Tax Insights: Canada Emergency Wage Subsidy audits underway — Are you prepared?

Issue 2020-33

In brief

The Canada Revenue Agency (CRA) has started to actively audit Canada Emergency Wage Subsidy (CEWS)¹ claims.

A CEWS audit will begin with a letter requesting an extensive list of details on a claimant's business, including its revenue recognition policy and governance structure. In addition, organizations will have only two to three weeks to compile and submit the requested information, often with the CRA's refusal to extend this deadline. 

Organizations need to be ready to manage these potentially time-consuming audits.

In detail

The CRA has commenced its audit review of the CEWS program and has dedicated significant internal resources, including up to 3,000 auditors, to audit this program. The audit will begin with an information request letter that is approximately nine pages long, which will require the recipient to gather a lot of information that will be used by the CRA to assess the organization’s eligibility for the CEWS program. Requested information includes:

• documents from the minute books, such as:
  • any excerpts of governance documents relating to the CEWS claim
  • various agreements, including partnership agreements, banking resolutions and directors’ resolutions that demonstrate the decision-making process and approvals for making a CEWS claim
  • shareholder register
  • a list of entities and businesses within the corporate group
  • agreements relating to inter-company loans/advances and employee loans
• revenues in respect of the 2019 and 2020 taxation years, including monthly general ledgers and trial balances
• revenue information for purposes of computing the CEWS revenue decline percentage, including:
  • working papers that substantiate the computation of qualifying revenue for the current and prior reference periods
  • the audited organization’s revenue recognition policy for all items included in revenues
  • the source of revenues and revenues by geographic location
• various payroll information

The CRA is giving taxpayers only 15 to 21 days to provide all the requested information, and in many cases, the CRA is not granting the organization more time to respond. One standardized audit letter with widely‑encompassing language is being issued by the CRA; this is creating a significant burden on organizations to sift through the audit questions and determine the applicable information that they must gather and provide.

The takeaway

Organizations should be mindful of the care and diligence required to manage a CEWS audit. To ensure your organization’s eligibility for CEWS now and in the future, your organization should be prepared for a potential CEWS audit. The required corporate records and documents should be assembled so that they are ready to be submitted to the CRA when requested.

PwC can help your organization manage the audit process effectively and efficiently, with minimal disruption to normal business operations.

^{1. For more information, refer to CRA web page “Canada Emergency Wage Subsidy” at www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.}