Tax Insights: Redesigned Canada Emergency Wage Subsidy program provides relief to more businesses and organizations

July 20, 2020

Issue 2020-30

In brief

On July 17, 2020, the federal government released draft legislative proposals that significantly revise the Canada Emergency Wage Subsidy (CEWS) program, and confirmed that the CEWS will be extended to December 19, 2020. The government’s goal is to “adapt the CEWS to support more workers and businesses, better protect jobs and promote growth, and effectively respond as the economy continues to reopen.” 

The legislative proposals contain details of the program that will apply from July 5, 2020 to November 21, 2020 (i.e. claim periods 5 to 9). Starting July 5, 2020, the CEWS will consist of:

  • a base subsidy available to all eligible employers that experience a decline in revenues (i.e. the 30% revenue drop threshold required for claim periods 2 to 4 no longer applies), and
  • a top-up subsidy of up to an additional 25% for employers that have been most adversely affected by the COVID-19 pandemic

This Tax Insights outlines the proposed changes to the CEWS program for July 5, 2020 to November 21, 2020, and highlights other significant changes contained in the draft legislation. 

In detail

Base CEWS and top-up CEWS rates for active employees

Effective July 5, 2020, the CEWS will consist of:

  • a base CEWS amount ー available to all eligible employers that experience a decline in revenues, with the rate of the base subsidy determined based on the percentage decrease in an eligible employer’s monthly revenues (see Table 3 in the Appendix); the maximum base CEWS rate is:
    • available to employers with a revenue drop of 50% or more
    • gradually reduced from 60% in periods 5 and 6 to 20% in period 9

Employers with a revenue drop of less than 50% are eligible for a lower base CEWS rate that is gradually phased out as the revenue drop percentage declines from 50% to zero.

  • a top-up CEWS amount ー available to eligible employers that experience a revenue drop exceeding 50% when comparing i) revenues in the preceding 3 months to those in the same months of the prior year; or ii) average monthly revenue in the preceding 3 months to the average monthly revenue in January and February 2020 (see Table 3 in the Appendix); the maximum top-up CEWS rate is 25% for employers with a 3-month average revenue drop of at least 70%

The base CEWS and top-up CEWS rates apply to eligible remuneration of up to $1,129 per week for active employees (see below for CEWS rates that apply to furloughed employees).

See Table 1 in the Appendix for how to calculate the base CEWS and top-up CEWS rates for periods 5 to 9 for active employees; and Table 2 in the Appendix for examples of how to calculate the total CEWS rate for period 7 for active employees.

A “safe harbour” rule also applies for periods 5 and 6, ensuring that eligible employers with at least a 30% revenue decline percentage in those periods can continue to receive a CEWS amount for each eligible employee in those periods that is no less than would have been calculated for that employee for periods 1 to 4.

CEWS for furloughed employees

For a furloughed employee (defined as an employee on leave with pay), the CEWS calculation for:

  • periods 5 and 6 will remain the same as for periods 1 to 4, which is the greater of:
    • for an arm’s length employee, 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”), and
      • $847
  • periods 7 to 9 will be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI), to ensure equitable treatment of employees on furlough between both programs

Starting period 5, the CEWS for furloughed employees is available to eligible employers that qualify for either the base rate or the top-up for active employees in the relevant period. For these employers, their portion of contributions for Canada Pension Plan, Employment Insurance, the Quebec Pension Plan and the Quebec Parental Insurance Plan relating to furloughed employees will continue to be refunded to the employer as part of the CEWS claim.

Reference periods for the “drop-in-revenues” test

For periods 5 to 9, the reference periods used to determine the revenue decline percentages for both the base CEWS and top-up CEWS can be chosen by an eligible employer as follows:

  • a “general” approach (see option A in Table 3 in the Appendix) based on current monthly revenues compared to the same months' revenues in the prior year, or 
  • an “alternative” approach (see option B in Table 3 in the Appendix) based on current monthly revenues compared to the average of January and February 2020 revenues

An eligible employer must use the same reference period approach to determine its revenue drop percentage for periods 5 to 9, and this approach must be used for determining both the base CEWS and the top-up CEWS. Note, though, that an employer does not have to continue using the same approach that it had used previously for periods 1 to 4.

For periods 5 to 9, however, an eligible employer’s base CEWS revenue decline percentage in the current period will reflect the greater of its percentage revenue decline in the current period and that in the prior period. (This is intended to provide some certainty for employers, and is a modification of the current deeming rule that applies for periods 1 to 4, which allows an employer that meets the revenue decline test in one period to automatically qualify for the next period.)

See Table 3 in the Appendix for a guide on how to determine the applicable reference periods for the “drop-in-revenues” test.

