projects the subsidy will cost about $71 billion and reduce the cost of the Canada Emergency Response Benefit to $24 billion in hopes more individuals will stay on payroll.
Is Your Business Eligible?
Eligible employers include “all employers big and small” as announced by the government. The Finance Minister has not defined what that entails. The government clarified that eligible employers include taxable corporations, partnerships, sole proprietors, not-for-profits and registered charities. The Canadian Controlled Private Corporation and $15 million taxable capital restrictions that were included in the prior version of the subsidy, appear to have been removed.
To qualify for the subsidy, the business must have seen a decline in revenue of at least 30% compared to the same time in the prior year. This analysis must be done on a monthly basis for March, April and May of 2020 and compared with the same months in 2019. This may result in employers being eligible in one month and not another depending on the impact COVID-19 has had on its business.
Revenue for this eligibility test is defined as revenue from a business carried on in Canada from arm’s length sources (non-arm’s length includes companies within a related group with inter-company sales). Revenue would be calculated using the normal accounting method of the business and excludes “extraordinary items” and amounts on account of capital. No definition of extraordinary items has been provided at this time. Based on this definition of revenue, businesses with the majority of their revenues outside of Canada or revenues to other corporations in a related group would not qualify. The government is still working on defining the revenue test for non-profits and charities.
It appears that based on this revenue test, new businesses that started after May 2019 will not be eligible for the subsidy. Minister Morneau was directly asked about new start ups in this situation and how they will be affected or eligible for the subsidy. One suggestion that he made was that employers could potentially compare revenues from the prior months in the same year. He was unable to confirm if that would be applicable but reaffirmed details will be provided in the next few days. The government has stated in a press release that eligible employers that were established after February 2019 could still be eligible by comparing monthly revenues to a “reasonable benchmark”. This is a broad interpretation and leaves a lot of uncertainty in assessing eligibility for new businesses.
Which Employees Are Eligible?
Eligible employees include existing and new employees hired. However, the government has stated a special rule will apply to employee’s that do not deal at arm’s length with the employer. This generally would include relatives of the business owner on payroll. Details on the special rules are expected in the draft legislation.
How Much Can Your Business Get?
The subsidy amount has not changed as announced by the Prime Minister. It is equal to 75% of remuneration paid up to $58,700 of salary per employee which roughly works out to $847 per week on an annual basis. There does not appear to be a cap per employer which is welcoming, and the subsidy is simply capped based on the number of employees per business. Since the program is available for 12 weeks, it appears the maximum eligible employers can receive per employee is $10,164 ($847* 12 weeks). There is no indication at this time if the program will be extended beyond 12 weeks.
The government has released some preliminary information on how to calculate the subsidy amount. The subsidy for an employee for a given week is the greater of:
- 75% of the wage paid up to $847 per week; and
- The lesser of:
a. Weekly wage paid up to $847 per week; and
b. 75% of the employee’s “pre-crisis weekly remuneration”.
No guidance has been provided on how to calculate the “pre-crisis weekly remuneration”. This should be clarified once the draft legislation is released.
It also appears the subsidy may only be available if businesses can pay the remaining 25% of salary. The Finance Minister was asked this and was not able to provide a definitive answer. The government clarified that entitlement to this wage subsidy will be based entirely on the salary or wages actually paid to employees. All employers would be expected to at least make best efforts to top up salaries to 100% of the maximum wages covered. We expect further clarification in the draft legislation.
How Do You Get the Subsidy?
The government has removed the requirement that employers have to reduce their payroll withholdings for this benefit. The Canada Revenue Agency (CRA) will be administering this benefit and eligible businesses will receive refunds from the CRA. This change is welcoming as it puts cash in the hands of the business. The Finance Minister has highly recommended all businesses register for direct deposit with the CRA to ensure they get funds as quickly as possible.
Applications will open online through the CRA website in the next three weeks and funds will be made available in six weeks. Eligible employers will need to apply every month during March, April and May if they qualify. For the month of March, businesses will be able to apply in April retroactively and get the subsidy rebate. We will keep you posted once the application link goes live.
What If Your Business Doesn’t Qualify?
Employers who do not qualify for the New Canada Emergency Wage Subsidy can still apply for the previously announced wage subsidy of $25,000 which allows eligible employers to reduce payroll withholding taxes. The eligibility requirements of the previously announced subsidy are still applicable for employers looking to benefit from this. Please review our sixth publication in this series on our website for more details.
For businesses that qualify for both the previous wage subsidy and the new Canada Emergency Wage Subsidy announced, any benefit the business received from the old wage subsidy will reduce the amount available under the new benefit. For instance, businesses that will claim the old wage subsidy for the month of March when they remit in April will have to reduce their retroactive claim for March under the new wage subsidy when applications open later this month.
Books and Records
The government has stated the businesses have to maintain records to support their decline in revenues and the wages paid to employees. Since businesses must attest monthly that they qualify for the subsidy, penalties will likely be introduced as part of the draft legislation for non-compliance and fraudulent claims. This was emphasized by the Finance Minister when he stated that the money from this subsidy cannot be used for fraudulent purposes and must be used to pay employees salaries.
Parliament will likely have to be recalled in order to pass the new legislation for this benefit. We will update you on any changes to the eligibility or subsidy amounts as legislation is passed.
As we all try to stay safe, we need to remind ourselves business will get back to normal but in the meantime let’s all do our part to get to normal as soon as we can. If you have any questions or require further information, don’t hesitate to reach out to us.