Tax Insights: COVID-19 emergency business supports extended to September 2021 and new Canada Recovery Hiring Program provides more support

Issue 2021-10

In brief

On April 19, 2021, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented the federal government’s budget. The budget:

• extends the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) and the Lockdown Support programs to September 25, 2021

• proposes a clawback that may require publicly-listed corporations to repay CEWS amounts received for a qualifying period that begins after June 5, 2021, if compensation paid to certain executives in 2021 exceeds the compensation paid in 2019 

• introduces a business support benefit, the Canada Recovery Hiring Program (CRHP)

This Tax Insights discusses these and other changes to the CEWS and CERS and the new CRHP. For other tax initiatives proposed in the budget, see our Tax Insights “2021 Federal budget: From pandemic to recovery”.

In detail

Canada Emergency Wage Subsidy (CEWS)

The CEWS program was set to end on June 5, 2021. The budget proposes to extend the CEWS to September 25, 2021, and give the government legislative authority to further extend the program, if required, by two additional 4-week periods until November 20, 2021. 

Subsidy rates for active employees

The CEWS rate structure for active employees that has applied since period 11 (December 20, 2020 to January 16, 2021) will remain in effect for period 17 (June 6 to July 3, 2021). However, starting with period 18 (July 4 to July 31, 2021):

• the base and top-up subsidy rates will gradually decrease

• employers with a revenue drop percentage of 10% or less will no longer be eligible for the CEWS

The CEWS rate structure for periods 17 to 20 is summarized in Table 1 below. 

Table 1 - CEWS rate structure that applies for periods 17 to 20 for active employees¹

1. Different calculations apply to furloughed employees.
2. The maximum weekly CEWS per active employee is equal to the maximum CEWS rate (see note 3) applied to the maximum eligible remuneration paid of $1,129 to the employee (e.g. for period 18, maximum CEWS is $677 per week per active employee [maximum CEWS rate of 60% x maximum $1,129 of eligible remuneration paid]). 
3. The maximum CEWS rate, which is available when the revenue drop % is 70% or more, consists of a maximum base CEWS rate and a maximum top-up CEWS rate (as noted in the table). 

Subsidy for furloughed employees

The subsidy rate structure for furloughed employees that has applied since period 11 will continue to apply in periods 18 and 19 (July 4 to August 28, 2021). Starting with period 20 (August 29 to September 25, 2021) employers can no longer claim the CEWS on regular remuneration paid to furloughed employees, but can continue to claim Canada Pension Plan and Employment Insurance contributions paid in respect of these employees.

Reference periods for drop-in-revenue test

Employers will continue to use for periods 17 to 20:

• the general (year-over-year revenue) approach, or

• the alternative (2021 as compared to the average of January and February 2020 revenues) approach

However, they must use the same approach for periods 17 to 20 that they had chosen to use in a previous CEWS claim that was filed for any of periods 5 through 16.

The reference periods for the drop-in-revenue test for periods 17 to 20 are summarized in the table in the Appendix. 

Baseline remuneration

Baseline remuneration continues to be calculated generally in the same manner as for previous qualifying periods. For periods 17 and onward, an eligible employer may use either the baseline remuneration period of January 1, 2020 to March 15, 2020, or one of the following alternative periods:

• for period 17, March 1, 2019 to June 30, 2019, or July 1, 2019 to December 31, 2019

• after period 17, July 1 to December 31, 2019

Clawback of CEWS

Employers that are public corporations will be required to repay a part of their wage subsidy claims for a qualifying period that begins after June 5, 2021, to the extent the compensation paid to certain executives (referred to as “executive remuneration”) in 2021 exceeds that paid in 2019. The clawback applies to a corporation with publicly listed shares or to an entity controlled by such a corporation. 

“Executive remuneration”

An employer’s “executive remuneration”:

• for an employer required to file a Statement of Executive Compensation (under National Instrument 51-102), is the compensation reported as being paid to its “Named Executive Officers,” namely the CEO, the CFO and each of the three most highly compensated officers

• for an employer that is not required to file a Statement of Executive Compensation, but is required to make a similar disclosure under the laws of another jurisdiction, is the compensation reported as being paid to the five highest-paid individuals in the disclosure

• in any other case, is the compensation that would have been reported in its Statement of Executive Compensation, if it were required to file one

A corporation’s executive remuneration for a calendar year will be calculated by prorating the aggregate compensation for each taxation year that overlaps with the calendar year.

Calculating the amount to be repaid

The amount of the wage subsidy required to be repaid will equal the lesser of:

• the total of all wage subsidy amounts received in respect of active employees for qualifying periods that begin after June 5, 2021, and

• the amount by which the corporation’s “executive remuneration” for the 2021 calendar year exceeds its “executive remuneration” for the 2019 calendar year

A group consisting of a publicly listed corporation and its controlled subsidiaries may elect to allocate the amount of excess executive remuneration (arising from any of its entities) that must be repaid among the members of the group.

