Government extends and expands the Canada Emergency Wage Subsidy program

July 22, 2020

Finance Minister Bill Morneau announced details with respect to both an extension and expansion of the Canada Emergency Wage Subsidy (CEWS) program on July 17, 2020. The CEWS program was scheduled to end on August 29 and provided a 75% wage subsidy on eligible remuneration for qualifying businesses.

The announcement on July 17 indicated the following extension and expansion of the program:

  • Extends the CEWS to December 19. Details on how it will be implemented were provided to November 21.
  • Expands the program to more employers as of July 5. As of this date, any employer with a revenue decline will be eligible for the CEWS, the amount of which will be calculated based on the decline in qualifying revenue. This eliminates the restriction that employers with less than a 30% decline in qualifying revenue do not qualify for the CEWS. This also means that for many employers the maximum wage subsidy that they will receive for periods 7-9 (September – November), will be less than what they were receiving in the first six qualifying periods.
  • Enhances the wage subsidy for employers with more than a 50% decline in qualifying revenue with a subsidy of up to 85% of eligible remuneration.
  • Addresses other concerns raised by stakeholders during a recently concluded consultation process with the government.

Expansion of the base CEWS to more employers

The proposed changes will make the calculation of the wage subsidy more complex and more sensitive to the changes in revenue between the current and prior reference periods. The percentage drop in revenue between reference periods will directly determine the wage subsidy rate as the wage subsidy rate is no longer fixed. For a business with less than a 50% drop in revenue, the wage subsidy rate will directly vary with the drop in revenue percentage. Please see Table 1 in the Appendix for an example of the rate that will apply where revenue drops 40% in each qualifying period.

Wage subsidy rate top-up for businesses with a revenue decline 50% or more

The wage subsidy rate has been divided into two pieces for businesses with a 50% or greater revenue decline. These businesses will have a flat base rate (60% in periods 5 and 6, 50% in period 7, 40% in period 8 and 20% in period 9). They will also have a top-up rate of up to 25%, depending on a rate decline using a three-month average period.

The top-up CEWS rate for selected average revenue drop levels is illustrated in Table 2 in the Appendix.

The overall CEWS rate would be equal to the top-up CEWS rate plus the base CEWS rate. Please refer to Table 3 in the Appendix.

Reference periods for the drop-in-revenues test

Starting with Period 5 (July) qualifying entities can chose the prior reference period to be the corresponding prior year calendar month (the general method) or the average of January and February of 2020 (the alternative method). If a CEWS claim was made in periods 1-4, the entity already had to make a choice of using one of these methods consistently. However, the choice made in period 5 is a new choice, and is independent of the choice of reference periods made for the claims in Periods 1-4. The choice made in period 5 must be used in all subsequent claim periods.

Beginning with the qualifying period that began on July 5, the reference period to determine the drop in revenue can be a comparison of the current month to the same month in 2019, or businesses can use the immediately previous month compared to the corresponding month in 2019. Using the alternate approach, the comparison of revenue will be the current month or the immediately preceding month to the average of qualifying revenues in January and February 2020.

This is illustrated in Table 4 in the Appendix.

Other concerns addressed in the announcement

The government released draft legislation to amend the CEWS legislation for the announcement. There are additional proposed changes to the legislation based on the recently concluded consultation the government had with businesses and other stakeholders. As stated on the Government of Canada website, these include:

  • providing an appeal process to the Tax Court of Canada;
  • providing continuity rules for the calculation of an employer’s drop in revenues where the employer purchased all or substantially all the assets used in carrying on business by the seller;
  • allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue; and
  • allowing entities that use the cash method of accounting to elect to use accrual based accounting to compute their revenues for the purpose of the CEWS.

According to the Government of Canada, the documents also note that “[t]he government is also proposing to move forward with previously released legislative changes, including relieving changes for calculating pre-crisis baseline remuneration, for corporations that have amalgamated and for eligible entities that use payroll service providers [PayMasters]. The government is also proposing to move forward with the amendment that would align the treatment of trusts and corporations for the purposes of the CEWS.”

The application deadline for any CEWS claims has been extended to January 31, 2021 from the previous deadline of September 30, 2020.

How BDO can help

Our BDO Tax professionals understand the uncertainty and challenges your business is facing during the COVID-19 crisis. We can help you assess how the new extensions and enhancements of the government relief programs will impact your organization and determine next steps. Read our alert COVID-19 – Wage Subsidy Programs for further information on wage subsidy programs as it applies prior to July 4.

If you have any questions as to how the CEWS program applies to your organization, please contact your BDO advisor.

Dave Walsh, Partner, Tax Service Line Leader

Craig Mulcahy, Partner, SR&ED and Government Incentives

Appendix

Table 1: Illustration of rate structure of CEWS where revenue drop less than 50%
  Period 5*
July 5 – August 1
Period 6*
August 2 – August 29
Period 7
August 30 – September 26
Period 8
September 27 – October 24
Period 9
October 25 – November 21
Revenue drop 40% 40% 40% 40% 40%
Factor determined by proposed legislation 1.2 1.2 1 0.8 0.4
Wage subsidy rate to apply to weekly maximum wages of $1,129 48% 48% 40% 32% 16%
Safe Harbour rate if revenue drop of at least 30% 75% 75% N/A N/A N/A
Maximum weekly benefit per employee $542 $542 $452 $361 $181
Maximum weekly benefit per employee under safe harbour rules or $847 or $847 N/A N/A N/A
* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more.

Source: Government of Canada

Table 2: Top-up CEWS rates for selected levels of average revenue drop over the preceding three months
Three-month average revenue drop Top-up CEWS rate Top-up calculation = 1.25 x (Three-month revenue drop - 50%)
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%

Source: Government of Canada

Table 3: Rate structure of the combined base CEWS and the top-up CEWS for the most affected employers (i.e. those that experienced an average revenue drop of 70% or more in the preceding three months)
Timing Period 5*:
July 5 – August 1
Period 6*:
August 2 – August 29
Period 7:
August 30 – September 26
Period 8:
September 27 – October 24
Period 9:
October 25 – November 21
Maximum weekly benefit per employee Up to $960 Up to $960 Up to $847 Up to $734 Up to $508
Revenue drop in the current one-month reference period          
50% or more 85%
(60% base CEWS + 25% top-up)
85%
(60% base CEWS + 25% top-up)
75%
(50% base CEWS + 25% top-up)
65%
(40% base CEWS + 25% top-up)
45%
(20% base CEWS + 25% top-up)
0% to 49% 1.2 x revenue drop + 25% (e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate) 1.2 x revenue drop + 25% (e.g., 1.2 x 20% revenue drop + 25% = 49% CEWS rate) 1 x revenue drop + 25% (e.g., 1 x 20% revenue drop + 25% = 45% CEWS rate) 0.8 x revenue drop + 25% (e.g., 0.8 x 20% revenue drop + 25% = 41% CEWS rate) 0.4 x revenue drop + 25% (e.g., 0.4 x 20% revenue drop + 25% = 33% CEWS rate)
* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more.

Source: Government of Canada

Table 4: Reference periods for the base CEWS
  Claim period General approach Alternative approach
Period 5 July 5 to August 1, 2020 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 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 September 2020 over September 2019 or August 2020 over August 2019 September 2020 or August 2020 over average of January and February 2020
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

Source: Government of Canada


The information in this publication is current as of July 22, 2020.

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.

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