[Canada] COVID-19 Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy was proposed by the Government of Canada to help eligible employers during the COVID-19 outbreak keep employees on payroll and will be retroactive to March 15, 2020. This article outlines this subsidy and how it interacts with the previously introduced ten-percent Temporary Wage Subsidy for Employers

Please note that this is a different subsidy than the previously introduced Ten-percent Temporary Wage Subsidy for Employers. 
For more information on the previous subsidy, please see: 

 

Update September 23, 2020 - Canada Emergency Wage Subsidy to be extended until summer of 2021. 

Government webpages have yet to be updated. Wave will update this page as more information is released. 

Read the speech from the throne: 

 

Who is considered an eligible employer? 

What is an eligible period?

What revenue is considered qualified in terms of calculating a reduction in revenue?

Which of my employees' wages are eligible for me to receive this subsidy?

How do I calculate my subsidy amount?

How do I calculate the top-up subsidy for claim periods 5 through 9?

How do I receive the subsidy?

How do I get the refund for the employer portion of Employment Insurance premiums and Canada Pension Plan contributions?

How should I bookkeep the subsidy?

How do I report the CEWS on the T4? 

What if I was already receiving the ten-percent Temporary Wage Subsidy for Employers and am also eligible for the Canada Emergency Wage Subsidy?

What if I'm eligible for the ten-percent Temporary Wage Subsidy for Employers but not the new Canada Emergency Wage Subsidy?

Is the subsidy considered taxable income for my business?

What documentation do I need to support my claim?

What if the CRA denies my CEWS claim?

Who is considered an eligible employer? 

As outlined by the the Government of Canada's FAQ on CEWS eligible employers are those that, on March 15, 2020:

  • had an open payroll program account with the CRA or,
  • it employed one or more individuals in Canada, had a payroll service provider administer its payroll, and that service provider,

Furthermore,

This includes: 

      • "a corporation (other than a public institution) that is not exempt from tax under Part I of the Income Tax Act (the Act)*;
      • an individual other than a trust;
      • a registered charity (other than a public institution);
      • a person that is exempt from tax under Part I of the Act (other than a public institution), that is:
        • an agricultural organization;
        • a board of trade or a chamber of commerce;
        • a non-profit corporation for scientific research and experimental development;
        • a labour organization or society;
        • a benevolent or fraternal benefit society or order; and
        • a non-profit organization;
      • a partnership, each member of which is a person or partnership described in this list
      • a prescribed organization."

"For a claim period that begins on or after March 15, 2020 and ends before May 10, 2020, trusts may be eligible employers.

For a claim period that begins on or after May 10, 2020, the following trusts are eligible employers:

      • a trust that is not exempt from tax under Part I of the Act and is not a public institution;
      • a trust that is exempt from tax under Part I of the Act (other than a public institution) because it is a registered charity or is one of the other types of eligible tax-exempt entities;
      • a trust that is a public institution if it is a prescribed organization."

Note that publicly funded entities are not eligible for this subsidy. 

In terms of prescribed organizations eligibility includes the following: 

      • "certain Indigenous businesses; specifically:
        • a tax-exempt corporation (under paragraph 149(1)(d.5) of the Act) carrying on a business that is at least 90% owned by one or more Indigenous governments;
        • a tax-exempt corporation (under paragraph 149(1)(d.6) of the Act) carrying on a business that is owned 100% by one or more Indigenous governments or by tax-exempt corporations described above;
        • a partnership, each member of which is an eligible employer or an Indigenous government;
      • in respect of a claim period, a partnership, if throughout the claim period, 50% or more of the fair market value of all interests in the partnership are held - directly or indirectly, through one or more partnerships - by eligible employers;
      • a registered Canadian amateur athletic association;
      • a registered journalism organization;
      • a person or partnership that operates a private school or private college."

What is an eligible period? 

Eligibility would be determined by looking at a change in your baseline revenue, either:

      • year-over-year, for the calendar month in which the eligible period begins; or
      • using Jan and Feb of 2020.

Once you choose which approach to take to determine revenue losses, you will have to apply it throughout the program period. If you determine that you qualify for the CEWS for one claim period, you will automatically qualify for the following claim period.

Eligible revenue generally includes revenue earned in Canada from:

      • selling goods
      • rendering services, and
      • others' use of your resources

You will use your normal accounting method, either accrual or cash-based, when calculating revenue. Once you choose the method for which you will use to calculate your revenue, you must continue to use the same method for the rest of the program.

Note: For registered charities and non-profit organizations, you may choose whether or not to include revenue from government sources, such as grants, when applying for the subsidy. You must take the same approach for each period for which you are applying.

Each eligible period has a claiming period and a reference period for eligibility in which you will use to compare revenues and determine if you have the 15 percent or more decline in revenue for March, or 30 percent or more decline in revenue for the following three months. 

