Tax Insights: Canada Emergency Wage Subsidy provides relief to businesses and other organizations

April 14, 2020

Issue 2020-23

In brief

On April 11, 2020, the federal government enacted legislation to implement the Canada Emergency Wage Subsidy (CEWS) — a 75% wage subsidy program — to encourage employers to rehire workers previously laid off and prevent further job losses due to the COVID-19 pandemic. 

Most employers, except for certain tax-exempt entities and certain defined public institutions (and partnerships in which such an entity is a direct or indirect member), are eligible for the CEWS if their revenues have declined in March, April or May 2020, as compared to a prior reference period.

The CEWS provides a maximum benefit of $847 per eligible employee per week, retroactive to March 15, 2020, and covers three four-week periods (the “qualifying period”):

  • Period 1 - March 15 to April 11, 2020
  • Period 2 - April 12 to May 9, 2020
  • Period 3 - May 10 to June 6, 2020

This Tax Insights discusses the CEWS program. It also outlines the 10% Temporary Wage Subsidy program, which may be available to employers that do not qualify for the CEWS.

In detail

Which employers are eligible for the CEWS

To be eligible for the CEWS (an "eligible entity"), an employer must be:

  • an individual or a trust 
  • any of the following entities, provided they are not public institutions:
    • a corporation (other than a corporation that is tax-exempt)
    • a registered charity
    • other specific tax-exempt entities, including an agricultural organization, a board of trade or a chamber of commerce, a non-profit scientific research corporation, a labour organization or society or a benevolent or fraternal benefit society or order, and a non-profit organization, or
  • a partnership all the members of which (directly and indirectly through one or more other partnerships) are eligible entities

A “public institution” is defined to include municipalities, municipal authorities and First Nation bands, public bodies performing a function of government in Canada, Crown corporations, and other tax-exempt corporations wholly or substantially owned by such entities, as well as schools, school boards, hospitals, health authorities, and public universities or colleges. Based on this definition, it is unclear at the moment whether a private school operated by a taxable corporation or registered charity could be an eligible entity.

The employer must have had, on March 15, 2020, a payroll remittance business number registered with the Canada Revenue Agency (CRA), and must apply with the CRA (in a manner still to be determined) in respect of each qualifying period before October 2020. In addition, the individual who has principal responsibility for the financial activities of the employer must certify that the application is complete and accurate in all material respects. An eligible entity that meets these requirements and the required reductions in qualifying revenue for a qualifying period, as discussed below, is referred to as a “qualifying entity.”

How to determine eligibility and calculate the reduction in revenue

The subsidy for a qualifying period is available to an eligible entity that suffers a drop in “qualifying revenue” of at least:

  • 15% in March 2020, or
  • 30% in April or May 2020,

with respect to a defined reference period, as determined in the table below.

It is important to note that, once an eligible entity has qualified under the test for a specific qualifying period, the entity will automatically qualify for the immediately following period.


Qualifying period

Required reduction in revenue

Reference period for eligibility


March 15 to April 11, 2020


March 2020 revenue over:*

a) March 2019 revenue, or

b) average of January and February 2020 revenues


April 12 to May 9, 2020


Eligible for period 1, OR

April 2020 revenue over:*

a) April 2019 revenue, or

b) average of January and February 2020 revenues


May 10 to June 6, 2020


Eligible for period 2, OR

May 2020 revenue over:*

a) May 2019 revenue, or

b) average January and February 2020 revenues

* An employer must use the same benchmark [either option a) month-over-month; or option b) average of January and February 2020 revenues] for the entire program, to determine if it meets the required revenue reduction targets for that qualifying period.

What is “qualifying revenue” and how is it determined

“Qualifying revenue” of an eligible entity for the purpose of the subsidy means the inflows of cash, receivables or other consideration arising in the course of the ordinary activities of the entity in Canada. It excludes amounts derived from non‑arm's length sources, extraordinary items and the CEWS subsidy itself (and any subsidy under the 10% Temporary Wage Subsidy program). 

