Gregory, Harriman & Associates LLP Blog

The Canada Emergency Wage Subsidy (CEWS) for employers was implemented by the passing of Bill C-14 on April 11, 2020, and expanded with the passing of Bill C-20 on July 27, 2020. The subsidy is widely accessible to employers of all sizes and across all sectors of the economy, with the exception of public sector entities. It is intended to support businesses that are hardest hit by the COVID-19 pandemic and would help protect the jobs Canadians depend on during these difficult times.

The purpose of this blog is to provide a guide to employers covering CEWS eligibility requirements, details of the subsidy calculation, information on how to apply, and tools that employers can use to calculate their CEWS eligible subsidy amount.

 

Does my business qualify?

Eligibility for the wage subsidy is limited to the following “qualifying entities”:

• The definition of qualifying entity includes individuals, taxable corporations, and partnerships consisting only of other qualifying entities, as well as non‑profit organizations and registered charities.
• Public institutions such as municipalities, schools, school boards, public universities or colleges, hospitals, or health authorities ARE NOT considered eligible entities.
• Only entities which have an active Canada Revenue Agency payroll account as at March 15, 2020 will be eligible.
• Eligible entities must have experienced the following decline in revenues for each application period:

Table 1 – Reduction in revenue for periods 1 to 4
	Claim periods	Required reduction in revenue	Reference periods for comparison under the general approach	Reference periods for comparison under the alternative approach
Period 1	March 15 to April 11, 2020	15%	March 2020 over March 2019	March 2020 over average of January and February 2020
Period 2	April 12 to May 9, 2020	30%	April 2020 over April 2019	April 2020 over average of January and February 2020
Period 3	May 10 to June 6, 2020	30%	May 2020 over May 2019	May 2020 over average of January and February 2020
Period 4	June 7 to July 4, 2020	30%	June 2020 over June 2019	June 2020 over average of January and February 2020

Table 2A - Relevant reference periods for the base wage subsidy
	Claim periods	Required reduction in revenue	Reference periods for comparison under the general year-over-year approach	Reference periods for comparison under the alternative approach
Period 5	July 5 to August 1, 2020	Greater than 0%	July 2020 over July 2019 or June 2020 over June 2019	July 2020 or June 2020 over average of January and February 2020
Period 6	August 2 to August 29, 2020	Greater than 0%	August 2020 over August 2019 or July 2020 over July 2019	August 2020 or July 2020 over average of January and February 2020
Period 7	August 30 to September 26, 2020	Greater than 0%	September 2020 over September 2019 or August 2020 over August 2019	September 2020 or August over average of January and February 2020
Period 8	September 27 to October 24, 2020	Greater than 0%	October 2020 over October 2019 or September 2020 over September 2019	October 2020 or September 2020 over average of January and February 2020
Period 9	October 25 to November 21, 2020	Greater than 0%	November 2020 over November 2019 or October 2020 over October 2019	November 2020 or October 2020 over average of January and February 2020
Period 10	November 22 to December 19, 2020	Greater than 0%	December 2020 over December 2019 or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 11 (see note below)	December 20, 2020 to January 16, 2021	Greater than 0%	December 2020 over December 2019 or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 12	January 17 to February 13, 2021	Greater than 0%	January 2021 over January 2020 or December 2020 over December 2019	January 2021 or December 2020 over average of January and February 2020
Period 13	February 14 to March 13, 2021	Greater than 0%	February 2021 over February 2020 or January 2021 over January 2020	February 2021 or January 2021 over average of January and February 2020
Period 14	March 14 to April 10, 2021	Greater than 0%	March 2021 over March 2019 or February 2021 over February 2020	March 2021 or February 2021 over average of January and February 2020
Period 15	April 11 to May 8, 2021	Greater than 0%	April 2021 over April 2019 or March 2021 over March 2019	April 2021 or March 2021 over average of January and February 2020
Period 16	May 9 to June 5, 2021	Greater than 0%	May 2021 over May 2019 or April 2021 over April 2019	May 2021 or April 2021 over average of January and February 2020
Period 17	June 6 to July 3, 2021	Greater than 0%	June 2021 over June 2019 or May 2021 over May 2019	June 2021 or May 2021 over average of January and February 2020
Period 18	July 4 to July 31, 2021	Greater than 10%	July 2021 over July 2019 or June 2021 over June 2019	July 2021 or June 2021 over average of January and February 2020
Period 19	August 1st to August 28, 2021	Greater than 10%	August 2021 over August 2019 or July 2021 over July 2019	August 2021 or July 2021 over average of January and February 2020
Period 20	August 29 to September 25, 2021	Greater than 10%	September 2021 over September 2019 or August 2021 over August 2019	September 2021 or August 2021 over average of January and February 2020

Note: The reference periods for comparison under the general year-over-year approach and the alternative approach for claim period 11 are the same as for claim period 10. This is to better align the reference periods with the claim periods.

