Following the announcement of the Canada Emergency Wage Subsidy (CEWS) extension to December 2020, the Federal Government has released detailed CEWS amendments impacting the program for the remainder of the year. Many businesses that were not previously eligible to receive the CEWS may now receive a portion of CEWS. In addition, businesses with severely impacted revenues may receive an additional Top-Up Subsidy.  Appendix A contains examples of the new CEWS regime.

Summary of Key Changes

  • Subsidy extension to December 19, 2020, with these changes applying from July 5th to the period ending November 21st
  • Eligible employers that have experienced revenue declines of less than 30% may now qualify for CEWS, retroactive to July 5th
  • Financial support provided by CEWS applies on a sliding scale dependent on the extent of revenue decline
  • A Top-Up Subsidy has been introduced to potentially provide for the highest possible subsidy amount per employee of $960 per week (calculated on a maximum remuneration per employee of $1,129 per week)
  • Companies now have the option to use the previous month’s revenue as a reference for revenue decline
  • Allowing the subsidy for employees that are without remuneration for 14 or more consecutive days in an eligibility period
  • A “Safe Harbour” provision that enables employers to receive the same subsidy amount for July and August (Periods 5 and 6) as they would have under the previous rules if the new rules result in a lower subsidy

Sliding Scale Subsidy

CEWS will now apply on a sliding scale, dependent on the extent of the employer’s revenue decline.  The amount of the subsidy will be reduced gradually throughout the remaining periods.

The following table illustrates the applicable rates for the CEWS “base” amount:

Period 5 (July 5- Aug 1) Period 6 (Aug 2 – Aug 29) Period 7 (Aug 30 – Sept 26) Period 8 (Sept 27 – Oct 24) Period 9 (Oct 25 – Nov 21)
Revenue Reduction % % of Eligible Remuneration Subsidized by CEWS
50% or above 60% 60% 50% 40% 20%
0-49% 1.2x revenue decline 1.2x revenue decline 1.0x revenue decline .8x revenue decline .4x revenue decline
                                                         Maximum Weekly Subsidy Per Employee
Up to $677 Up to $677 Up to $565 Up to $452 Up to $226

If an employer’s revenue decline is up to 49%, the employer will multiply the revenue decline with the factor listed above to determine the percentage of its employees’ salaries which may be claimed under CEWS.  Companies experiencing a revenue decline of 50% or greater will receive 60% of their employees’ salaries and may also be eligible for the Top-Up Subsidy.  The same maximum subsidy amounts apply to this “base” subsidy on a per employee basis with this maximum subsidy amount being reduced gradually throughout the remaining periods.

The reference periods for the subsidy have also been broadened so that an employer may select the current or previous month as a revenue comparison to the same month in 2019 or the average of January and February in 2020. Employers may select either method for Period 5 regardless of which CEWS eligibility method they used in the first four CEWS periods.  Whichever CEWS eligibility method is used for Period 5 must be used for the following periods as well.

The following table summarizes the various CEWS eligibility methods with respect to the determination of revenue decline:

Claim Period 2019 Reference Same Year Reference
Period 5 (July 5 – August 1, 2020) July 2020 to July 2019
or June 2020 to June 2019
June or July 2020 to the average of January and February 2020
Period 6 (August 2 – August 29, 2020) August 2020 to August 2019
or July 2020 to July 2019
July or August 2020 to the average of January and February 2020
Period 7 (August 30 – September 26, 2020) September 2020 to September 2019
or August 2020 to August 2019
August or September 2020 to the average of January and February 2020
Period 8 (September 27 – October 24, 2020) October 2020 to October 2019
or September 2020 to September 2019
September or October 2020 to the average of January and February 2020
Period 9 (October 25 – November 21, 2020) November 2020 to November 2019
or October 2020 to October 2019
October or November 2020 to the average of January and February 2020

Top-Up Subsidy

In addition to the standard wage subsidy, a Top-Up Subsidy will be available to employers who have experienced a three-month average revenue decline of more than 50%.  The Top-Up Subsidy rate is equal to 1.25 times the average revenue decline in excess of 50%, to a maximum Top-Up rate of 25%.