The next proposed periods are: 

      • Period 5- begins on July 5, 2020 and ends on August 1, 2020;
      • Period 6- begins on August 2, 2020 and ends on August 29, 2020;
      • Period 7- begins on August 30, 2020 and ends on September 26, 2020;
      • Period 8- begins on September 27, 2020 and ends on October 24, 2020;
      • Period 9- begins on October 25, 2020 and ends on November 21, 2020; and
      • a prescribed period that ends no later than December 31, 2020 (currently there are no prescribed periods).

The CEWS is calculated differently for these next five periods. 

In question 5 of the FAQ, the CRA lists a number of different rules that can be used to determine your revenue deduction determination.

As well, the CRA has provided detailed examples at the bottom of this page to help you determine your revenue deduction.

What revenue is considered qualified in terms of calculating a reduction in revenue? 

Qualifying revenue refers to the inflow of cash, receivables, or other consideration that a business would have as part of its ordinary activities in Canada during a particular period.  Usually, these inflows are generally from the sale of goods, the rendering of services, and the use—by others—of the business' resources.

As a registered charity, qualifying revenue generally includes gifts and other amounts received in the course of its ordinary activities. Where it operates a related business, the revenue from that related business is also included in the registered charity's qualifying revenue.

As a non-profit organization, qualifying revenue generally includes membership fees and other amounts received in the course of its ordinary activities.

Investment revenue, such as interest or dividends from investments in securities, would be generally included in qualifying revenue, so long as it arises during the employer’s ordinary activities in Canada in the particular period, is not an extraordinary item or on account of capital, and is included in revenue under its normal accounting practices.

Qualifying revenue excludes amounts from extraordinary items, amounts on account of capital and amounts from persons or partnerships that the eligible employer was not dealing with at arm's length. Amounts from the Canada Emergency Wage Subsidy and the 10% Temporary Wage Subsidy for Employers are ignored when calculating qualifying revenue.

For more information on what is considered an "extraordinary item," please see question 6.2 of the FAQ.

Which of my employees' wages are eligible for me to receive this subsidy?

Employees for whom you can claim this wage subsidy must be employed in Canada. Wages include sick pay, vacation pay or statutory holiday pay as long as it is paid to an eligible employee in respect of a week of a claim period. Non-cash taxable benefits are not included as eligible wages for the CEWS.

To be eligible, the employee(s) must not have gone without wages for fourteen days or more, consecutively, within the specific eligibility period in which you are applying for the subsidy. 

That being said, please note that for claim periods 5 to 9, eligible employees in the claim period are no longer excluded if they are without wages for fourteen consecutive days in a claim period.

You will need to determine your employees' baseline wages. To do so, you will take the average weekly wages paid to an employee between January 1, 2020 and March 15, 2020.  Please note that you may exclude from your calculation any period of seven or more consecutive days for which the employee was not paid.
Controlled tips as well as declared tips are eligible remuneration for the purpose of the wage subsidy. However, direct tips are not eligible remuneration for the purposes of the wage subsidy.

Rehired employees' wages can be eligible retroactively, provided that their retroactive pay and status meet the eligibility criteria for the claim period. These employees must have been rehired and paid before you include them in your calculation for the subsidy.

If your employee was receiving the Canada Emergency Response Benefit (CERB), the CRA webpage has this update:
"Depending on the specific situation, these individuals may be required to repay some or all of the amounts they received. More information to come on this shortly. CERB recipients who already know they will need to repay their CERB payment can access the steps needed to return or repay the benefit."  

Payments to employees that are not considered eligible for this subsidy are outlined by the Government of Canada's FAQ on CEWS as: 

      • "a retiring allowance;
      • an amount deemed to have been received by the eligible employee as an employment benefit in respect of a stock option agreement;
      • any amount received that can reasonably be expected to be paid or returned, directly or indirectly, to the eligible employer or to a person (or a partnership) at the direction of the eligible employer or with whom the eligible employer does not deal at arm's length;
      • any amount that is paid in respect of a week in the claim period, if, as part of an arrangement involving the eligible employee and the eligible employer:
        • the amount is in excess of the eligible employee's baseline remuneration,
        • after the claim period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and
        • one of the main purposes for the arrangement is to increase the amount of the wage subsidy."

How do I calculate my subsidy amount?

The CRA has provided a handy calculator to assist you in determining your subsidy amount.

What you will need to know in order to calculate:

      • The number of eligible employees
      • Each employees' gross eligible payroll
      • Amount of the ten-percent Temporary Wage Subsidy for Employers received during the eligibility period for which you are applying
      • total of amounts received by employees through ESDC's Work-Sharing program for any weeks in the qualifying period
      • If you have employees on leave with pay: the employer portion of Employment Insurance (EI) premiums and Canada Pension Plan (CPP) contributions made to these employees during the eligible period.