Table 2B - Relevant reference periods (for the three month revenue reduction test) for the top-up wage subsidy
	Claim periods	Reference periods for comparison under the general year-over-year approach	Reference periods for comparison under the alternative approach
Period 5	July 5 to August 1, 2020	April to June 2020 average over April to June 2019 average	April to June 2020 average over January and February 2020 average
Period 6	August 2 to August 29, 2020	May to July 2020 average over May to July 2019 average	May to July 2020 average over January and February 2020 average
Period 7	August 30 to September 26, 2020	June to August 2020 average over June to August 2019 average	June to August 2020 average over January and February 2020 average
Period 8 (see Table 2C below)	September 27 to October 24, 2020	July to September 2020 average over July to September 2019 average	July to September 2020 average over January and February 2020 average
Period 9 (see Table 2C below)	October 25 to November 21, 2020	August to October 2020 average over August to October 2019 average	August to October 2020 average over January and February 2020 average
Period 10 (see Table 2C below)	November 22 to December 19, 2020	September to November 2020 average over September to November 2019 average	September to November 2020 average over January and February 2020 average

Table 2C - Relevant reference periods (for the one month revenue reduction test) for the top-up wage subsidy for claim periods 8 to 16
	Claim periods	Reference periods for comparison under the general year-over-year approach	Reference periods for comparison under the alternative approach
Period 8	September 27 to October 24, 2020	October 2020 over October 2019 or September 2020 over September 2019	October 2020 or September 2020 over average of January and February 2020
Period 9	October 25 to November 21, 2020	November 2020 over November 2019 or October 2020 over October 2019	November 2020 or October 2020 over average of January and February 2020
Period 10	November 22 to December 19, 2020	December 2020 over December 2019 or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 11 (See note under Table 2A)	December 20, 2020 to January 16, 2021	December 2020 over December 2019 or November 2020 over November 2019	December 2020 or November 2020 over average of January and February 2020
Period 12	January 17 to February 13, 2021	January 2021 over January 2020 or December 2020 over December 2019	January 2021 or December 2020 over average of January and February 2020
Period 13	February 14 to March 13, 2021	February 2021 over February 2020 or January 2021 over January 2020	February 2021 or January 2021 over average of January and February 2020
Period 14	March 14 to April 10, 2021	March 2021 over March 2019 or February 2021 over February 2020	March 2021 or February 2021 over average of January and February 2020
Period 15	April 11 to May 8, 2021	April 2021 over April 2019 or March 2021 over March 2019	April 2021 or March 2021 over average of January and February 2020
Period 16	May 9 to June 5, 2021	May 2021 over May 2019 or April 2021 over April 2019	May 2021 or April 2021 over average of January and February 2020
Period 17	June 6 to July 3, 2021	June 2021 over June 2019 or May 2021 over May 2019	June 2021 or May 2021 over average of January and February 2020
Period 18	July 4 to July 31, 2021	July 2021 over July 2019 or June 2021 over June 2019	July 2021 or June 2021 over average of January and February 2020
Period 19	August 1st to August 28, 2021	August 2021 over August 2019 or July 2021 over July 2019	August 2021 or July 2021 over average of January and February 2020
Period 20	August 29 to September 25, 2021	September 2021 over September 2019 or August 2021 over August 2019	September 2021 or August 2021 over average of January and February 2020

 NOTE – For claim periods 1 through 4 employers wishing to use an average of January and February 2020 for the revenue comparable must elect to do so. Once an eligible employer chooses either the equivalent month in 2019 or the average of January and February 2020 as their reference period, the same approach must be applied for all of periods 1 through 4.

For claim periods 5 through 20, eligible employers may elect to use either the same month in 2019 or the average of January and February 2020 as their prior reference period, regardless of what reference period was used for CEWS claim periods 1 through 4. The election to use the average of January and February 2020 must be consistent for all of claim periods 5 through 20.

