This article has been updated to reflect changes to the Local Lockdown Program announced in February 2022 and recently enacted into law.
In December 2021, the federal government announced expanded COVID-19 support for businesses, not-for-profit enterprises, and charities experiencing partial or full closures due to the surging Omicron variant and resulting public health restrictions.
This article builds on three support programs announced on Oct. 21, 2021, which were passed into law on Dec. 17, 2021:
- The Tourism and Hospitality Recovery Program
- The Hardest-Hit Business Recovery Program
- Local Lockdown Program (LLP)
These programs, which we refer to collectively as “extended CEWS programs”, complement the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS), and are discussed in detail in our Tax Alert, Government releases proposed legislation for further business COVID-19 support.
Also, reference to qualifying periods or prior reference periods refer to defined terms used to make CEWS, CERS, and extended CEWS (or CERS) claims.
In this alert, we break down the expanded eligibility requirements for the LLP, as well as the last-minute changes made to wage subsidies that discourage public companies from accessing federal support while paying dividends to individual shareholders or increasing executive pay.
Expansion of the Local Lockdown Program
On Dec. 22, 2021, the government relaxed the conditions to obtain wage and rent support under the LLP (called Special Lockdown Support for All Entities in the referenced BDO Tax Alert) for qualifying periods 24 and 25 (Dec. 19, 2021-Feb. 12, 2022).
On Feb. 9, 2022, the government announced that the changes would also apply to qualifying period 26 (Feb. 13 - March 12, 2022).
| Requirement for the LLP | As announced on Oct. 21, 2021, and enacted on Dec. 17, 2021 | As proposed on Dec. 22, 2021 |
|---|---|---|
| Current-month revenue decline required to access the benefit | 40% | 25% |
| Public health restriction | Entity's activity totally restricted | Entity subject to capacity-limiting restrictions of 50% or more |
| Percentage of revenue attributable to activities restricted by the public health order during the prior reference period | 25% | 50% |
- The reduced threshold for the capacity-limiting public health restriction is significant. In the Oct. 21, 2021 proposals, activities such as indoor dining or in-person gym attendance had to be completely restricted to qualify for the LLP. Under the Dec. 22, 2021 proposals, such activities only need to be restricted to 50% capacity by the public health order to be eligible for the program.
- The entity applying for the wage or rent support needs to show a revenue decline of at least 25%—rather than 40%—in qualifying periods 24, 25, and 26. The decline is determined by comparing revenue in the current month to the same month in 2019 (or 2020 if the current month is January or February 2022), or to the average revenue in January or February 2020 (as previously determined in claims under the CEWS or CERS programs).
- The final change is the proportion of prior revenue attributable to the restricted activity. For example, for a restaurant, the proportion of revenue that arose from indoor dining must be at least 50% in the prior reference period, if indoor dining is the restricted activity.
The table below from the Department of Finance details the proposed wage and rent subsidy rate structure for the LLP from Dec. 19, 2021 to Feb. 12, 2022.
With the Feb. 9, 2022 announcement, these changes also apply to the period from Feb. 13 to March 12, 2022.
| Current-month revenue decline | Subsidy rate for periods 24 and 25 (Dec. 19, 2021-Feb. 12, 2022) |
|---|---|
| 75% and over | 75% |
| 25-74% | Revenue decline e.g., 50% revenue decline = 50% subsidy rate |
| 0-24% | 0% |
The changes announced on Dec. 22, 2021 and on Feb. 9, 2022 have been enacted into law by changes to the regulations to the Income Tax Act.
Wage subsidy restrictions due to dividends and executive compensation
Concerns about public companies misusing public funds to pay or increase shareholder dividends or hike executive pay have been percolating for some time. To address these concerns, the government rolled out new restrictions for public companies and their subsidiaries that accessed or wish to access federal wage support.
Requirements for public companies that increased executive compensation
Starting in June 2021, public companies that received CEWS are required to compare executive compensation (for a defined subset of executives) paid in 2021 to the amount paid to the same class of executives in 2019. If the 2021 executive compensation exceeds that of 2019, any CEWS claims made for qualifying periods starting on or after June 6, 2021, would need to be repaid to the extent of the compensation increase.
A similar requirement is in effect for wage subsidies received under the new programs announced in October 2021.
Restrictions for public companies that made dividend payments
New rules were passed into law on Dec. 17, 2021, addressing the issue of public companies paying shareholder dividends while receiving federal wage support (CEWS or one of the extended CEWS programs detailed in the referenced Tax Alert).
It appears public companies that paid dividends after Dec. 17, 2021 could be denied or required to repay wage subsidy claims. Further guidance on the new rules is needed from the Department of Finance.
How BDO can help
Our BDO tax professionals understand the uncertainty and challenges your business is facing during this latest round of restrictions, especially if your operations are interrupted by government-imposed public health lockdowns. We can help you identify the most relevant relief options available to you, assess how the programs can benefit your organization, and provide guidance in determining your next steps.
The information in this publication is current as of April 5, 2022.
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 BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada 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.