Revenues will be calculated using either:

  • the accrual accounting method (as revenues are earned)
  • the cash accounting method (as cash is received), 

but not a combination of both, and the same method must be used throughout the program. 

An eligible entity must determine revenues in accordance with its normal accounting practices, except for being able to elect to use the cash method and the special rules for computing revenue, as follows:

  • Consolidated revenue – Eligible entities can (together with each member of an affiliated group of eligible entities) jointly elect to calculate revenue on a consolidated basis. Alternatively, even though a group of eligible entities normally prepares consolidated financial statements, each member of the group may determine its qualifying revenue separately (provided that every member of the group determines its qualifying revenue on that basis).
  • Non-arm’s length parties – An eligible entity that earns all or substantially all (i.e. 90% or more) of its revenue from one or more non-arm's length persons or partnerships, can jointly elect with each of those persons or partnerships to determine whether it meets the required revenue reduction percentage for a period by reference to a weighted average of the qualifying revenues of the non-arm’s length persons or partnerships from whom the entity’s revenue is earned. For purposes of this calculation, the qualifying revenues of the non-arm’s length parties are not limited to Canadian-sourced amounts.
  • Joint ventures – For an eligible entity that is owned by participants in a joint venture, the eligible entity may use the qualifying revenue of the joint venture (instead of its own qualifying revenue) if all or substantially all (i.e. 90% or more) of the eligible entity’s revenues relate to the joint venture.  
  • Registered charities and non-profit organizations (NPOs) – A registered charity and an NPO can choose whether or not to include revenue from government sources as part of its revenue calculation; the approach chosen must apply throughout the entire program. For a registered charity, qualifying revenue includes revenue from its related businesses, gifts, and other amounts received in the course of its ordinary activities. For an NPO, qualifying revenue includes revenue from membership fees and other amounts received in the course of its ordinary activities.

Which employees are eligible for the CEWS

An eligible employee is an individual employed in Canada by an eligible entity in the qualifying period, other than an individual who has been without remuneration by the eligible entity for 14 or more consecutive days in the qualifying period. 

How much is the CEWS

The subsidy is calculated on an employee-by-employee basis. The subsidy for an eligible employee that deals at arm’s length with the eligible entity for each week of the qualifying period will be the greater of: 

  • 75% of the amount of eligible remuneration paid, up to $847 per week
  • the lesser of:
    •  the amount of eligible remuneration paid 
    • 75% of the employee's pre-crisis weekly remuneration (“baseline remuneration”) (i.e. average weekly remuneration paid from January 1 to March 15, 2020, excluding periods of seven or more consecutive days for which the employee was not remunerated), and
    • $847 

The subsidy for a non-arm’s length employee for each week of the qualifying period will be limited to the eligible remuneration paid between March 15 and June 6, 2020, and the lesser of: 

  • $847 per week, and
  • 75% of the employee's baseline remuneration

“Eligible remuneration” includes salary, wages, and other remuneration that are generally subject to withholding, but excludes severance pay or other retiring allowances and stock option benefits.

The CEWS does not cap the number of employees per eligible entity that may qualify for the subsidy, but the subsidy for an employee who is employed by two or more eligible entities that do not deal with each other at arm’s length must be shared by those entities. Although the government has stated that it expects employers to use “best efforts” to continue to pay their employees at least their full baseline remuneration (i.e. to “top up” amounts covered by the subsidy), the legislation has no such requirement.

The subsidy is considered government assistance and is included in the qualifying entity’s taxable income for the year that includes the end of the qualifying period to which it relates. The subsidy will also reduce the amount of remuneration expenses eligible for other federal tax credits related to the same remuneration.

What is the refund for certain payroll contributions

A 100% refund will be available for employer-paid contributions to Employment Insurance (EI), the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan for eligible employees that are on paid leave for the entire week and for which the qualifying entity is eligible to claim the CEWS. 

Employers are required to: 

  • continue to collect and remit employer and employee contributions, and 
  • apply for the refund at the same time that they apply for the CEWS

What are the anti-avoidance rules and penalties for non-compliance

Amounts received under the CEWS program must be repaid if it is later determined that the employer is not eligible for the program or to the extent that the amount claimed exceeded the employer’s entitlement. 