 

For claim periods 1 through 4, eligible employers who meet the revenue reduction criteria for one Claim Period will be considered to have met the revenue reduction criteria for the immediately following Claim Period as well, but not for any further subsequent periods, or preceding periods. For example, if an entity meets the 15% revenue decline criteria for Period 1 above, it will not have to show that it meets the 30% revenue decline criteria for Period 2. The entity WILL need to satisfy the 30% revenue decline criteria in order to be eligible for Period 3.

The revenue reduction test is assessed based on an entity’s “qualifying revenues” for a period. The definition of qualifying revenues includes the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity (generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity) in Canada in the particular period. It specifically excludes the following items:

• Amounts derived from persons or partnerships not dealing at arm’s length with the eligible entity;
• Extraordinary items (little clarification has been provided to date as to what would be considered an “extraordinary item”); and,
• Amounts received under the CEWS and Temporary 10% Wage Subsidy programs.

NOTE – The CRA has commented the eligible revenue does include investment revenue, such as interest or dividends from investments in securities provided that they arise in the course of an eligible employer’s ordinary activities in Canada.

For employers whose business commenced after January 1, 2020, a special gross up calculation will apply to the prior reference period for the revenue reduction calculation. The gross up ensures that the average for January – February 2020 is based on an approximation of the average earnings for an entire calendar month period.

Employers will be allowed to measure revenues either on the basis of accrual accounting (based on revenues/receivables billed during the period) or cash accounting (based on revenues/receivables collected during the period). The same accounting method must be applied for both the current period, as well the historical reference period. This option will make it easier for entities to meet the reduction criteria in certain situation. For example, where they are cyclical in nature, and do not necessarily perform services evenly throughout the year, or where they have not necessarily experienced a significant decrease in sales but have experienced a significant decline in receivables collection.

NOTE – Employers wishing to calculate the revenues using the cash basis of accounting must elect to do so. Once an eligible employer chooses to calculate revenues based on either the accrual or cash accounting method, the same method must be applied for all CEWS claim periods.

 

NOTE – It is not clear based on the CEWS legislation whether or not Work-In-Progress (WIP) should be included in revenues for the current and prior reference periods. Although clarification on this will likely be provided at a later date, employers that do not wish to wait for this clarification can exclude WIP by electing to use the cash basis of accounting.

Special rules are provided for entities which are members of an affiliated group (generally meaning corporations controlled by the same person or spouses) or a group which normally prepares consolidated financial statements. These entities will have the option to determine qualifying revenues on either an individual or consolidated basis, provided that the treatment is applied consistently amongst all members of the group.  Members of a joint venture which earn all or substantially all (90% or more) of their qualifying revenues from the joint venture also have the option to use qualifying revenues of the joint venture as opposed to their own individual revenues for the purpose of the revenue reduction criteria.

A similar rule is provided for entities which earn all or substantially all (90% or more) of their otherwise qualifying revenues for the period from non-arm’s length persons or partnerships (including related corporations). In this case, a qualifying entity can choose to determine its qualifying revenues and calculate the applicable revenue reduction based on a complex calculation which considered the portion of qualifying revenues attributed to each related person or partnership.

Partnerships are included in the definition of “eligible entity”, and would therefore be eligible to claim the CEWS and calculate qualifying revenues at the partnership level (based on total revenues of the partnership). Eligible entities that are members of a partnership may also be able to claim CEWS separately from the partnership if they meet the applicable revenue reduction criteria on a stand-alone basis.

NOTE - If a partnership has even one member that is not on its own an eligible entity, the partnership as a whole will not qualify.

Charities and non-profit organizations will be allowed to choose to include or exclude government funding in their revenues for the purpose of applying the revenue reduction test. This option must be applied consistently to both the current period and prior reference periods.

NOTE – Registered charity or not-for profit employers who choose to exclude government funding from revenues must elect to do so. Once chosen, the same approach must be applied for all CEWS claim periods.

For employers that may be eligible for the wage subsidy, it will be important to ensure that your bookkeeping is up to date as soon as possible so that you can support the 30% decrease in revenue criteria once the application period opens.

There will be stiff and severe penalties for those that take advantage of the system (penalties up to 225% of the CEWS claim received and 5 years of jail time). The penalties are targeted towards any false application claims or planning measures taken with the specific purpose of qualifying for the subsidy, specifically including any measures taken with the intention of affecting qualifying revenues, but not including measures provided by the legislation such as the entity’s choice of the cash vs. accrual method of accounting for qualifying revenues.

NOTE - The CRA has also cautioned against paying wages in advance for work to be completed outside of the CEWS claim periods, and it is likely that CEWS claimed on any such payments will be considered abusive.

