On July 17, 2020, the Government of Canada announced proposed changes to the Canada Emergency Wage Subsidy (CEWS) to allow greater access to the program by employers.
While the proposed changes loosen eligibility requirements, there is added complexity, most significantly on how benefits are calculated for qualifying periods beginning after July 4, 2020.
The New Qualifying periods in the extension period are as follows:
|New Qualifying Period||Current Reference Period||Prior Reference Period|
|4||June 7 – July 4, 2020||June 2020||June 2019|
|5||July 5 – August 1, 2020||July 2020||July 2019|
|6||August 2 – August 29, 2020||August 2020||August 2019|
|7||August 30 – Sept 26, 2020||September 2020||September 2019|
|8||September 27 – October 24||October 2020||October 2019|
|9||October 25 – November 21||November 2020||November 2019|
The revenue test rules remain unchanged for period 4, however for periods 5 through 9 there is a new benefit calculation that includes four new concepts:
- Base percentage
- Revenue reduction percentage
- Top-up percentage
- Top-up revenue reduction percentage
The new formula for calculating the CEWS benefit available to employers is meant to increase the number of employers who are eligible for CEWS while at the same time reducing the amount of CEWS benefit available to employers that have not experienced very significant (i.e. 50% or greater) reductions in revenue.
While the calculation changes in period 5 and 6 could have significant impact to employers who have not seen significant revenue reductions (i.e. over 70%), a safe harbour rule applies to ensure that employers have access to a CEWS rate that is at least equal to what they would have been eligible for in periods 1 through 4.
The CEWS benefits available to employers are also being phased out over the new qualifying periods with more significant reductions in periods 7, 8 and 9. Employers would receive a maximum weekly CEWS benefit of $847 per employee in period 7, $734 per employee in period 8 and $508 per employee in period 9. Employers who have not experienced a revenue decrease of at least 50% would be entitled to a maximum benefit of $565, $452 and $226 for those same periods.
While the revenue test changes are the most significant amendments, there are other changes as well that impact the subsidy employers are eligible for, some key ones summarized below:
- For qualifying periods beginning after July 4, 2020 any employee with eligible remuneration during a qualifying period is deemed to be an eligible employee. Previously, employees without remuneration for 14 or more consecutive days in a qualifying period were excluded
- Baseline remuneration will be amended for non-arms length employees to permit an employer to elect to use the period from March 1 – May 31, 2019 to calculate baseline remuneration for the original CEWS qualifying periods. For period 4, employers also have the option to calculate baseline remuneration from March 1, 2019 – June 30, 2019. For all other periods, the employer will either use January 1, 2020 to March 15, 2020 or can elect to use the period July 1, 2019 to December 31, 2019 to calculate baseline remuneration.
- The January/February prior reference period rules clarify that employers may elect to use this separately for the qualifying periods ending on our before July 4, 2020 and the qualifying periods beginning after July 4, 2020.
While the extension of the CEWS program is welcome news for the business community, the amendments for the CEWS program add considerable complexity and risk for employers. There are a number of calculations and various factors to consider and significant penalties can apply where an employer receives CEWS but is ultimately found not to be eligible. We recommend that employers should work with their accounting professional for assistance in determining their eligibility, understanding how to apply and having the appropriate documentation to prepare for a review by the CRA.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email with the subject “CEWS Proposal Request” and one of our professionals will be in contact shortly.