Other legislative changes

The draft legislative proposals also implement the following:

  • Eligible remuneration ー Starting period 5, the CEWS for active employees will no longer include a factor referencing baseline remuneration, except for non-arm’s length employees; for period 4, baseline remuneration can be calculated as the average weekly remuneration paid to the employee from January 1, 2020 to March 15, 2020, from March 1, 2019 to May 31, 2019 or from March 1, 2019 to June 30, 2019; and for period 5 and subsequent periods, baseline remuneration can be calculated as the average weekly remuneration paid to the employee from January 1, 2020 to March 15, 2020 or from July 1, 2019 to December 31, 2019 (employers can select which baseline period to use on an employee-by-employee basis). (The removal of the baseline remuneration factor from the CEWS calculation for arm’s length active employees for period 5 and subsequent periods will [subject to the safe harbour rule for periods 5 and 6] prevent an eligible employer from continuing to receive a 100% subsidy for eligible remuneration of certain employees [i.e. an eligible employer with an employee who had baseline remuneration of at least $1,129 per week could have paid the employee up to $847 per week in periods 1 to 4 and received a 100% subsidy for that employee’s pay].)
  • Eligible employees ー Starting period 5, an employee who is without remuneration for 14 or more consecutive days in a period is no longer excluded from being an eligible employee for that period.
  • Qualifying revenues of a business acquired in an asset purchase ー Effective March 15, 2020, a continuity rule is provided for calculating an employer’s drop in revenues in certain situations when the employer acquired all or substantially all of the assets used in carrying on business by a seller.
  • Charities and non-profit organizations (NPOs) ー Effective March 15, 2020, certain charities and NPOs that were made eligible for the CEWS despite being “public institutions,” as announced by the Department of Finance on May 15, 2020, can choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue.
  • Technical amendments ー Effective March 15, 2020, amendments to ensure that the CEWS applies appropriately to certain situations (e.g. measures announced on May 15, 2020, for corporations formed on the amalgamation of two predecessor corporations; and eligible entities using payroll service providers).

The takeaway

The proposed redesign of the CEWS for July 5, 2020 to November 21, 2020 addresses many of the concerns raised by stakeholders during the public consultation held late May/early June. The redesigned CEWS will benefit many more businesses and organizations that have been negatively impacted by the COVID-19 pandemic by removing the 30% revenue decline threshold, allowing eligible employers that have experienced even a 1% revenue decline to qualify for a CEWS amount. The redesigned CEWS will also help businesses as they continue to grow and rehire, without the concern of a sharp drop in financial support, by allowing them to qualify for some portion of the CEWS as economic activity returns.

Appendix

Table 1 - How to calculate the base CEWS and top-up CEWS rates for periods 5 to 9 for active employees1

Period

Qualifying

period

Maximum weekly benefit per active employee

 (based on maximum CEWS rate x maximum $1,129 of eligible remuneration paid)

CEWS rate (%)

If one-month revenue drop 

(see Table 3 on how to determine revenue drop % for the base CEWS)

≥ 50%

  < 50%

52

July 5 to August 1, 2020

Base

$677

A = 60%

B = 1.2 x revenue drop %

Top-up3

$282

C = Lesser of (i) 25%, and (ii) 1.25 x (three-month revenue drop % - 50%)

Total

$960

Total CEWS rate = A + C

 (maximum 85%)

Total CEWS rate = B + C

62

August 2 to August 29, 2020

Base

$677

A = 60%

B = 1.2 x revenue drop %

Top-up3

$282

C = Lesser of (i) 25%, and (ii) 1.25 x (three-month revenue drop % - 50%)

Total

$960

Total CEWS rate = A + C 

(maximum 85%)

Total CEWS rate = B + C

7

August 30 to September 26, 2020

Base

$565

A = 50%

B = 1.0 x revenue drop %

Top-up3

$282

C = Lesser of (i) 25%, and (ii) 1.25 x (three-month revenue drop % - 50%)

Total

$847

Total CEWS rate = A + C 

(maximum 75%)

Total CEWS rate = B + C

8

September 27 to October 24, 2020

Base

$452

A = 40%

B = 0.8 x revenue drop %

Top-up3

$282

C = Lesser of (i) 25%, and (ii) 1.25 x (three-month revenue drop % - 50%)

Total

$734

Total CEWS rate = A + C

(maximum 65%)

Total CEWS rate = B + C

9

October 25 to November 21, 2020

Base

$226

A = 20%

B = 0.4 x revenue drop %

Top-up3

$282

C = Lesser of (i) 25%, and (ii) 1.25 x (three-month revenue drop % - 50%)

Total

$508

Total CEWS rate = A + C

(maximum 45%)

Total CEWS rate = B + C

  1. This table applies to active employees (different calculations apply to furloughed employees - see "CEWS for furloughed employees" above).
  2. Safe harbour rule: For periods 5 and 6, an eligible employer would be entitled to a CEWS amount not lower than the amount that they would be entitled to if their entitlement were calculated under the CEWS rules that were in place for periods 1 to 4. This means that in periods 5 and 6, an eligible employer with a revenue decline of 30% or more in the relevant reference period would receive a CEWS amount that is at least equivalent to what they would have received for periods 2 to 4 or potentially a higher CEWS amount using the new rules outlined above.
  3. Top-up CEWS applies to employers that have experienced a three-month revenue drop greater than 50% (see Table 3 on how to determine revenue drop for the top-up CEWS). Maximum top-up CEWS rate of 25% is attained when 3-month revenue drop is at least 70%.