NOTE – The legislation for the CEWS gives the CRA the authority to publish the names of applicants for the subsidy, and the CRA has indicated that they do intend to publish a list or registration of CEWS applicants that will be available to the public at a later date.

The Canada Revenue Agency has stated that all employers would be expected to at least make best efforts to top up salaries to 100% of the maximum wages covered and return to pre-crisis wage levels as soon as possible (i.e. as soon as cash flows permit).

 

How will the subsidy amount be calculated? – Claim Periods 1 Through 4

The subsidy amount for a given employee on eligible remuneration paid for the period between March 15 and July 4, 2020 is the greater of:

• 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
• the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee's “baseline remuneration” (see explanation below), whichever is less.

NOTE - If an employee is employed by more than one entity within an affiliated or consolidated group, the $847 per week limit for that employee must be shared among all of the entities within that group (i.e. limit of $847 per week total for that employee for the whole group).

Eligible remuneration is defined as salary, wages, commissions and other remuneration like taxable benefits. It does not include severance pay or stock option benefits. The Canada Revenue Agency has commented that it also does not include taxable benefits for the personal use of a corporate vehicle. It also does not include the receipt of dividends, including dividends from Canadian Controlled Private Corporations.

NOTE – Eligible remuneration is based on amounts paid “in respect of” the claim period, regardless of when they are actually paid. This means that if employees are not actually paid until after the claim period for work performed during the claim period, that remuneration will still be eligible for the claim period to which it relates. Employers need to be cautious, however, as the legislation prohibits the subsidy from being claimed until the remuneration has actually been paid (i.e. if remuneration relating to a claim period is paid to employees on May 30^th, the application for that claim period cannot be filed until June 1^st).

Baseline Remuneration Period – As part of the program changes introduced in Bill C-20 on July 27, 2020, eligible employers will be able to elect to determine baseline remuneration for claim based on average weekly remuneration for one of the following periods:

• Default: January 1, 2020 to March 15, 2020
• Alternative for Periods 1 through 3: March 1, 2019 to May 31, 2019
• Alternative for Period 4: March 1, 2019 to May 31, 2019, or March 1, 2019 to June 30, 2019
• Alternative for Periods 5 through 13: July 1 to December 31, 2019
• Alternative for Periods 14 through 17: March 1, 2019 to June 30, 2019, or July 1, 2019 to December 31, 2019
• Alternative for periods 18 through 20: July 1, 2019 to December 31, 2019.

 

The baseline remuneration period for each employee will also exclude any seven-day periods in respect of which the employee did not receive remuneration.

For claim periods 1 through 4, employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees.

Only remuneration paid to eligible employees will be considered eligible remuneration. Employees who were not being paid by the employer for 14 or more consecutive days during the claim period will not be eligible for the remainder of the claim period. This includes new employees who were not on payroll for 14 or more days at the beginning of the claim period. An example of this is that if an entity has laid employees off, prior to the start of Claim period 2 on April 12, 2020, it would need to re-hire employees and begin paying them remuneration no later than April 25, 2020 in order to claim the CEWS in respect of the re-hired employees for the remainder of Claim Period 2.

Eligible Employee Changes – As part of the program changes introduced in Bill C-20 on July 27, 2020, the effective July 5, 2020 (claim periods 5 and subsequent), the eligibility criteria will no longer exclude employees that are without remuneration in respect of 14 or more consecutive days in an eligibility period.

Employers eligible for the CEWS will also be eligible for a 100% subsidy on certain employer paid Employment Insurance (EI) and Canada Pension Plan contributions for employees on furlough (if the employee is on leave with pay throughout an entire week and does not perform any work for that week). There is no $847 per week limit to this part of the subsidy, and the employer is required to pay the full amount of employer CPP and EI before the application can be made to recover the amount.

For employers that are eligible for both the CEWS and the 10 per cent Temporary Wage Subsidy for Employers (see discussion below) for a claim period, any eligible benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.

For employers that are eligible for both the CEWS and the 10 per cent Temporary Wage Subsidy for Employers (see discussion below) for a claim period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period. Employers who wish to not take the full 10% TWS subsidy may have a lower reduction applied to their CEWS subsidy by taking a reduction of less than 10% from their regular payroll remittance, and indicating the lower TWS amount claimed on their TEWS Self-Identification form (see “Temporary Wage Subsidy for Employers” section below).

For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

NOTE - the wage subsidy received by an employer is considered government assistance and is included in the employer's taxable income. It is, however, specifically excluded from the definition of revenue for the purpose of the revenue reduction calculation.

