On April 11, 2020, the Parliament of Canada passed the Covid Emergency Response Act, No. 2 (the “Act”), giving force and clarity to the long awaited Canada Emergency Wage Subsidy (CEWS). We write to provide insight on the features of the new Act, and what those features mean for you, your business, and retaining your employment relationships though the financial uncertainty resulting from the CIVID-19 pandemic.

As is noted in our previous article on this subject, the CEWS is one prong of Canada’s three pronged COVID-19 financial response package. The CEWS is designed to help businesses avoid mass terminations by providing assistance aimed at meeting payroll obligations during the current economic downturn and specifically in response to the loss of revenue occasioned by the unprecedented shut-down of the Canadian economy mandated by the Canadian response to the COVID-19 pandemic.

The CEWS provides a wage subsidy directly to employers of up to 75% of the first $58,700 of an eligible employee’s “pre-crisis” remuneration. This is equivalent to a maximum weekly payment of $847. “Pre-crisis” remuneration is defined in the Act as an employee’s average weekly remuneration from January 1, 2020 to March 15, 2020, excluding any 7 day periods in which the employee did not receive any remuneration. Eligible remuneration includes: salaries, wages, and taxable benefits, and excludes items such as: severance pay, stock option benefits, and vehicle allowances.

The CEWS will cover the wages of all individuals who are employed in Canada, other than those who have been laid off, and who have not been re-hired in specific response or anticipation of the CEWS, or who have not otherwise earned wages from their employer for at least 14 consecutive days during the eligibility period.

Subsidies for New Employees

The CEWS is available to employers who hire or re-hire new, arms-length, employees during the crisis period. However, the subsidy is not available in respect of non-arms length employees (i.e.: family members) who were not employed prior to March 15, 2020.

These provisions are in place to encourage employers to hire and re-hire staff during the crisis period, while limiting the possibility for abuse of the program.

Refunds for payroll contributions

Businesses that qualify for CEWS assistance are also entitled to a 100% refund on certain employer contributions to Employment Insurance and the Canada Pension Plan. This refund covers 100% of those employer contributions for eligible employees for each week that those employees are on paid leave and for which the employer is eligible for CEWS assistance in respect of those employees.

Employers do, however,  retain the obligation to collect and remit source deductions and employer contributions during the crisis period; refunds will be issued at a later time. Businesses will be expected to apply for this refund at the same time that they apply for the CEWS.

Calculating decreases in revenue

The subsidy is available to corporations, partnerships, individuals and non-profits who pay wages and have experienced a 15% decrease in their revenues in March 2020 and who experience 30% decreases in revenue in April and May 2020. Demonstrating a loss in revenue may be done using a year over year comparison with March, April and May of 2019 as comparators, or by demonstrating the required decrease in revenue when compared to the business’s average revenue in January and February 2020.

The Act recognises three (3) distinct and separate  “eligibility periods” as follows:

  1. Period 1: March 15 – April 11, 2020;
  2. Period 2: April 12 – May 9, 2020; and/or
  3. Period 3: May 10 – June 6, 2020.

To receive assistance, a business will have to qualify for each individual period. However, to provide greater certainty to applicant businesses, any business that qualifies for a specified period will presumptively automatically qualify for the subsequent period, though not indefinitely.

For example, a business that qualifies for assistance in Period 1 will automatically qualify for assistance in Period 2. The business would then have to re-apply in Period 3, demonstrating its continued need and eligibility for assistance.

Revenue will be calculated based on the business’s normal accounting method and may be calculated on either a cash or accrual basis, but not a combination of the two. An applicant business is required to elect one accounting method and one method of demonstrating decreases in revenue when it applies for initial assistance under the CEWS, and continue to use the elected methods for subsequent applications and/or for evidence of continued assistance.

Sanctions for abuse

The Prime Minster has previously hinted that sanctions and penalties would be levied against  businesses that abuse the CEWS. The Act provides parliament and/or the CRA the power to levy fines against those businesses that engage in transactions or accounting practices which have the effect of artificially reducing the business’s revenues for the purposes of qualifying for the CEWS. Businesses that engage in such behaviour will be ordered to repay any monies received through the CEWS and will be subjected to an additional fine of 25% of the value of the subsidy claimed.

Applications for the CEWS

Applications for the CEWS will be available through the CRA’s My Business Account portal. We expect the portals to be open in the coming days. We continue to monitor the federal and provincial responses to the COVID-19 crisis, and will continue to provide commentary on those measure to ensure that you and your business have the information you need to take advantage of these important programs.

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