Government extends and modifies the Canada Emergency Wage Subsidy program

November 17, 2020

The Canada Emergency Wage Subsidy (CEWS) program has been adjusted and extended to June 2021.

Introduced in March 2020, this high-profile program was first updated in July with an extension and expansion. The latest extension and changes to the program were announced on October 9, and related draft legislation was tabled on November 2, 2020.

Background

The CEWS is a wage subsidy, calculated on a per-employee, per-week basis, based on a maximum weekly wage of $1,129. The maximum subsidy that can be received varies by qualifying period, or claim period, with the periods beginning in March. The maximum that can be received is $847 for the first four qualifying periods of the program; $960 per week for the next two qualifying periods; $847 for the next qualifying period; and $734 for the qualifying periods that end in October, November, and December.

In many cases, the subsidy will be less than the maximum amount, because the employee's weekly wages are less than $1129 per week or, for periods from July 5 and onwards, the employer did not experience a revenue drop that results in the highest CEWS rate.

The amount of subsidy that can be received is determined by the CEWS rate, which in turn is generally determined by the rate of revenue drop in a given month in 2020 when compared to the:

  • same month in 2019; or
  • average of revenue arising in January and February of 2020.

For qualifying revenues in March, there must have been a comparative decline in revenue of at least 15% in order to be eligible for CEWS. This was increased to 30% for comparative revenue declines in each of April, May, and June of 2020. For these four periods, the CEWS rate was fixed at 75%. For the remainder of the qualifying periods, from July through December, there is no minimum revenue decline required to qualify for CEWS, but the amount of CEWS is dependent on the comparative revenue decline in those qualifying periods.

As the government has tried to make the program accessible to a wider range of taxpayers, and to be sensitive to varying rates of revenue drop, it has become a complex program. (If the Canada Revenue Agency's “Frequently asked questions - CEWS” webpage was printed, it would be more than 70 pages long.)

The first stage of the CEWS program applies to four qualifying periods between March 15 and July 4. The CEWS program was expanded for qualifying periods starting July 5, also known as CEWS 2.0.

A transitional stage applies to qualifying periods in July and August. Starting with the September qualifying period, the transitional rates no longer apply, and the current stage of the program applies for qualifying periods from September 27 to December 19 (qualifying periods 8-10).

Each qualifying period is four weeks long. Details of the program for qualifying periods from December 20, 2020 and into 2021 have not yet been announced.

Table 1 in the Appendix shows the 10 qualifying periods defined in the legislation.

Table 2 in the Appendix shows the significant characteristics of the program in each of the stages described above.

Table 3 in the Appendix shows the maximum weekly CEWS claims in the different claim periods for three different revenue drop rates.

Certain key concepts for CEWS are outlined in our earlier Tax Alert COVID-19–Wage Subsidy Programs. Please see this alert for an understanding of the following concepts:

  • Eligible entity
  • Qualifying revenue (Revenue eligibility requirements)
  • Comparative reference period
  • Eligible employees
  • Eligible remuneration

Recent changes

The October changes and related November 2 legislation changed the CEWS programs in several key ways.

Changes in base CEWS rate for Periods 9-10

When CEWS 2.0 was introduced in July, the legislation provided a ‘safe harbour' CEWS rate of 75% in Periods 5 and 6 if there was a minimum revenue drop of 30% in either the qualifying period or the immediately preceding qualifying period. Starting in Period 7 (September 2020), the CEWS base rate was to decline for each qualifying period.

The recent changes froze the CEWS rate at the rates that applied in October (Period 8) for the remaining periods in 2020—that is, Periods 9 and 10. The recent changes also defined qualifying Period 10 as running from November 22 to December 19.

Changes in top-up CEWS rate starting in Period 8

An organization's CEWS rate for Period 5 and subsequent periods can include a top-up CEWS rate if an organization's revenue had declined more than 50%.

When the top-up percentage was first introduced with CEWS 2.0, it was calculated by reference to the average drop in revenue in the three months prior to the relevant qualifying period as compared to either the:

  • three corresponding months in 2019; or
  • average revenue in January and February 2020.