 

Subsidy calculation for non-arm’s length employees

A special rule will apply to employees that do not deal at arm’s length with the employer. The amount of eligible remuneration for non-arm’s length employees is deemed to be the lesser of baseline remuneration and the actual remuneration paid for the period.The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s baseline remuneration. The subsidy will only be available in respect of non-arm’s length employees employed prior to March 15, 2020. Generally, a person related to the entity such as a shareholder or director or person who controls the entity, or someone related to such a person will be considered non-arm’s length.

NOTE - Remuneration paid to non-arm’s length individuals who did not receive a wage that was paid during one of the eligible baseline periods noted above will have no “baseline remuneration” and will not be eligible for the wage subsidy.

 

How will the subsidy amount be calculated? – Claim Periods 5 Through 20

On July 27, 2020 legislation in Bill C-20 was passed in order to introduce new rules for the calculation of the eligible subsidy amount for proposed claim periods 5 and subsequent. These rules do not require eligible employers to meet a certain revenue reduction threshold, but rather calculate their eligible subsidy amount on a sliding scale based on the actual percentage revenue reduction experienced for the period.

 

For these claim periods, eligible employers will be required to calculate both a “Base Subsidy” and “Top-up Subsidy” amount as follows:

 

Base Subsidy

 

The maximum base CEWS rate would be provided to employers with a revenue drop of 50 per cent or more. Employers with a revenue drop of less than 50 per cent would be eligible for a lower base CEWS rate, as shown in the table below.

The maximum base CEWS rate would be gradually reduced from 60 per cent in Periods 5 and 6 (July 5 to August 29) to 40 per cent in Periods 8 through 16 (October 25 to June 5, 2021).

 

	Period 5: July 5 – August 1	Period 6: August 2 – August 29	Period 7: August 30 – September 26	Periods 8 through 17:
Maximum weekly benefit per employee	$677.40 (60%x $1,129)	$677.40 (60%x $1,129)	$564.50 (50%x $1,129)	$451.60 (40%x $1,129)
Revenue reduction (RR)	Base percentage	Base percentage	Base percentage	Base percentage
50% and over	60%	60%	50%	40%
Less than 50%	1.2 x RR (e.g., 1.2 x 20%  = 24%)	1.2 x RR (e.g., 1.2 x 20%  = 24%)	1.0 x RR (e.g., 1.0 x 20%  = 20%)	0.8 x RR (e.g., 0.8 x 20%  = 16%)

 

	Period 18	Period 19	Period 20
Maximum weekly benefit per employee	$395.15 (35% x $1,129)	$282.25 (25% x $1,129)	$112.90 (10% x $1,129)
Revenue reduction (RR)	Base percentage	Base percentage	Base percentage
50% and over	35%	25%	10%
More than 10% but less than 50%	(RR- 10%) x 0.875 (e.g., (20%  – 10%) x 0.875 = 8.75%)	(RR- 10%) x 0.625 (e.g., (20%  – 10%) x 0.625 = 6.25%)	(RR- 10%) x 0.25 (e.g., (20%  – 10%) x 0.25 = 2.5%)
10% or less	0%	0%	0%

 

Top-up subsidy 

 

For claim periods 5 through 10, a top-up CEWS of up to 25 per cent would be available to employers with a decline in revenue over 50 per cent. Generally, an eligible employer’s top-up CEWS would be determined based on the revenue drop experienced when comparing revenues in the preceding 3 months to the same months in the prior year. Under the alternative approach to the calculation of baseline revenues, an eligible employer’s top-up CEWS would be determined based on the revenue drop experienced when comparing average monthly revenue in the preceding 3 months to the average monthly revenue in January and February 2020.

For periods 5 through 7, employers that have experienced a 3-month average revenue drop of more than 50 per cent would receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50 per cent, up to a maximum top-up CEWS rate of 25 per cent, which is attained at a 70‑per‑cent revenue decline. As with the base CEWS rate, the top-up CEWS rate would apply to remuneration of up to $1,129 per week.

To make the top-up wage subsidy more responsive to sudden changes in revenue, the revenue-decline test for the base subsidy and the top-up wage subsidy would be harmonized from September 27, 2020 (Period 8) onward. Instead of using the current three-month revenue-decline test for the top-up wage subsidy, both the base and top-up wage subsidies would be determined by the change in an eligible employer's monthly revenues, year-over-year, for either the current or previous calendar month. This means an employer with a 70 per cent or greater revenue loss in a single period would be eligible for a 65-per-cent wage subsidy. For employers using the alternative method, both the base subsidy and the top-up wage subsidy would be determined by comparing its current monthly revenues with the average of its January 2020 and February 2020 revenues.

