When the federal government tabled its budget on April 19, 2021, the Canada Emergency Wage Subsidy (CEWS) program had been in place for more than 12 months. The CEWS program was initially introduced in March 2020 for a period of 12 weeks. Since then, the federal government has made adjustments to extend the reach and duration of the program. In the 2021 budget, the government announced an extension of the CEWS program and some new restrictions to limit access during the extension period.
This extension is from June 6 to September 25, 2021, an addition of four more four-week qualifying periods. This extension and new restrictions became law on June 29, 2021. On July 30, 2021, the government announced changes to the CEWS rate for the period from August 29 to September 25, an extension of the program for another four-week period to October 23, and some technical changes. Under the budget provisions, a further extension of the program is possible until Nov. 20, 2021.
For further details of the CEWS program, please see our Tax Alert Final details announced for the Canada Emergency Wage Subsidy program to June 5, 2021 .
Public companies and access to CEWS after June 5
A new restriction will apply to public companies, or any eligible entity controlled by a public company, where certain executives were paid more in calendar 2021 than in calendar 2019 and where they have claimed CEWS for any period after June 5, 2021. Any CEWS claims made by such entities after that date are subject to repayment to the extent of the increase in executive compensation. This change is in response to reports that businesses that didn't need the CEWS were applying and receiving CEWS even as they remained profitable.
The executive remuneration to be measured in calendar year 2019 and calendar year 2021 is generally defined to be that of the five “Named Executive Officers” whose compensation is required to be reported to shareholders under securities law. Named Executive Officers will generally be the CEO, CFO, and the three other most highly compensated executives of the company.
This requirement will not affect Canadian Controlled Private Corporations (CCPCs), or non-profit or charitable corporations who have qualified for and received CEWS.
Changes to revenue reduction benchmarks
For any qualifying period starting after July 3, 2021, any entity claiming CEWS must have experienced a greater than 10% revenue decline in order to be eligible. This applies if the entity is using either the general method, which compares the current month revenue to the same month in 2019, or the alternate method, which compares the current month revenue to the average qualifying revenue received in January and February 2020.
Maximum subsidy rates by qualifying period
The budget legislation provided that the rate of CEWS claims would decrease from a maximum of 75% in the qualifying period from June 6 to July 3, 2021 to a maximum of 20% in the qualifying period from August 29 to September 25, 2021. However, the change announced on July 30 maintains a maximum rate of 40% in the period from August 29 – September 25, 2021, and provides for a maximum of 20% in new qualifying period 21 (September 26 – October 23, 2021).
The maximum rate will only be available to those entities who have experienced a revenue decline of 70% or more in the qualifying period. The subsidy rate for entities with less than 70% revenue decline in the qualifying period will depend on the actual rate of revenue decline, and whether they experienced a revenue decline of 50% or greater in the qualifying period. Entities with a revenue decline of more than 50% will be entitled to a top-up to the CEWS base rate. Entities with a rate of revenue decline of 50% or less will not be entitled to a top-up in the CEWS rate.
Table 1 in the Appendix shows the significant characteristics of the program in each of the proposed qualifying periods
Table 2 in the Appendix shows the maximum weekly CEWS claims in different claim periods for three different revenue drop rates.
One of the technical changes announced on July 30, 2021 is the proposal that CEWS would no longer be available in respect of furloughed employees after Period 19, which ends on August 28.
Choice between Canada Recovery Hiring Program Subsidy (CRHPS) and CEWS
The 2021 budget also included a new COVID-19 support that will apply to many eligible entities that qualify for CEWS. This is the Canada Recovery Hiring Benefit. This benefit is described in our Tax Alert New wage support program to support increased employment. An entity that qualifies for both benefits in a qualifying period can choose to claim the higher of the two benefits but cannot claim both. If the amount for CEWS and for CRHPS is the same in any particular qualifying period, then the taxpayer should make a CEWS claim.
How BDO can help
Our BDO Tax professionals understand the uncertainty and challenges your business faced at the onset, during, and in the face of another wave of the COVID-19 pandemic. We can help you assess how the new extensions and enhancements of the government relief programs will affect your organization and determine next steps.