Author’s Note: The legislation reviewed below is now in force, having passed and received Royal Assent on July 27, 2020.
On July 17, the Canadian Government released draft legislation with proposals to amend the Income Tax Act rules governing the Canada Emergency Wage Subsidy (“CEWS”). These amendments include an extension of the CEWS until December 19, 2020, as well as other modifications to the qualifying criteria based on a consultation period. Significantly, the changes include eliminating the 30% revenue decline threshold for employers so that employers with any decline in revenue may qualify for the CEWS based on a sliding scale. For reference, please see our earlier communiqué, “Canada Emergency Wage Subsidy: As enacted, extended and proposed to be amended”, which contains a detailed overview of the CEWS as enacted on April 14, 2020 and then amended on May 15, 2020.
The changes to the CEWS are complex. Various examples and tables summarizing the changes are included in the Government’s backgrounder, “Adapting the Canada Emergency Wage Subsidy to Protect Jobs and Promote Growth”, released with the draft legislation. Generally, the purpose of these changes is to provide for a gradual reduction of the CEWS rates for business as their revenues increase over the program periods, while also providing additional and continued support to the most severely impacted industries whose recovery will be slower. Some of the key changes are summarized as follows:
- For the period starting July 5, 2020, the required 30% reduction in an employer’s revenue to qualify for the CEWS is eliminated. This means that qualifying employers who have experienced any decline in revenue are eligible for the CEWS on a pro-rated basis to help their payroll costs.
- The CEWS is also extended to December 19, 2020, though only details for the periods from July 5 through November 21 are known at this point (Periods 5 through 9 of the CEWS). Each period continues to be four weeks in duration.
- Over the periods beginning July 5, the available CEWS will decline in stages until the CEWS concludes in December, allowing for a gradual reduction in the CEWS for employers rather than a sudden stop.
- The level of CEWS available for an employer will depend on the actual revenue decline and the relevant period in which the decline occurs. The CEWS is further subdivided now to provide a “base CEWS” for most employers and a “top-up CEWS” for employers with particularly significant revenue declines.
- For the base CEWS rate, employers who have a revenue decline that is:
- more than 50% in Period 5 (July 5 to August 1), will be eligible for a base CEWS rate of 60% of an employee’s eligible remuneration, up to a maximum of $677 per week. By Period 9 (October 25 to November 21), the base CEWS will decrease to 20% of an employee’s eligible remuneration, up to a maximum of $226 per week;
- between 0 and 49% in Period 5 will be eligible for a base CEWS rate that is based on a formula of 1.2 times the revenue decline. If the revenue decline is 20%, the base CEWS rate will be 24% (1.2 x 20%) of an employee’s eligible remuneration. By Period 9, the formula will decrease to 0.4 times the revenue decline, so the 20% revenue decline will result in a base CEWS rate of 8% of an employee’s eligible remuneration.
- The top-up CEWS rate is in addition to the base CEWS rate and is available for employers who have experienced a three-month average revenue decline of more than 50%. The top-up CEWS rate varies depending on the amount of the revenue decline. At the high end, employers with a revenue decline of 70% or more will be eligible for a top-up CEWS rate of 25% of an employee’s weekly eligible remuneration while an employer with a 55% decline will be eligible for a 6.25% top-up CEWS rate.
- Employers qualifying for the base CEWS rate and the top-up CEWS rate in Period 5 will therefore be eligible to receive an overall CEWS rate of 85% of an employee’s eligible remuneration, up to a maximum of $960 per week. By Period 9, the overall CEWS rate will decrease to 45%.
- The CEWS changes also include a “safe harbour” by which an employer with a revenue decline of 30% or more in Periods 5 and 6 will receive at least a 75% CEWS rate like the employer would have under the rules for Periods 1 through 4 (covering March 15 to July 4).
- The CEWS rate for temporarily laid off (furloughed) employees will remain the same in Periods 5 and 6 but will then be adjusted to align with benefits provided under the Canada Emergency Response Benefit and/or Employment Insurance.
- The definition of an employee’s eligible remuneration for CEWS remains the same (i.e., it would include salary, wages, and other remuneration). The maximum eligible weekly remuneration for an employee is $1,129 for the purposes of applying the CEWS rate.
- For calculating an employer’s revenues and the revenue decline for the base CEWS rate, employers may continue to use the approach in Period 5 that they used for Periods 1 through 4, thereby enabling an employer to automatically qualify for subsequent periods based on a continuation of the rules in Period 1 through 4. However, once an employer chooses to use an approach to calculate revenues in Period 5 for the base CEWS rate, it must use that approach for the balance of the remaining periods. As in Periods 1 through 4, for Periods 5 through 9 an employer can use the greater revenue decline as between the relevant current period and the prior period.
The Government’s backgrounder, “Adapting the Canada Emergency Wage Subsidy to Protect Jobs and Promote Growth”, contains further information and detailed tables outlining the CEWS rates available for employers in Periods 5 to 9.
It is anticipated that the legislation will be passed and in force this week.
Please do not hesitate to contact us if you have any questions regarding the CEWS.