The CRA has said that you might also be required to provide a full list of your employees and their Social Insurance Numbers (SIN) after you apply.
There is no limit per employer for this subsidy. You will be expected to do your best to pay your employees the remaining 25 percent of their pre-crisis wages.

To make the calculation:

To begin with, you will need to determine the base CEWS for your employee(s) within the eligibility period.

The CRA has outlined three different situation to help you determine this with differences between employees that are at arm's length or non-arm's length

Employees who earn $1,129.33 a week or more

Employee is arm's length
The maximum subsidy is $847 per week. For employees earning $1,129.33 (or more) for each week in the claim period, the maximum weekly subsidy is ($1,129.33 x 75% = $847).

The CRA provides the following example:

Employee is non-arm's length
The maximum weekly subsidy for these employees is the lesser of:

  • 100% of their weekly gross pay during the claim period;
  • 75% of their average weekly pay from the period January 1 to March 15, 2020; or
  • The maximum subsidy of $847 ($1,129.33 x 75% = $847)

Example:

Employees who earn $1,129.32 or less, and have not experienced a reduction in pay since before the crisis

Employee is arm's length
The subsidy for employees who have not experienced a reduction in pay is 75% of their weekly gross pay during the claim period.

The CRA has provided the following example:

Employee is non-arm's length
The maximum weekly subsidy for these employees is the lesser of:

  • 100% of their weekly gross pay during the claim period;
  • 75% of their average weekly pay from the period January 1 to March 15, 2020; or
  • The maximum subsidy of $847 ($1,129.33 x 75% = $847)

Example:

Employees who earn $1,129.32 or less, and have experienced a reduction in pay since before the crisis

Employee is arm's length
The subsidy for employees who have experienced a reduction in pay and earn $1,129.32 or less, is the lesser of:

  • 100% of their weekly gross pay during the claim period;
  • 75% of their average weekly pay from the period January 1 to March 15, 2020; or
  • The maximum subsidy of $847 ($1,129.33 x 75% = $847)

The CRA has provided the following example:

Employee is non-arm's length
The maximum weekly subsidy for these employees is the lesser of:

  • 100% of their weekly gross pay during the claim period;
  • 75% of their average weekly pay from the period January 1 to March 15, 2020; or
  • The maximum subsidy of $847 ($1,129.33 x 75% = $847)

Example:

When determining the gross eligible payroll for your employees, the CRA has provided and spreadsheet with detailed instructions to help you calculate this, based on different specific situations. This is under Step 2b of the calculator.

After determining your base CEWS for the eligibility period, the following amounts you input into the calculator will affect this amount as follows: 

      • Your employer paid EI premiums and CPP contributions paid on salary to employees receiving full or partial paid leave will increase your subsidy amount
      • Any amounts you received from the ten-percent Temporary Wage Subsidy for Employers, as well as the amount received by employees through ESDC's Work-Sharing program during any weeks within the eligibility period will reduce your subsidy amount.

After entering all of your information into the CRA calculator, you will be able to click Calculate your total wage subsidy at the bottom of the page to see how much of the subsidy you should expect to receive.

How do I calculate the top-up subsidy for claim periods 5 through 9?

There are two parts to the calculation when it comes to claim period 5-9, which is explained within question 20 of the FAQ.

  • a base portion of wage subsidy (base subsidy) available to all eligible employers that are experiencing a decline in qualifying revenues, with the wage subsidy amount varying depending on the scale of qualifying revenue decline; and
  • a top-up portion of wage subsidy (top-up subsidy) of up to an additional 25% for those eligible employers that have been most adversely affected by the COVID-19 crisis.

How do I receive the subsidy?

If you are eligible, use the following links to apply for the CEWS:

The CEWS will be processed at the payroll program (RP) account level, so you will have to file a separate application for each RP account (if you have more than one).

Please note that if you plan to apply for one or more of the eligibility periods, you must do so before October 2020. Furthermore, the individual who has principal responsibility for your financial activities must attest that the application is complete and accurate in all material respects.

Eligible employers are expected to maintain record of the decrease in revenue as well as wages paid to employees.

If you are an eligible employer, Wave suggests setting up your CRA-My Business Account now, including the direct deposit portion, so you can be ready to apply and receive this subsidy as soon as it becomes available.

How do I get the refund for the employer portion of Employment Insurance premiums and Canada Pension Plan contributions?

The 100 percent employer portion refund of Insurance (EI) premiums and Canada Pension Plan (CPP) contributions will be applied as part of your CEWS calculation. This refund only applies to eligible employees' wages that are on full or partial paid leave for any full week during an eligibility period, provided your business is eligible during the same period. 
The refund will be delivered to you as part of your subsidy amount.

