COVID-19 pandemic economic measures for businesses

26 mars 2020 | Manjit Singh, Jessica Stuart

( Disponible en anglais seulement )

The federal government recently announced a new set of economic measures to help stabilize the economy during the COVID-19 pandemic. Outlined below are measures implemented by the federal government, along with expanded existing programs, that are designed to assist small businesses facing financial challenges during the pandemic. Please be reminded that these programs are constantly evolving and it is necessary to receive professional advice to ensure you are aprised of the most current program specifics.

Changes to Work–Sharing Program

This program is designed to help employers and employees avoid layoffs when there is a temporary reduction (of at least 10%) in the normal level of business activity that is beyond the control of the employer. This measure provides income support to employees eligible for Employment Insurance (“EI”) benefits who work a temporarily reduced work week while their employer recovers. This program entails having a group of employees with similar job duties all agree to reduce their hours by the same percentage, between 10% and 60% of regular hours worked. The federal government introduced temporary special measures that extend the maximum duration of work-sharing agreements from 38 weeks to 76 weeks across Canada for those businesses affected by the downturn in business due to COVID-19.

Canada Emergency Wage Subsidy Program (“CEWS”)

Details of this program were announced by the federal government over the course of several news releases (March 25, 2020, March 30, 2020 and April 1, 2020).  The program is still subject to approval by parliament and further details are expected to be forthcoming.  Generally, CEWS is a wage subsidy that will take the form of a payment by the government to eligible employers to subsidize 75% of the remuneration paid to its employees for the period between March 15 and June 6, 2020.  Key details, as proposed, are summarized below.

Eligible Employers:

Eligible employers will include individuals, taxable corporations, partnerships consisting of eligible employers, non‑profit organizations and registered charities.  Public bodies (municipalities, local governments, Crown corporations, public universities, colleges, schools and hospitals) are not eligible for the CEWS.  Eligibility also requires employers to attest to a decline of at least 30% of revenues.

Measurement of the 30% Revenue Decline

The 30% revenue decline is measured for each period in respect of which the subsidy may be claimed, as follows:  

  • Claim Period 1 (March 15 to April 11) – revenues for March 2020 are compared with those for March 2019;
  • Claim Period 2 (April 12 to May 9) – revenues for April 2020 are compared with those for April 2019; and
  • Claim Period 3 (May 10 to June 6) – revenues for May 2020 are compared with those for May 2019.

For employers established after February 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark.  There remains uncertainty as to how such a benchmark will be ascertained.

Definition of Revenues

For the purposes of determining eligibility, “revenue” is based on the employer’s revenue from its business carried on in Canada earned from arm’s-length sources.  Revenue will be computed using the employer’s normal accounting method, excluding revenues from extraordinary items and amounts on account of capital.  Further clarity is expected on how revenues will be determined for non-profit organizations and charities and the government is working with this sector to ensure an appropriate definition is adopted.

Computing the Quantum of the Subsidy

The subsidy amount available to an eligible employer is not subject to an overall limit, nor is there a limit on how many employees of an employer may participate in the program.  However, for each employee, the CEWS in respect of eligible remuneration paid to such employee between March 15 and June 6, 2020 is limited to the greater of:

(i) 75% of the amount of eligible remuneration paid, up to a maximum benefit of $847 per week; and

(ii) the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less.  (This limit will apply to employees that do not deal at arm’s length with the employer)

  • Further guidance is expected with respect to how pre-crisis weekly remuneration will be defined.
  • Eligible remuneration may include salary, wages, and other remuneration. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. Excluded amounts include severance pay, stock option benefits or personal use of a corporate vehicle.
  • The program is designed to provide employers a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries for existing employees. Employers are expected to make their best effort to top-up employees’ salaries to bring them to pre-crisis levels. Although the government expects that employers will make their best effort to top up employees’ salaries to bring them to pre-crisis levels, the Minister of Finance has indicated that there may be flexibility where employers are unable to do so.
  • Employers will also be eligible for a subsidy of up to 75% of salaries and wages paid to new employees, and are encouraged to rehire employees who were previously laid off as a result of the pandemic.
  • A special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration.

