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On July 17, 2020, the Government of Canada announced significant updates and amendments to the Canada Emergency Wage Subsidy (CEWS) with a release of draft legislation.
The new, highly complicated, amendments seek to make broad expansions to the CEWS:
A highlight of these updates is provided below. A full summary of all of the updates is provided here.
For previous CEWS updates, please click here.
The CEWS originally included 3 claim periods beginning on March 15, 2020 and ending on June 6, 2020. It has been announced the CEWS will be extended to November 21, 2020, with a potential for one additional period ending no later than December 31, 2020.
The specific claim periods for the full program, including the relevant current reference periods and prior reference periods in determining drop-in-revenue tests are provided as follows:
*Eligible entities that have elected to use the alternative approach in Periods 1 – 4 can maintain that election for subsequent periods or can revert to the general approach. Eligible entities that used the general approach for Periods 1 – 4 can continue with the general approach for subsequent periods or elect to use the alternative approach for Period 5 onwards. The approach chosen for Period 5 would apply for Period 5 and onward and would apply to the calculation of the base CEWS and top-up CEWS (discussed below).
Previously, an eligible employee excluded an individual who did not receive remuneration from the eligible entity for 14 or more consecutive days in the qualifying period. This applies to Periods 1 – 4 only. For Period 5 and subsequent periods, this restriction no longer applies.
Under the current legislation, the subsidy amount considers an eligible employee’s baseline remuneration, being the average weekly remuneration paid between January 1, 2020 and March 15, 2020, excluding any seven-day periods in respect of which the employee did not receive remuneration.
To bridge the gap for those employees who were on unpaid leave, and for seasonal workers, employers can now choose (on an employee-by-employee basis) to use the average weekly remuneration for the period of January 1 – March 15, 2020; or, by election:
Each of the above alternatives still excludes any seven-day periods in respect of which the employee did not receive remuneration.
Under the current legislation, the CEWS would not be available to an entity who did not have a payroll number registered with the Minister on March 15th, 2020. This excluded entities from claiming the CEWS where revenues had decreased but the entity used a separate payroll entity for remuneration purposes.
To address this issue, a qualifying entity will now include an entity that on March 15, 2020, employed one or more individuals in Canada, where the payroll for these employees were administered by a payroll service provider who had a business number that was registered with the Minister on March 15th, 2020.
This change applies retroactively so eligible entities may claim benefits retroactive to March 15, 2020.
For Period 5 and subsequent periods, employers will be eligible for a base CEWS at a specified rate, applied to remuneration of up to $1,129 per week, paid to an active employee.
The rate of the base CEWS (referred to as the “base percentage”) will depend on the eligible entity’s level of qualifying revenue decrease and its application has been extended to those employers with a revenue decline of less than 30%.
The maximum base CEWS will be provided to those employers with a qualifying revenue decrease of 50% or more.
The base percentages and the maximum weekly benefit per employee under the base CEWS are provided as follows:
*The maximum weekly benefit per employee is the maximum base percentage multiplied by the maximum remuneration of up to $1,129 per week.
**Generally, the revenue reduction percentage is the percentage by which qualifying revenues have decreased in the qualifying period when compared to the prior reference period.
Beginning in Period 5, a top-up CEWS of up to 25% (“Top-up Percentage”) of the base CEWS will be available to employers facing a revenue decrease of over 50%.
Generally, the revenue decrease for the top-up CEWS will be based on comparing qualifying revenues in the preceding 3 months to the same months in 2019, or to the average monthly revenue in January and February, 2020. For example, Period 5 will compare average monthly revenue for April to June 2020 to either April to June 2019 or January to February 2020.
The top-up CEWS applies to remuneration of up to $1,129 per week and is maximized at a 70% revenue decrease, with a gradual reduction to $nil at a 50% revenue decrease as illustrated in the table below:
For eligible arm’s length employees that are not on leave with pay, the subsidy amount is equal to:
(Base Percentage + Top-up Percentage for the qualifying period) x (the least of eligible remuneration paid for the week, and $1,129)
For eligible non-arm’s length employees that are not on leave with pay, the subsidy amount is equal to:
(Base Percentage + Top-up Percentage for the qualifying period) x (the least of eligible remuneration paid for the week, $1,129, and the employee’s baseline remuneration determined for that week).
For Periods 5 and 6, if an eligible entity had a revenue decline of at least 30%, it can calculate its subsidy amount under the program applicable to Periods 1 – 4 if that calculation provides them with a greater total subsidy amount (i.e., up to 75% of $1,129, or $847, per week).
For Periods 5 and subsequent, the CEWS for furloughed employees (on leave with pay) will be available only the employer’s revenue reduction or top-up percentage are greater than 0% for the relevant period.
For Periods 5 and 6, the subsidy calculation for furloughed employees remains the same as for Periods 1 – 4.
For Period 7 and subsequent periods, the subsidy amount in respect of furloughed employees has been adjusted to align with the benefits provided through the Canada Emergency Response Benefit (“CERB”) and Employment Insurance (“EI”) and will be the least of:
For furloughed employees, the employer portion of contributions to the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan, and the Quebec Parental Insurance Plan will continue to be refunded to the employer.
Under the current legislation, corporations that have undergone a reorganization, such as an amalgamation or a wind up, may not qualify for the CEWS as they may not have benchmark revenues to show the required decline in qualifying revenue, or their benchmark revenues may not show an accurate picture of pre-crisis revenues.
The draft legislation allows corporations formed on amalgamation of two or more predecessor corporations to calculate benchmark revenue using combined revenues, unless one of the main purposes of the amalgamation was to qualify for the CEWS or increase the subsidy amount.
This change is retroactive to April 11, 2020.
Generally, where an eligible entity has acquired assets from a seller during, or before a qualifying period, and the fair market value of the acquired assets constituted at least 90% of the fair market value of the property of the seller used in the course of carrying on a business in Canada, the eligible entity can consider the qualifying revenue of the seller, attributable to the purchased assets, in determining its own qualifying revenue for the current and prior reference periods. An election is required to be filed to have these provisions apply.