Federal Wage Subsidy Legislation Passed
Date: April 13, 2020
On April 11, 2020, Bill C-14, the COVID-19 Emergency Response Act, No. 2, (Bill C-14), received Royal Assent after another emergency session of Parliament. Bill C-14 enacts the Canada Emergency Wage Subsidy (CEWS). It includes new details about which employers are eligible, and the calculation of gross revenue and the subsidy. On the same date, the federal government also updated its backgrounder describing the CEWS, reflecting the final form of the legislation.
This FTR Now provides highlights of those new details, and should be read in conjunction with our previous FTR Nows dated March 30, 2020, April 2, 2020 and April 9, 2020.
Bill C-14 offers more detail about which employers are eligible for the subsidy in addition to taxable corporations, individuals, partnerships comprised of eligible employers, certain registered charities and certain non-profit entities.
The CEWS has been enacted largely through amendments to the Income Tax Act (ITA). “Public Institutions” are not eligible for the subsidy. They include a school, school board, hospital, health authority, public university or college, and certain types of governmental organizations defined by reference to existing provisions of the ITA . Registered charities and non-profit organizations will also not be eligible for the CEWS if they are a “public institution.”
The list of government entities defined as “public institutions” excluded from eligibility for the CEWS include:
- municipalities and a “municipal or public body performing a function of government in Canada” (MPBPFG). Note that in the past, the Canada Revenue Agency (CRA) has stated that it considers an “Indian band or council,” an economic development corporation, a regional county municipality, and an improvement district to be a MPBPFG,
- corporations owned by a municipality or a MPBPFG if at least 90% of the shares are owned by the municipality and at least 90% of the corporation’s income is earned within the geographical boundaries of the municipality,
- Crown corporations (including those owned by a province) where at least 90% of the shares are owned by the Crown/province, and
- certain subsidiaries of Crown corporations.
Employers, particularly publicly-funded organizations, should consult their corporate or tax counsel to confirm whether their organization falls within one of the excluded categories.
To be eligible for the CEWS, an employer must have a CRA business payroll account number as of March 15, 2020.
The eligible earnings used to calculate the subsidy and to calculate average weekly pre-crisis remuneration paid between January 1 and March 15, 2020 includes salary, wages, and other remuneration subject to tax withholding under the ITA, including most taxable benefits as well as commissions. Retiring allowances and stock option benefits are explicitly excluded. The backgrounder indicates that personal use of a company vehicle is excluded from eligible remuneration. For self-employed individuals, most fees, commissions, and amounts for services are eligible.
There are anti-avoidance provisions preventing arrangements to artificially inflate earnings in order to increase the amount of the subsidy claimed. Payments to employees that are to be repaid to the employer, whether directly or indirectly, are also excluded from eligibility for subsidization under the CEWS.
Calculation of Revenue
Bill C-14 defines “qualifying revenue” as “the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity — generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity,” subject to various conditions. Extraordinary items and some non-arm’s length revenue are excluded.
There are detailed provisions for calculating the qualifying revenue of related entities. For example, affiliated entities will be able to calculate revenue on a consolidated basis. The legislation helpfully includes rules addressing the situation where an employer sells all of its products to a related company, as is often the case for some employers in manufacturing sectors.
The alternative “cash method” for determining revenue, which employers can elect instead of the “accrual” method, is described in section 28(1) of the ITA (normally used for farming and fishing businesses), modified as necessary in the circumstances.
Most details of the application process have not been announced, but Bill C-14 and the backgrounder contain some information about the application. In particular:
- the application for the subsidy must be filed before October 2020, and
- “the individual who has principal responsibility for the financial activities of the eligible entity attests that the application is complete and accurate in all material respects.”
The government has eased the requirement to re-apply for each of the three four-week eligibility periods. Now, if an employer is found eligible for one four-week period, it will automatically qualify for the next period. The Minister of Finance has indicated that money from the CEWS will likely flow to employers on the shorter end of the three to six weeks initially announced on April 1, 2020.
In addition, the amendments to the ITA include the power to extend the CEWS by regulation for periods after June 6, 2020 but ending no later than September 30, 2020, at a percentage drop in revenue that is also to be prescribed by regulation.
Calculation of the Subsidy
Some additional details about the calculation of the subsidy were also included in Bill C-14.
If an employee works for more than one related employer, the total amount of the subsidy received by those employers cannot exceed the amount of the subsidy calculated as if the employee had only worked for one of the employers.
If an employer participates in an approved Work-Sharing agreement under the Employment Insurance Act, the amount of the weekly EI benefits received by the employees in the Work-Sharing unit with respect to the weeks covered by the CEWS will decrease the amount of the wage subsidy the employer can receive with respect to those employees.
Similar to prior announcements regarding the CEWS, the backgrounder continues to encourage employers to make their “best efforts” to top-up employees’ wages to their pre-crisis levels.
Publication of Employers
Employers will want to be aware that the Minister is authorized to communicate to the public a list of employers who have applied for the subsidy.
Bill C-14 also contains amendments to the Financial Administration Act and the Canada Deposit Insurance Corporation Act related to the line of credit and loan relief previously announced for businesses.
Should you have any questions or require further information, please contact any member of the Pension, Benefits and Executive Compensation group or your regular Hicks Morley lawyer.
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