For claim periods 11 through 17 the maximum top-up percentage is increased to 35%.

The top-up CEWS rate for selected average revenue drop levels is illustrated in the table below.

 

Top-up CEWS rates for selected levels of average revenue drop over the preceding three months (subject to Safe Harbour Rule for Periods 5 and 6)
Top-up revenue reduction percentage (periods 5 through 10)	Top-up CEWS rate	Top-up calculation = 1.25 x (applicable revenue drop percentage)
70% and over	25%	1.25 x (70%-50%) = 25%
65%	18.75%	1.25 x (65%-50%) = 18.75%
60%	12.5%	1.25 x (60%-50%) = 12.5%
55%	6.25%	1.25 x (55%-50%) = 6.25%
50% and under	0.0%	1.25 x (50%-50%) = 0.0%

 

Top-up revenue reduction percentage (periods 11 through 17)	Top-up CEWS rate	Top-up calculation = 1.25 x (applicable revenue drop percentage)
70% and over	35%	1.75 x (70%-50%) = 35%
65%	26.25%	1.75 x (65%-50%) = 26.25%
60%	17.5%	1.75 x (60%-50%) = 17.5%
55%	8.75%	1.75 x (55%-50%) = 8.75%
50% and under	0.0%	1.75 x (50%-50%) = 0.0%

 

Top-up percentage for selected levels of top-up revenue reduction percentage for claim periods 18 to 20

 

	Period 18	Period 19	Period 20
Top-up revenue reduction percentage*	Top-up percentage= 1.25 x (top-up revenue reduction percentage* – 50%)	Top-up percentage= 0.75 x (top-up revenue reduction percentage* – 50%)	Top-up percentage= 0.5 x (top-up revenue reduction percentage* – 50%)
70% and over	1.25 x (70% - 50%) = 25%	0.75 x (70% - 50%) = 15%	0.5 x (70% - 50%) = 10%
65%	1.25 x (65% - 50%) = 18.75%	0.75 x (65% - 50%) = 11.25%	0.5 x (65% - 50%) = 7.5%
60%	1.25 x (60% - 50%) = 12.5%	0.75 x (60% - 50%) = 7.5%	0.5 x (60% - 50%) = 5.0%
55%	1.25 x (55% - 50%) = 6.25%	0.75 x (55% - 50%) = 3.75%	0.5 x (55% - 50%) = 2.5%
50% and under	1.25 x (50% - 50%) = 0%	0.75 x (50% - 50%) = 0%	0.5 x (50% - 50%) = 0%

  

Safe Harbour Rule

 

Under the safe harbour rule for periods 5 and 6, if an eligible employer that qualifies for the wage subsidy, has a revenue reduction of 30% or more, then the employer would be entitled to a wage subsidy not lower than the amount calculated under the rules in place for periods 1 to 4 in respect of an eligible employee who is not on leave with pay for that week. This means that in claim periods 5 and 6, an eligible employer with a revenue decline of 30% or more (actual or deemed reduction because of the deeming rules applicable to period 5 and subsequent periods), would receive a wage subsidy rate of at least 75%. 

 

Furloughed Employees

 

Employers who qualify for the wage subsidy will continue to be able to claim up to a maximum benefit of $847 per week per employee to support remuneration of their furloughed workers until October 24, 2020 (Period 8).

As of October 25, 2020, the subsidy per week in respect of an arm’s length employee (or a non-arm’s length employee who received pre-crisis remuneration for the relevant period) would be: the amount of eligible remuneration paid in respect of the week; or, if the employee receives remuneration of $500 or more in respect of the week, the greater of $500 and 55 per cent of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $573. This maximum subsidy for furloughed employees is increased to $595 per week for claim periods 11 through 19 (note CEWS is no longer available for furloughed employees starting with period 20).

 

Interaction with Canada Recovery Hiring Program (CRHP) Subsidy

The new CRHP subsidy was announced with the Federal budget release on April 19, 2021, and program allows eligible employers to claim a subsidy of up to 50 per cent of incremental remuneration paid to eligible active employees between June 6, 2021, and November 20, 2021. Employers who are eligible for both the CEWS and CRHP subsidy are permitted to claim either the CRHP subsidy or the CEWS Subsidy for a particular qualifying period, but not both.