Canada Emergency Rent Subsidy (CERS)

The budget also proposes to extend the CERS and Lockdown Support programs until September 25, 2021, and give the government legislative authority to further extend them to November 20, 2021. The reference periods for the drop-in-revenue test to be used for the CERS for periods 17 to 20 are the same as those for the CEWS (see above) and are summarized in the table in the Appendix.

Subsidy rates

The CERS base rate structure that has applied since the start of the program will remain in effect for period 17 (June 6 to July 3, 2021). However, starting with period 18 (July 4 to July 31, 2021):

• the base subsidy rate will gradually decrease

• entities with a revenue drop percentage of 10% or less will no longer be eligible for the base CERS

The Lockdown Support subsidy will remain at 25% for eligible entities through the end of the CERS program.

The CERS and lockdown support rate structure for periods 17 to 20 is summarized in Table 2 below.

Table 2 - CERS and Lockdown Support rate structure that applies for periods 17 to 20

1. The maximum expense to which the CERS base rate can apply is $75,000 per location, subject to an overall cap of $300,000 that must be shared among affiliated entities.
2. The maximum total rent subsidy consists of the maximum CERS rate and the Lockdown Support subsidy rate of 25% for a qualifying property. The 25% Lockdown Support subsidy rate is prorated based on the number of days in the claim period that the qualifying property was subject to a “public health restriction.” The percentage is determined separately for each qualifying property. The maximum expense to which the Lockdown Support subsidy rate can apply is $75,000 per location, with no overall cap. 

Purchase of business assets

For CEWS purposes, an entity is deemed to meet the eligibility requirement of having a business number (or of having a payroll provider that itself has a business number) on March 15, 2020, if that entity purchases certain assets from a seller that meets this requirement. The budget proposes to extend this deeming rule to also apply to entities claiming the CERS.

Canada Recovery Hiring Program (CRHP)

The budget introduces the CRHP to provide eligible employers with a subsidy of up to 50% on the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021 (periods 17 to 22), as compared to the base period remuneration paid from March 14, 2021 to April 10, 2021.

An eligible employer may claim the CRHP or the CEWS for a particular qualifying period, but not both.

Eligibility

A “qualifying recovery entity” (a new term introduced by the budget) is eligible to claim the CRHP. A qualifying recovery entity is generally an “eligible entity” (i.e. an entity eligible for the CEWS) with the following modifications:

• a corporation (other than a corporation exempt from Part I tax) is only eligible if it is a Canadian-controlled private corporation (CCPC), including a cooperative corporation eligible for the small business deduction

• a partnership is only eligible if less than 50% of its interests (by fair market value) are owned by:

  • any person or partnership that is not an eligible entity, or 

  • a corporation other than a CCPC,

• the entity must exceed the revenue drop percentage threshold for the CRHP, which is:

  • 0% for the first period (corresponding to period 17 of the CEWS), and 

  • 10% for subsequent periods

(the revenue drop percentage is calculated in the same manner as under the CEWS; the reference periods for the drop-in-revenue test to be used for the CRHP for periods 17 to 22 are summarized in the table in the Appendix)

Subsidy rate

If an entity is a “qualifying recovery entity,” it is entitled to a fixed subsidy rate under the CRHP as noted in Table 3 below.

Table 3 - CRHP rates that apply for periods 17 to 22

Incremental remuneration

The CRHP subsidy amount for periods 17 to 22 is equal to the subsidy rate times the employer’s incremental remuneration. The incremental remuneration for each qualifying period is equal to the difference between the “eligible remuneration” paid in respect of the qualifying period and the eligible remuneration paid in respect of the base period of March 14, 2021 to April 10, 2021.

The definition of “eligible remuneration” is the same as for the CEWS and generally includes salary, wages and cash benefits paid to an employee. For CRHP purposes, the eligible remuneration for a single employee is limited to $1,129 per week and the eligible remuneration for an employee who does not deal at arm’s length with the employer is limited to that employee’s baseline remuneration. Amounts paid to a furloughed employee are not included in the CRHP calculation.

The takeaway

The extension of the CEWS and CERS programs to September 2021 is a helpful development for companies who are trying to retain employees and manage operational costs. Many Canadians are hoping the government is correct in its apparent forecast that pandemic relief will not be required as of Fall 2021. The new hiring subsidy should also help spur a return to broader employment for employers and employees who have been impacted by the pandemic. 

Appendix

Reference periods for drop-in-revenues test for CEWS, CERS and CRHP

1. An eligible entity or employer must use the same approach (either general or alternative) to determine the revenue drop percentage for all three programs (CEWS, CERS and CRHP) and continue using the same approach for periods 17 to 20 (or for the CRHP, to period 22) as it had chosen to use in the previous period.   

2. At the date of publication, the CEWS and CERS are not available for periods 21 and 22.