The top-up calculation rates are illustrated in the following table:

Three-Month Average Revenue Decline Top-Up Calculation
70% and above 1.25 x (70%-50%) = 25% top-up
65% 1.25 x (65%-50%) = 18.75% top-up
60% 1.25 x (60%-50%) = 12.5% top-up
55% 1.25 x (55%-50%) = 6.25% top-up
50% and below 0% top-up

As the Top-Up Subsidy uses a three-month average to determine an employer’s revenue decline, it has distinct reference periods.  It also has two comparison methods available, similar to the Sliding Scale Subsidy.  The same comparison method utilized for Top-Up Subsidy purposes must be used for Periods 5 through 8.

Claim Period 2019 Reference Same Year Reference
Period 5 (July 5 – August 1, 2020) April, May, June 2020 to April, May, June 2019 Average of April, May, June 2020 to January and February 2020
Period 6 (August 2 – August 29, 2020) May, June, July 2020 to May, June, July 2019 Average of May, June, July 2020 to January and February 2020
Period 7 (August 30 – September 26, 2020) June, July, August 2020 to June, July, August 2019 Average of June, July, August 2020 to January and February 2020
Period 8 (September 27 – October 24, 2020) July, August, September 2020 to July, August, September 2019 Average of July, August, September 2020 to January and February 2020
Period 9 (October 25 – November 21, 2020) August, September, October 2020 to August, September, October 2019 Average of August, September, October 2020 to January and February 2020

Employee Eligibility Changes

  • Employees who are without remuneration for 14 or more consecutive days in an eligibility period are eligible for CEWS effective July 5, 2020
  • The changes to the subsidy do not apply to furloughed employees for July and August but the subsidy will be adjusted for furloughed employees in September
  • For active arm’s length employees, the amount of remuneration is based solely on remuneration paid for the eligibility period and reference to the “pre-crisis” remuneration has been removed
  • For non-arm’s length employees, the calculation for “pre-crisis” remuneration has been expanded to include March 1, 2019, to May 31, 2019, or from March 1, 2019, to June 30, 2019, when calculating average weekly remuneration for Period 4. For subsequent periods, average weekly remuneration from January 1, 2020, to March 15, 2020, or from July 1, 2019, to December 31, 2019, can be used as “pre-crisis” remuneration
  • The subsidy is only available for non-arm’s length employees that were employed before March 16, 2020

Additional Changes

  • There is an appeal process for the subsidy amount to the Tax Court of Canada
  • Eligible public institutions that are a registered charity or a non-profit organization can choose to exclude government-source revenue or not in revenue reduction calculations
  • Employers that use the cash method of accounting can use accrual-based accounting to compute their revenues
  • Corporations formed on an amalgamation can calculate their benchmark revenue using combined revenues, except where it is reasonable to consider that a main purpose for the amalgamation was to qualify for the subsidy or increase the amount of the subsidy
  • Certain tax-exempt trusts qualify for the subsidy

While these legislative changes have made the CEWS accessible to a wider range of businesses, the CEWS program has become considerably more complex.  If you have any questions about how the new Wage Subsidy or Top-Up Subsidy may impact you or your business, please contact your Bateman MacKay LLP account manager.

APPENDIX A – CEWS Examples

Case 1: Company A has a revenue decline of 20% from April through November. Employee A’s remuneration is $1,200 per week and Employee B’s remuneration is $1,000 per week.