For more information and details of the CRHP subsidy visit our CRHP blog page.

 

Examples – Claim Periods 1 Through 4

Example 1 - Arm’s length existing employee – Joe’s Auto Repair Service had two arm’s length employees, Tim and Sue which were on payroll throughout the period of January 1 to March 14, 2020. Tim was full-time earning an average of $1,200 per week in gross remuneration, and Sue was part time earning an average of $500 per week. From March 15 to April 11, business has declined significantly and Tim and Sue’s weekly remuneration was cut back to $1,000 and $400 respectively.

Assuming that Joe’s Auto Repair Service meets the qualifying entity criteria, as well as the required revenue reduction for the Claim Period, the eligible subsidy in relation to Tim will be the greater of:

• 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week = $750

Or,

• The least of:
  • 100% per cent of the actual amount of remuneration paid for the period = $1,000 per week
  • 75% of the employee‘s baseline remuneration = $900 per week
  • A maximum benefit of $847 per week = $847 per week

Weekly eligible benefit = $847 for a total of $3,388 for the four-week Claim Period

the eligible subsidy in relation to Sue will be the greater of:

• 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week = $300

Or,

• The least of:
  • 100% per cent of the actual amount of remuneration paid for the period = $400
  • 75% of the employee‘s baseline remuneration = $375 per week
  • A maximum benefit of $847 per week = $847 per week

Weekly eligible benefit = $375 for a total of $1,500 for the four-week Claim Period

Example 2 – Arm’s length employee not working – Joe’s Auto Repair Service had another employee Frank who was earning $1,000 per week during the period of January 1 to March 15, 2020. Frank became ill on March 15 and was not able to work at all for the period of March 15 to April 11, 2020. Joe did not want to lay Frank off, so has continued to pay Frank a wage of $750 per week during this period.

The eligible subsidy in relation to wages paid to Frank will be the greater of:

• 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week = $562

Or,

• The least of:
  • 100% per cent of the actual amount of remuneration paid for the period = $750 per week
  • 75% of the employee‘s baseline remuneration = $750 per week
  • A maximum benefit of $847 per week = $847 per week

Weekly eligible benefit = $750 for a total of $3,000 for the four-week Claim Period. As Frank was on paid leave during this period, an additional subsidy equal to 100% of the employer paid portions of CPP and EI remittances will also apply in relation to Frank’s remuneration.

NOTE – This scenario results in an eligible CEWS subsidy equal to 100% the amounts paid by Joe’s Auto Repair Services in relation to Frank’s wages.

Example 3 – Arm’s length new employee – After their part-time employee Sue quits on April 12^th, Joe’s Auto Repair hires a new part-time employee Paul on April 19^th. Paul is paid $300 per week from April 19^th to May 9^th. An additional part time employee Carol is hired on May 3^rd and is paid remuneration of $300 for the week of May 3^rd to 9^th.

Provided that Joe’s Auto Repair Service is a qualifying entity meets the revenue reduction threshold for Claim Period 2 (or Period 1) the eligible subsidy in relation to Paul will be the least of:

• 75% per cent of the actual amount of remuneration paid for the period = $225 per week
• A maximum benefit of $847 per week = $847 per week

Weekly eligible benefit = $225 for a total of $675 for the three-week Claim Period

It will not be able to claim any subsidy for Carol as she was not working for over 14 consecutive days to begin the period.

Example 4 – Non-arm’s length employees – Joe himself has historically taken a wage of $500 per month from Joe’s Auto Repair Service. Joe has taken on more work since Frank has been out sick, and as a result has increased his weekly wage to $750 which he continued to take throughout all of Claim Periods 1, 2, and 3. After March 15, Joe also started bringing his son Kyle in to work a few hours per week. He was paid remuneration of $100 per week, but had never been on payroll prior to March 15.

Joe’s Auto Repair will be eligible to claim an eligible subsidy in relation to Joe, equal to least of:

• 100% per cent of the actual amount of remuneration paid for the period = $750 per week
• 75% of the employee‘s baseline remuneration = $375 per week
• A maximum benefit of $847 per week = $847 per week

Weekly eligible benefit = $375 for a total of $1,500 for each four-week Claim Period

It will not be able to claim any wage subsidy in respect of remuneration paid to Kyle (limited to 75% of baseline remuneration).

