In continuance of its initiatives to support Canadian businesses, the federal government tabled legislation on November 24, 2021 containing proposals for continued support to businesses, charities and not-for-profit organizations hardest hit by the ongoing COVID-19 pandemic. When passed, this legislation will enact the announcements made on October 21, 2021 for new wage and rent support for targeted entities.
This article expands on a previous BDO article, Government announces new more targeted COVID-19 programs to support businesses, which discusses the initial announcement of these initiatives by the federal government on October 21, 2021. Certain provisions initially mentioned have been clarified by the recent draft legislation. These items are summarized in this article, keeping in mind that none of the proposed changes have yet become law.
Variations of the Canadian Emergency Wage Subsidy (CEWS) and the Canadian Emergency Rent Subsidy (CERS)
Rather than terminating the CEWS and CERS, the government announced three new programs in October 2021:
- The Tourism and Hospitality Recovery Program (THRP)
- The Hardest-Hit Business Recovery Program (HHBRP)
- Special Lockdown Support for All Entities (SLS)
These new programs are variations of the former ones yet are bundled with more restrictive requirements and are crucial to examine.
Where the regular CEWS and CERS ended on October 23, 2021, these new programs start on October 24, 2021. The new programs are proposed to last until at least May 7, 2022, with a further extension possible to July 2, 2022.
New required revenue decline rule
Under the general CEWS and CERS, eligible entities were required to have experienced a revenue decline of more than 10% to qualify for the subsidy. However, the new required revenue decline under the THRP and SLS rules is 40% or more, while the required revenue decline under the HHBRP is 50% or more.
In addition, the THRP and HHBRP require entities to have experienced a revenue decline in the first year of the pandemic of at least 40% and 50% respectively. The draft legislation has created a new definition “prior year revenue decline” for this calculation. An example of how to calculate the prior year revenue decline is set out in the table below.
Note that as qualifying periods 10 and 11 used the same reference periods to determine CEWS or CERS eligibility, the calculation requires taxpayers to use the revenue decline (revenue reduction percentage) for only one of these periods in the calculation. The result is that of thirteen qualifying periods in the first year of the CEWS program, the revenue decline of only 12 periods is averaged as demonstrated.
Qualifying periods in the first year of the CEWS program
|Date of qualifying periods
|March 15 – April 11, 2020
|April 12 – May 9, 2020
|May 10 – June 6, 2020
|June 7 – July 4, 2020
|July 5 – August 1, 2020
|August 2 – August 29, 2020
|August 30 – September 26, 2020
|September 27 – October 24, 2020
|October 25 – November 21, 2020
|10 or 11
|November 22 – December 19, 2020
|OR December 20 – January 16, 2021
|January 17 – February 13, 2021
|February 14 – March 13, 2021
|Prior year revenue decline
Increased CERS total limit
The CERS rules allow a maximum of $75,000 of qualifying rent expenses per qualifying location to be claimed in the CERS calculation.
For each qualifying period, the total of qualifying rent expenses of all qualifying locations, at a maximum of $75,000 per location, cannot exceed $300,000 per eligible entity. If the eligible entity is affiliated with another eligible entity claiming CERS, this $300,000 limit must be shared with all such affiliated entities.
It's proposed that for qualifying periods starting with period 22 (October 24 - November 20), this aggregate limit is increased from $300,000 to $1,000,000. Yet, no change was proposed to the $75,000 limit per qualifying property per qualifying period.
THRP qualified activities
The new Tourism and Hospitality Recovery Program covers a much broader range of activities than the name would imply.
The government has released a list of activities which an affected business can carry out to be included in the definition of a “qualifying tourism and hospitality entity.” This list includes a vast range of activities that service providers and organizers can offer — including cultural and recreational activities as well as tourism and hospitality activities.
The THRP requires that an eligible entity demonstrates a revenue decline of 40% both in the first year of the pandemic and in the current claim period. Eligible entities must also be organizations that primarily earn revenue from one or more of the activities listed in the draft regulations that accompanied the proposed legislation. This list of activities includes, but is not limited, to:
- Operating a hotel, restaurant, or bar.
- Organizing or promoting festivals, conventions, or trade shows.
- Operating a travel agency or tour operation, or a convention centre.
- Operating a live performance venue or a museum.
- Operating a movie theatre or casinos.
- Operating sightseeing tours, charter fishing services, or amusement parks.
- Operating fitness, recreational sports centres, and ski hills.
- Services for docking and storage of pleasure craft.
- Operating a campground, excluding mobile home sites.
- Operating an overnight recreational camp.
Golf and country clubs and professional sports clubs (and facilities used by such teams) are specifically excluded from the definition of eligible entities.
Introduction of a qualifying public health restriction
The concept of a qualifying public health restriction is important for the new Special Lockdown Support that is available for any eligible entity that experienced a revenue decline of 40% or more in the current reference period that arose as a result of a qualifying public health restriction.
Note that the SLS is separate from the THRP and the HHBRP and is available to any organization that is an eligible entity for the CEWS and CERS programs. A public health restriction is a requirement for additional benefits under the CERS program, and is fully explained in a previous BDO Article on the Canada Emergency Rent Subsidy Program.
In general, there is a requirement for an entity to have at least a 25% revenue decline associated with an activity at a given location that was restricted during the pandemic due to a public health restriction.
The limitation must have been on the type of activity rather than the extent to which, or the time during which, an activity can be performed. For instance, a gym or a restaurant being closed to in-person service would be an example of a restricted activity. A business restricting its operating hours due to decreased demand would not be such a restricted activity.
The definition of qualifying public health restriction requires a qualifying property to be under a public health restriction for at least seven days in a qualifying period, but also has an additional revenue restriction.
The second requirement is that at least 25% of the qualifying revenues of the eligible entity — together with the qualifying revenues of any specified tenants of the eligible entity — for the prior reference period be derived from the restricted activities. Specified tenants are those that do not deal at arm's length with the eligible entity.
For some eligible entities, this requirement may be a difficult one to meet, particularly if the entity has more than one location in different provinces or even health districts.
Note that under the THRP and HHBRP, a CERS claim will continue to allow a claim for a 25% top-up for locations in lock-down under the “public health restriction test” and it is not necessary to meet the “qualified public health restriction” to make such claims.
CEWS repayment for certain public companies
A repayment requirement for CEWS was introduced starting with CEWS claims for qualifying period 17 (starting on June 6, 2021) and subsequent qualifying periods. An eligible entity will need to repay a CEWS subsidy amount if the executive remuneration (as defined) for the 2021 calendar year exceeds the executive remuneration for the 2019 calendar year.
The CEWS repayment requirement is proposed to be extended for all subsequent periods. For qualifying periods after period 23 (starting December 19, 2021), it will be necessary to compare 2022 executive remuneration (instead of 2021 executive remuneration) to 2019 executive remuneration.
Note that this new measure applies only where the shares of the eligible entity are listed or traded on a stock exchange or other public market, or if the eligible entity is controlled by such a corporation.
Canada Recovery Hiring Program (CRHP)
The draft legislation made no changes to the proposal to continue this program until at least May 7, 2022 with a 50% recovery rate. Background to this program is set out in a previous BDO article, How the Canada recovery hiring program supports jobs and growth.
How BDO can help
Our BDO tax professionals understand the uncertainty and challenges your business is facing as a result of the COVID-19 crisis and during this recovery period. We can help you assess how these government relief programs will affect your organization and provide guidance in determining your next steps.