For example, for August 2020, the average qualifying revenue for May, June, and July 2020 would be compared to the average qualifying revenue for May, June, and July 2019 or to the average qualifying revenue in January and February 2020. The comparison period used for the top-up calculation must be the same as for the base calculation. If the top-up percentage was more than 50%, the amount in excess of 50% is multiplied by 1.25% to arrive at the top-up rate.

The recent legislation revised the calculation of the top-up so that for October through December (Periods 8-10), the top-up percentage is the greater of the three-month average calculation described above and the revenue reduction percentage used in the base CEWS calculation. For qualifying periods after Period 10 (i.e., after December 19, and extending into 2021), the top-up reduction percentage will be the same as the revenue reduction percentage used in the base CEWS calculation.

In addition, the November 2, 2020 draft legislation contains changes that will allow the top-up percentage to be changed by regulation, and setting it at a maximum of 25% if not determined by regulation or formula.

Changes to allow certain business reorganizations

The legislation allows for CEWS claims to continue with certain changes in business structure, such as wind-ups and amalgamations.

The July legislation had allowed a buyer of business assets to claim the CEWS for the acquired business in limited circumstances. These circumstances were expanded with the draft November 2 legislation, to allow for the acquisition of a business that represents part of the business of the vendor. The business acquisition CEWS rules only apply where the buyer and seller deal at arm's length, and if both parties make the required elections.

Baseline remuneration

The concept of baseline remuneration is relevant in some cases when determining CEWS.

It is particularly important for non-arm's length employees in benchmarking wages paid prior to the beginning of the CEWS period of March 15, 2020. Where a non-arm's length employee does not have remuneration in one of the baseline periods, no CEWS can be claimed for that individual.

The July 17 legislation expanded the baseline periods from one, January 1 to March 15, 2020, to also include several periods in 2019. The expansion of the number of baseline remuneration periods particularly benefits CEWS claims for seasonal employees, as well as for non-arm length employees.

Application deadline and amendments

Up until now, all of the CEWS applications have had the same filing deadline. However, under the November 2 draft legislation, the filing deadline will be the later of January 31, 2021 and 180 days after the end of the qualifying period.

Once the draft legislation is passed into law, there will be legislative support for amending or revoking elections made under the CEWS rules. Until now, the legislation has been silent on the ability to change elections made in filed claims. Under the proposed legislation, elections may be amended or revoked on or before the date that the application is due for the first qualifying period for which the election is made. Certain elections, once made, must be made in some or all subsequent claims as well. Consequently, it will be necessary to change the election in the first qualifying period that the election was made in order to also change subsequent periods. The due date for changing the election of such first period is the later of January 31, 2021 and 180 days after the end of that first qualifying period. This provides a way to change elections on applications that have already been filed.

Taxation of CEWS claims

CEWS assistance is taxable, and as government assistance, it would generally be included in income when the subsidy is received. However, the Act contains a specific provision and generally states that the subsidy is considered to be received on the last day of the qualifying period to which it relates. Therefore, when filing a tax return that includes a period for which a CEWS claim was made and not yet received, or includes a period for which a CEWS claim will be made, the anticipated amount of the CEWS claim should be included in taxable income for that taxation year.

This could be particularly problematic where a claim has been delayed in order to minimize uncertainty about elections that can be made with a claim. This also may mean that a tax return that was filed prior to making a claim will need to be amended for the amount of any claims made after filing that are deemed to have accrued prior to the tax year-end.

The qualifying claim periods are four weeks long, and do not coincide with the calendar months. For example, the June claim period ended on July 4. For income tax purposes, it will be recognized as income in July 2020. For accounting purposes, it may have been recognized as income in June. This will create a timing difference of particular importance for June year-ends. Similar timing differences may occur for other fiscal year-ends.

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 affect your organization and determine next steps.

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

Bruce Sprague, Partner, Western Canada Tax Leader

Greg London, Partner, Eastern Canada Tax Leader

Peter Routly, Partner, Southern Ontario Tax Leader

Rachel Gervais, Partner, GTA Tax Leader


The information in this publication is current as of November 12, 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.