Period 5 Period 6 Period 7 Period 8 Period 9
Subsidy Calculation 1.2*20% = 24% 1.2*20% = 24% 1.0*20% = 20% .8*20% = 16% .4*20% = 8%
Subsidy Amount for Employee A $1,129 (max weekly salary) * 24% = $270.96 weekly subsidy $1,129 (max weekly salary) * 24% = $270.96 weekly subsidy $1,129 (max weekly salary) * 20% = $225.80 weekly subsidy $1,129 (max weekly salary) * 16% = $180.64 weekly subsidy $1,129 (max weekly salary) * 8% = $90.32 weekly subsidy
Subsidy Amount for Employee B $1,000 * 24% = $240 weekly subsidy $1,000 * 24% = $240 weekly subsidy $1,000 * 20% = $200 weekly subsidy $1,000 * 16% = $160 weekly subsidy $1,000 * 8% = $80 weekly subsidy

 

Case 2: Company B has a revenue decline of 65% from April through November. Employee A’s remuneration is $1,200 per week and Employee B’s remuneration is $1,000 per week. Company B may also be eligible for the Top-Up Subsidy, which will be discussed in the Top-Up Subsidy section below.

Period 5 Period 6 Period 7 Period 8 Period 9
Subsidy Calculation 60% 60% 50% 40% 20%
Subsidy Amount for employee A $1,129 (max weekly salary) * 60% = $677 weekly subsidy $1,129 (max weekly salary) * 60% = $677 weekly subsidy $1,129 (max weekly salary) * 50% = $565 weekly subsidy $1,129 (max weekly salary) * 40% = $452 weekly subsidy $1,129 (max weekly salary) * 20% = $226 weekly subsidy
Subsidy Amount for employee B $1,000 * 60% = $600 weekly subsidy $1,000 * 60% = $600 weekly subsidy $1,000 * 50% = $500 weekly subsidy $1,000 * 40% = $400 weekly subsidy $1,000 * 20% = $200 weekly subsidy

Continuing from Case 2 discussed above, Company B has a revenue decline of 65% from April through November. Employee A’s remuneration is $1,200 per week and Employee B’s remuneration is $1,000 per week. As their three-month revenue decline is above 50%, they are also eligible for the Top-Up Subsidy. The Top-Up Amount and Total Subsidy for Employee A and Employee B are as follows:

Period 5 Period 6 Period 7 Period 8 Period 9
Top-Up Calculation 1.25 x (65-50%) = 18.75% top-up 1.25 x (65-50%) = 18.75% top-up 1.25 x (65-50%) = 18.75% top-up 1.25 x (65-50%) = 18.75% top-up 1.25 x (65-50%) = 18.75% top-up
Top-Up Amount for Employee A $1,129 (max weekly salary) * 18.75% = $211.69 weekly top-up $1,129 (max weekly salary) * 18.75% = $211.69 weekly top-up $1,129 (max weekly salary) * 18.75% = $211.69 weekly top-up $1,129 (max weekly salary) * 18.75% = $211.69 weekly top-up $1,129 (max weekly salary) * 18.75% = $211.69 weekly top-up
Total Subsidy Amount for Employee A $677 (Wage Subsidy) + 211.69 (Top Up) = $888.69 $677 (Wage Subsidy) + 211.69 (Top Up) = $888.69 $565 (Wage Subsidy) + 211.69 (Top Up) = $776.69 $452 (Wage Subsidy) + 211.69 (Top Up) = $663.69 $226 (Wage Subsidy) + 211.69 (Top Up) = $437.69
Top-Up Amount for Employee B $1,000 * 18.75% = $187.50 weekly subsidy $1,000 * 18.75% = $187.50 weekly subsidy $1,000 * 18.75% = $187.50 weekly subsidy $1,000 * 18.75% = $187.50 weekly subsidy $1,000 * 18.75% = $187.50 weekly subsidy
Total Subsidy Amount for Employee B $600 (Wage Subsidy) + 187.50 (Top Up) = $787.50 $600 (Wage Subsidy) + 187.50 (Top Up) = $787.50 $500 (Wage Subsidy) + 187.50 (Top Up) = $687.50 $400 (Wage Subsidy) + 187.50 (Top Up) = $587.50 $200 (Wage Subsidy) + 187.50 (Top Up) = $387.50