The Canada Emergency Wage Subsidy: A welcome assistance for employers – a pitfall for the unprepared

May 14, 2020 | Daniel Kiselbach, MBA, Catherine (Cathie) Brayley, Thomas Ghag


Canadians have been blindsided by the COVID-19 health and economic crisis. The impact has been swift, painful, and enduring. In March 2020 alone, Canada lost a record one million jobs. In the face of this crisis, Parliament passed legislation creating the COVID-19 Economic Response Plan – an unprecedented economic assistance program.

As part of the COVID-19 Economic Response Plan, Canada earmarked $73 billon for the Canada Emergency Wage Subsidy (the “CEWS”). The CEWS was established to support employers and to protect jobs for Canadians for a 12 week period during the pandemic, from March 15 to June 6, 2020.

The goal of the CEWS is to provide eligible employers with the means to re-hire employees previously laid off as a result of COVID-19, help prevent further losses, and put them in a better position to resume operations. Generally, Canadian employers whose businesses have suffered a drop in revenues (15% in March, and 30% in April and May) may be eligible for the CEWS. For eligible employers, the CEWS covers 75% of each employee’s wages up to $847 per week. A detailed analysis into the eligibility requirements for the CEWS can be found in our April 14, 2020 Labour & Employment Communique.

The purpose of this article is to identify tips and traps for navigating the CEWS application process and for preparing for a subsequent CEWS audit.


The eligibility requirements for the CEWS are contained in the COVID-19 Emergency Response Act, No. 2 and are both detailed and complex. The Government of Canada has made it clear that abuses of the CEWS will not be tolerated.

There is exposure for substantial penalties. If an employer does not meet the CEWS eligibility requirements, they will be required to repay any amounts received as part of the program. If it is found that employers have engaged in activities to artificially reduce their revenue for the purposes of claiming the CEWS, they will be required to repay any amounts received plus a penalty equal to 25% of the total value of the CEWS received. Further, in the case of fraudulent claims, employers could face more significant penalties including fines or imprisonment. In a recent press conference, Minister of Finance, Bill Morneau, stated that if an employer is found to have deliberately abused the CEWS, penalties could reach up to 225% of the amounts received as well as up to five years in prison.

Tax advisers should also be aware that if they file or prepare a CEWS  application on behalf of an employer, and if they know, or would reasonably be expected to know, that the application contains false statements, including an omission of information, they may be subject to third-party penalties under the Income Tax Act (Canada).

Given the amount of money earmarked for the CEWS program and the speed with which the government has committed to make funds available, audits are a virtual certainty. As such, employers would be wise to meticulously document all supporting information and materials related to their application.

In a nutshell: Be prepared for a CEWS audit

The best time to prepare for a CEWS audit is when the CEWS application is made. Employers must exercise due diligence in making and documenting the basis for their applications. Due diligence can help employers avoid unwanted attention and unpleasant audit results.

If and when an audit letter is issued, the best strategy is to “act like a duck” – stay calm on the surface and paddle furiously under the surface.  Generally, the ability to quickly provide a CRA auditor with requested supporting documents, which were prepared at the time the application was made, should lead to the inference that the application was properly put together at the time that it was made.

  • Due diligence in CEWS applications may include the assembly of supporting information, documents and records and the maintenance of those documents in a manner that will ensure their easy retrieval and disclosure to a CEWS auditor. Other actions that may assist an employer in dealing with a CEWS audit include ensuring factual information is documented separately from any subjective analysis about eligibility for the CEWS. The CRA’s audit policy is to request only factual information.
  • Ensure that all supporting materials in respect of a CEWS application are well documented and organized. It is much easier for employers to have gathered the relevant supporting materials in the CEWS application itself than it is to back track and compile information years later in the context of a CRA audit. Difficulties can arise especially in the case of economic downturns where there is a turnover of staff and therefore a loss of corporate knowledge. Managers should ensure that the CEWS supporting documentation is maintained together with all other key corporate and financial reporting documentation.
  • Consider issues or transactions that may attract an auditor’s attention and prepare documentation showing that these matters have been properly analyzed. For example, if it is determined that there were non-arm’s length revenues or affiliates, set out the applicable analysis accounting for these factors.

Generally, submitting to the CRA auditor a package of documentation assembled at the time of making the CEWS application is helpful in demonstrating that the application is supported by the facts and any issues were considered and documented.

Obtain legal advice where necessary in order to deal with matters requiring a legal interpretation or explanation. Legal advice may be treated as privileged and confidential and should be marked as such and kept separately from other documents setting out the facts supporting the CEWS application. Miller Thomson LLP has a team of lawyers with decades of experience with CRA programs and audits. With local knowledge and a national bench strength, we are uniquely well-suited to help with the CEWS or any other programs under Canada’s COVID-19 Economic Response Plan.


Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.


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