Table 1
Qualifying Period Number Dates of Qualifying Period Current Reference Period for Qualifying Revenue Prior Reference Period 2019 Prior Reference Period Jan/Feb 2020
1 March 15 - April 11 March 2020 March 2019 Jan/Feb 2020
2 April 12 – May 9 April 2020 April 2019 Jan/Feb 2020
3 May 10 – June 6 May 2020 May 2019 Jan/Feb 2020
4 June 7 – July 4 June 2020 June 2019 Jan/Feb 2020
5 July 5 – August 1 July 2020 or June 2020 July 2019 or June 2019 Jan/Feb 2020
6 August 2 – August 29 August 2020 or July 2020 August 2019 or July 2019 Jan/Feb 2020
7 August 30 – September 26 September 2020 or August 2020 September 2019 or August 2019 Jan/Feb 2020
8 September 27 – October 24 October 2020 or September 2020 October 2019 or September 2019 Jan/Feb 2020
9 October 25 – November 21 November 2020 or October 2020 November 2019 or October 2019 Jan/Feb 2020
10 November 22 - December 19 December 2020 or November 2020 December 2019 or November 2019 Jan/Feb 2020

Note that the choice of prior reference period is made with the first claim in periods 1 - 4 and must remain consistent within periods 1 - 4.

The choice of prior reference periods can again be made with the first claim in period 5 -10 and must remain consistent within periods 5 - 10.

Table 2
CEWS Stage Time Period Fixed CEWS Rate Variable Base CEWS Rate
(Note 1)
Variable Top-Up Rate
(Note 2)
Total CEWS Rate
(Note 3)
Initial March 15 - July 4
Periods 1 - 4
75% N/A N/A 75%
Transition July 5 - August 29
Periods 5 - 6
Revenue decline rate at least 50%   60% 0 - 25% Greater of 75% and sum of variable base plus top-up rate
Revenue decline rate at least 30% 75%    
Revenue decline rate lower than 30%   1.2 x revenue decline rate 0 - 25% Sum of variable base and top-up rate
September August 30 - September 26
Periods 7
Revenue decline rate at least 50% N/A 50% 0 - 25% Sum of variable base plus top-up rate
Revenue decline rate lower than 50% N/A 1.0 x revenue decline rate 0 - 25%
Current September 27 - December 19
Periods 8 - 10
Revenue decline rate at least 50% N/A 40% 0 - 25% Sum of variable base plus top-up rate
Revenue decline rate lower than 50% N/A 0.8 x revenue decline rate 0 - 25%

Note 1 — Variable Base CEWS rate is a fixed amount if revenue decline rate is greater than 50%

Note 2 — Top up rate only applicable for a top-up revenue decline of more than 50%

Note 3 — Total CEWS rate applies to maximum weekly wage of $1,129

Table 3
CEWS Stage Time Period 70% Revenue Drop CEWS rate Maximum Subsidy Amount per Week 50% Revenue Drop CEWS rate Maximum Subsidy Amount per Week 20% Revenue Drop CEWS rate Maximum Subsidy Amount per Week
  (Note 1) (Note 2) (Note 3) (Note 2) (Note 3) (Note 2) (Note 3)
Initial March 15 - July 4
Periods 1 - 4
75% $847 75% $847 N/A (less than 30%) NIL
Transition July 5 - August 29
Periods 5 - 6
85% $960 60% $677 24% $271
September August 30 - September 26
Period 7
75% $847 50% $565 20% $226
Current September 27 - December 19
Periods 8 - 10
65% $734 40% $452 16% $181

Note 1 — In Period 1, CEWS is only available if revenue drop is at least 15%. In Periods 2-4, CEWS is only available if revenue drop at least 30%. For subsequent periods, no minimum revenue drop applies; however, variable base CEWS rate becomes a fixed amount if the revenue decline is greater than 50%.

Note 2 — Based on the assumption that revenue drop percentage for purposes of determining both the base CEWS and the top-up CEWS are the same.

Note 3 — Based on an eligible employee's weekly wage of at least $1,129.

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