Table 2 - Examples - How to calculate the total CEWS rate for active employees - Period 7 (August 30 to September 26, 2020)

 

Examples

1

2

3

4

5

6

Revenue drop

Base (one-month)7

60%

60%

60%

20%

20%

20%

Top-up (three-month)

80%

60%

50%

80%

60%

50%

CEWS rate

Base

50%1

50%1

50%1

20%2

20%2

20%2

Top-up 

25%3

12.5%4

0%5

25%3

12.5%4

0%5

Total

75%

62.5%

50%

45%

32.5%

20%

Maximum weekly benefit per employee6

$847

$706

$565

$508

$367

$226

  1. One-month revenue drop ≥ 50%, so base CEWS rate = 50%
  2. One-month revenue drop < 50%, so base CEWS rate = 1.0 x 20% revenue drop = 20%
  3. Three-month revenue drop > 70%, so top-up CEWS rate = 25% (maximum)
  4. Three-month revenue drop = 60%, so top-up CEWS rate = 1.25 x (60% revenue drop - 50%) = 12.5%
  5. Three-month revenue drop = 50%, so top-up CEWS rate = 1.25 x (50% revenue drop - 50%) = 0%
  6. Maximum eligible remuneration paid of $1,129 multiplied by the total CEWS rate. 
  7. Revenue drop amounts represent the greater of the revenue drop percentage for the current reference period (i.e. September 2020 compared to September 2019 or September 2020 compared to average of January 2020 and February 2020) or the prior reference period (i.e. August 2020 compared to August 2019 or August 2020 compared to average of January 2020 and February 2020).

Table 3 - Reference periods for the base CEWS and top-up CEWS drop-in-revenues test

 

Period

 

Qualifying period

Reference periods for drop-in-revenues test

 

Base CEWS

Top-up CEWS

 

July 5 to August 1, 2020

Either A) or B)1:

A) Greater of:

  • June 2020 revenue over June 2019 revenue
  • July 2020 revenue over July 2019 revenue

B) Greater of June 2020 or July 2020 revenue over average of January and February 2020 revenues

Either A) or B)1:

A) April to June 2020 average monthly revenue over April to June 2019 average monthly revenue

B) April to June 2020 average monthly revenue over January and February 2020 average monthly revenue

 

6

August 2 to August 29, 2020

Either A) or B)1:

A) Greater of:

  • July 2020 revenue over July 2019 revenue
  • August 2020 revenue over August 2019 revenue

B) Greater of July 2020 or August 2020 revenue over average of January and February 2020 revenues

Either A) or B)1:

A) May to July 2020 average monthly revenue over May to July 2019 average monthly revenue

B) May to July 2020 average monthly revenue over January and February 2020 average monthly revenue

 

7

August 30 to September 26, 2020

Either A) or B)1:

A) Greater of:

  • August 2020 revenue over August 2019 revenue
  • September 2020 revenue over September 2019 revenue

B) Greater of August 2020 or September 2020 revenue over average of January and February 2020 revenues

Either A) or B)1:

A) June to August 2020 average monthly revenue over June to August 2019 average monthly revenue

B) June to August 2020 average monthly revenue over January and February 2020 average monthly revenue

 

8

September 27 to October 24, 2020

Either A) or B)1:

A) Greater of:

  • September 2020 revenue over September 2019 revenue
  • October 2020 revenue over October 2019 revenue

B) Greater of September 2020 or October 2020 revenue over average of January and February 2020 revenues

Either A) or B)1:

A) July to September 2020 average monthly revenue over July to September 2019 average monthly revenue

B) July to September 2020 average monthly revenue over January and February 2020 average monthly revenue

 

9

October 25 to November 21, 2020

Either A) or B)1:

A) Greater of:

  • October 2020 revenue over October 2019 revenue
  • November 2020 revenue over November 2019 revenue

B) Greater of October 2020 or November 2020 revenue over average of January and February 2020 revenues

Either A) or B)1:

A) August to October 2020 average monthly revenue over August to October 2019 average monthly revenue

B) August to October 2020 average monthly revenue over January and February 2020 average monthly revenue

 

  1. An employer must use the same benchmark [either option A) month-over-month; or option B) average of January and February 2020 revenues] to determine the revenue drop percentage, for:
  • both the base CEWS and the top-up CEWS, and
  • period 5 and subsequent periods (note that an employer does not have to continue using the same benchmark that was used for periods 1 to 4)

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