How should I bookkeep the subsidy?

Under the Accounting tab in the left-hand navigation menu, select Chart of Accounts, then click the Add a New Account button.

      1. In the Account Type dropdown, scroll down to Income and select Other Income.
      2. Enter a name that you'll easily recognize, like "CEWS Income." Click Save.
      3. Now head to the Transactions page. Click Add income to create a transaction.
      4. For the Account, select the bank account the subsidy was deposited into.
      5. In the Category dropdown, scroll to your Income accounts, select the new CEWS income account you just added, and then click Save.

If you’ve connected your bank account to Wave, it will import the deposit transaction in your account. Instead of creating a new transaction, you can simply categorize the imported transaction to the subsidy income account.

How do I report the CEWS on the T4? 

The FAQ question 29 states that:
"Information on the T4 reporting requirements will be released shortly."

That being said, prior to the most recent update of the FAQ page, they had mentioned:
 "Employers will be expected to report the eligible remuneration paid to each employee in respect of the claim periods using three new codes in the “Other information” area at the bottom of the employees' T4 slips. More information on the T4 reporting requirements will be released before the end of the year."

What if I was already receiving the ten-percent Temporary Wage Subsidy for Employers and am also eligible for the Canada Emergency Wage Subsidy?

You will be adding the amount of the ten-percent Temporary Wage Subsidy received into the CRA's CEWS calculator when calculating your CEWS amount. This will reduce the amount of CEWS you will receive. 

You will also need to report your ten-percent Temporary Wage Subsidy using Form PD27 10% Temporary Wage Subsidy Self-identification Form for Employers

Visit [Canada] COVID-19 Reporting the Ten-percent Temporary Wage Subsidy for Employers for more information on how to fill out the form.

What if I'm eligible for the ten-percent Temporary Wage Subsidy for Employers but not the new Canada Emergency Wage Subsidy?

You can continue to use the ten-percent wage subsidy on wages paid from March 18 - June 19, 2020. 

[Canada] COVID-19 Ten-percent Temporary Wage Subsidy for Employers outlines how to apply the ten-percent wage subsidy within Wave. 

The CRA also has an FAQ on the ten-percent subsidy on their webpage here.

Is the subsidy considered taxable income for my business?

Yes - subsidies are considered taxable income. It is very important to maintain a record of the subsidy amount as you will be required to report it as income in the tax year it is received.

We recommend creating a new Other Income account to categorize your wage subsidy deposits, so that it's easy to track how much you received. Learn more about creating a new account here.

What documentation do I need to support my claim?

The CRA released the Canada Emergency Wage Subsidy Attestation form to certify and attest that the wage subsidy application is complete and filled out accurately with the correct elections chosen. The elections must be made and retained within your books and records (this is explained further below), in support of your wage subsidy claim and eligibility. The person within your business who has principal responsibility for your financial activities must attest that this is the case.

From the CRA: 

"The CRA expects that you will maintain adequate books and records to ensure that your claim is accurate and complete, and clearly supports your eligibility for the wage subsidy for a claim period.

Books and records includes ledgers, journals, financial statements, contracts, elections, calculations or other working papers, payroll records, sales invoices and any other relevant document. For additional information about adequate records and recordkeeping, please see What are records and who has to keep them?

To support the claim in your wage subsidy application that your revenue for a current reference period has declined sufficiently from the relevant prior reference period, adequate calculations should generally be prepared and maintained through working papers. In situations where a small employer does not maintain detailed monthly records, the CRA will be reasonable; however, any assumptions made in any calculation should be included in the documentation and available for review if requested.

In addition to showing the calculation of the wage subsidy claimed for each eligible employee, the documentation maintained must also include an analysis of the nature of the remuneration. Dividends and other ineligible remuneration should be recognized and then clearly indicated as having been removed from the calculation. Supporting documentation should be retained.

A signed attestation, and record of any elections made for the purposes of determining your qualifying revenue, must also be maintained and made available to the CRA upon request."

What if the CRA denies my CEWS claim?

If you your claim has been denied, you may request a second level review of your claim application. This second level review request must include all supporting documents and be submitted within 30 days of the date of the letter that communicated CRA’s original decision. The second level review is done by a different person than the original decision-maker.

To submit your request, log into your My Business Account and select “Register a formal dispute”. While the CRA’s Appeals portal is being used to receive and process all second level review requests, the review itself will not be done by the Appeals Branch.

If you are once again denied through your second level review decision, you will be able to exercise your formal recourse rights (notice of objection, and appeal to the Tax Court of Canada), through Appeals. This will be available once a Notice of Assessment or Notice of Determination has been issued for the your income tax return for the taxation year in which the claim period ends.

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