 

Examples – Claim Periods 5 and subsequent

Example 5 – Base CEWS with no Top-Up

 

For the claim period of July 5 to August, 1, 2020, Joe’s Auto Repair Service paid wages of $1,129 per week to four different arm’s length and non-arm’s length employees (not exceeding baseline remuneration). Total eligible wages for the period were $18,064. The company is choosing to measure its revenue reduction based on revenue for July 2020 compared to the average of January and February 2020, for which it experienced a decline of 35%. It’s average revenue decline for the preceding three months under did not exceed 50% under either option.

The CEWS Base Subsidy amount will be equal to 1.2 x 35% = 42% x $18,064 = $7,586.88.

 

Since Joe’s Auto Repair had a revenue decline of over 30%, it may choose to apply the 75% wage subsidy rules from previous claim periods. Assuming that each of the four employees has baseline weekly remuneration of $1,129 per week, this would result in a total subsidy amount of $13,552 (maximum $847 per employee x 4 employees x 4 weeks).

 

Example 6 – Base CEWS and Top-Up

 

For the claim period of August 30 to September 26, 2020, Joe’s Auto Repair Service paid wages of $1,129 per week to four different arm’s length and non-arm’s length employees (not exceeding baseline remuneration). Total eligible wages for the period were $18,064. The company is choosing to measure its revenue reduction based on revenue for August 2020 compared to August 2019, for which it experienced a decline of 50%.

The CEWS Base Subsidy amount will be equal to 1.0 x 50% = 50% x $18,064 = $9,032.

 

The company is choosing to measure its revenue decline for the preceding three months based on June to August 2020 over June to August 2019, for which it experienced a decline of 60%.

 

The CEWS Top-Up Subsidy amount will be equal to 1.25 x (%60% - 50%) = %12.5% x $18,064 = $2,258.

 

The total CEWS Subsidy for the claim period is $11,290.

 

How to Apply?

Beginning April 27, applications will be open for the Canada Emergency Wage Subsidy.

• Most businesses may apply using My Business Account
• If you represent a business, you may apply using Represent a Client
• Alternatively, you may apply using a separate online application form (available April 27)

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.

NOTE - Each CEWS application must also include a completed and signed form RC661E “Attestation for owner/managers and/or senior employees (comptroller/VP Finance/CFO) of an eligible employer applying for the Canada Emergency Wage Subsidy”. This form should be carefully reviewed and signed by an individual who has principal responsibility for the financial activities of the eligible entity (in the case of most small businesses this should be the businesses owner/manager).

Eligible employers will be required to re-apply for the subsidy for each separate Claim Period.

NOTE - All applications for the CEWS must be made on or before the later of

• January 31, 2021, and
• 180 days after the end of the claim period;

Employers who are uncertain as to any element of their application, including the revenue reduction calculation or amount of eligible remuneration for the period, should consider delaying the submission of their application until all elements can be reasonably confirmed. In order to accommodate employers who have submitted an application that they later realize was incorrect, the CRA has recently introduced the ability to amend a CEWS application which can be done through the employer’s CRA My Business online account.

For further details on the Canada Emergency Wage Subsidy visit https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

For a list of frequently asked questions on the CEWS, and the CRA’s responses visit https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-frequently-asked-questions.html

For the Canada Revenue Agency’s CEWS application guide visit https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-apply-guide.html

 

Temporary Wage Subsidy for Employers (TWS)

Most organization that qualify for the CEWS, as well as many that do not (i.e. do not meet the decline in revenue criteria) may continue to qualify for the Temporary Wage Subsidy for Employers (TWS) of 10% of remuneration paid from March 18 to before June 20, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.

The “Eligible Employer” criteria for the 10% wage subsidy are similar to the criteria for the 75% wage summary, with the exception of the following important differences:

• There is no decline in revenue criteria applicable for the 10% subsidy.
• Corporations must be Canadian Controlled Private Corporations, and must be eligible for the Small Business Deduction in order to qualify for the 10% subsidy.
• There is no “baseline remuneration” component included in the subsidy calculation.

NOTE: Employers who are eligible for the TWS subsidy will be required to complete and submit a “Self-Identification” form in order to provide information on the amount of TWS reduction taken from payroll remittances. Information regarding the Self-Identification form can be found in our detailed blog Temporary Wage Subsidy for Employers (TWS) – CRA Reporting Requirements.

For further details on the Temporary Wage Subsidy visit https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-subsidy-small-businesses.htm

 

Calculation Tools

TWS Eligible Subsidy Calculator

 

Disclaimer

The information in this publication is current as of July 27, 2021.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Gregory, Harriman & Associates LLP to discuss these matters in the context of your particular circumstances. Gregory, Harriman & Associates LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.