Penalties (including fines or imprisonment) may apply for employers who file fraudulent or grossly negligent claims. As well, anti‑avoidance rules have been provided to prevent manipulation of the CEWS computation. Employers (or other non-arm’s length parties) that engage in transactions or take actions (or fail to take actions) that reduce revenues, if it is reasonable to conclude that one of the main purposes was to cause the employer to qualify for the CEWS for a period, will be subject to a penalty equal to 25% of the amount of the subsidy claimed for that period, in addition to repaying the full subsidy that was improperly claimed.

Eligible remuneration will exclude amounts received by an employee that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever, to the employer or other non-arm’s length parties (or others at the direction of the employer). In addition, eligible remuneration will exclude amounts paid for a week as part of an arrangement between the employee and employer if:

  • the amount exceeds the employee’s baseline remuneration
  • it is reasonably expected that the employee’s pay will later be reduced below that baseline remuneration, and 
  • one of the main purposes for the arrangement is to increase the CEWS 

How to apply for the CEWS

Employers that are eligible for the CEWS will be able to apply through the CRA's My Business Account portal, as well as a web-based application. Employers must apply for each period that they are eligible. Employers cannot apply now, but more details about the application process will be available soon.

How the CEWS interacts with other government COVID-19 economic measures

10% Temporary Wage Subsidy (TWS) program –The TWS is a 10% wage subsidy available on remuneration paid from March 18 to June 19, 2020 (see below for more details). Amounts claimed under this 10% wage subsidy will reduce amounts available under the CEWS. 

Canada Emergency Response Benefit (CERB) – The CERB provides a taxable benefit of $2,000 a month for up to four months for workers, small business owners and entrepreneurs who are not receiving a pay cheque as a result of COVID‑19. A process may be established to allow individuals rehired by their employer during the same eligibility period as the CEWS, to cancel their CERB claim and repay that amount.

EI work-sharing program – This program allows employers to schedule reduced work weeks for their employees, who can then access EI for an income supplement. The maximum duration of this program was extended from 38 weeks to 76 weeks. EI benefits received by employees through this work-sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

10% Temporary Wage Subsidy (TWS) program 

Organizations that do not qualify for the CEWS may still qualify for the TWS program, a 10% wage subsidy available on remuneration paid from March 18 to June 19, 2020, of up to $1,375 for each eligible employee to a maximum of $25,000 per employer.

Eligible employers include Canadian-controlled private corporations (CCPCs), individuals (excluding trusts), registered charities, partnerships consisting of eligible employers and NPOs.1 A CCPC is eligible only if it was also eligible for the small business deduction in the preceding taxation year. An eligible employer must also have an existing business number and payroll program account with the CRA on March 18, 2020, and pay salary, wages, bonuses, or other remuneration to an eligible employee.

Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.

Employers do not need to apply for the TWS. Instead, employers will calculate the subsidy that they are eligible for and reduce their current payroll remittance of federal, provincial, or territorial income tax that they send to the CRA by the amount of the subsidy. The reductions can begin on the first remittance period that includes remuneration paid from March 18, 2020 to June 19, 2020. Amounts claimed under the TWS reduce amounts available under the CEWS.

The takeaway

The CEWS will benefit many businesses and organizations that have been negatively impacted by the COVID-19 pandemic. The enacted legislation addresses many concerns that had been raised by the business community regarding the administration of the program, including the application of the revenue reduction requirement for corporate groups and businesses with uneven cash flows. However, further guidance is still required from the CRA on many items, including the “qualifying revenue” computation rules. The legislation also permits the federal government to extend the CEWS program for additional periods up to September 30, 2020, and to change the required revenue reduction and subsidy amount during these additional periods.

For important post-publication changes to the CEWS program, as well as for other government economic response measures, see our Government economic response to COVID-19 updates. 


1. A non-profit organization that is exempt from income tax pursuant to paragraph 149(1)(l) of the Income Tax Act (Canada).


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