Interaction with the 10% Wage Subsidy

Organizations that do not qualify for the CEWS may continue to qualify for the previously announced wage subsidy of 10% of remuneration paid from March 18 to before June 20, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. For employers that are eligible for both the CEWS and the 10% subsidy, the latter subsidy will reduce the amount available to be claimed under the CEWS for the same period.

Application Progress

Applications for the CEWS can be made through the CRA My Business Account portal as well as through a web-based application. Employers are encouraged to set up a direct deposit on the portal for the CEWS, so that they can receive the subsidy efficiently. Employers are expected to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.

Interaction with CERB

An employer is not eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the CERB.

Taxable Inclusion to Employers

The CEWS (and the 10% wage subsidy) received by an employer is considered government assistance and is required to be included in the employer’s income (i.e., under paragraph 12(1)(a) of the Income Tax Act). Such assistance would also impact the quantum of remuneration expenses eligible for other federal tax credits (e.g., scientific research and experimental development).  Notwithstanding that the subsidy is taxed as income to the employer, the tax burden will not be realized until the eligible employer’s tax filing deadline. For example, taxes on the subsidy amount will not be due until March 31, 2021 for CCPCs with a December 31, 2020 year-end.  In Ontario, the tax rate will be 12.2% for businesses that qualify for the small business deduction and 26.5% for those that do not.

Compliance and Program Integrity

It is expected that the integrity of the CEWS program is expected to be maintained by requiring repayment of the subsidies if eligibility requirements are not met, or if the amounts received from the government are not used to pay employees. Strict penalties and new offences are expected to be introduced to deter fraudulent claims, falsification of information to access the CEWS and misuse of the program.

Unanswered Questions

Based on the program details released to date, unresolved questions (which will hopefully be clarified in the legislation when released) include the following:

  • It appears that employers who are in the business of providing intercompany services (e.g., asset management, head office functions, property management or other services) and earn only management service fees, dividends or property income from related parties would not qualify for the CEWS, regardless of the number of employees they may employ and the shortfalls in cash flow the employer may face to meet payroll funding requirements.
  • It is not clear whether the phrase “business carried on in Canada” (i.e., measure of revenues to determine eligibility of the CEWS) will be defined based on common law, or some narrower basis for the purposes of the CEWS. To the extent that an employer also earns revenues from carrying on business in another country (even without a permanent establishment in such country), such revenue might be carved out of “revenues earned from business carried on in Canada” for the purposes of the CEWS.  It is not yet clear what level of activity outside of Canada results in an exclusion from “business carried on in Canada.”  Equally unclear is how an employer is to compare 2019 revenues to 2020 revenues if the manner in which the business is carried on inside and outside of Canada has changed since 2019.
  • Since the program appears not to be restricted to Canadian resident employers, the CEWS may be available to non-resident companies that have Canadian resident employees, provided that their revenues from carrying on business in Canada have also declined by 30%.
  • Although the requirements to follow normal accounting methods may ensure consistency in the determination of revenue, differences between accounting revenue recognition principles and income recognition principles for tax purposes may give rise to disqualification depending on the nature of the industry and type of receipts at issue. For example, payments received in advance of rendering a service or sale of goods may, for accounting purposes, be considered a liability (i.e., unearned revenue) notwithstanding that such amounts are treated as revenues for tax purposes (subject to reserve eligibility).
  • For professional services, presumably revenues only refer to “billed” or “invoiced” amounts, which may be different from the amounts that are actually collected on such invoices. In an uncertain economic environment, predicting the amount of realizable cash revenue is uncertain. Moreover, the timing of when a company issues invoices and bills is subject to an element of discretion and judgment.
  • It appears that the revenue decline is measured based on the aggregate of business revenue from business carried on in Canada by the employer, without regard to whether an employer may be carrying on separate businesses each of which are impacted differently during the pandemic.  In circumstances where one business is severely impacted during the claim period, while another only moderately so, it is possible that the employer may not qualify for the CEWS at all, regardless of the fact that the severely impacted business may employ the vast majority of the employees and incur the largest payroll costs.
  • Based on the subsidy limits, subject to the $847 per week limit, it appears that while the CEWS for non-arm’s length employees cannot be greater than 75% of pre-crisis remuneration, for arm’s length employees the CEWS may be up to 75% of current remuneration even if that is greater than pre-crisis remuneration (e.g., various grocery store employees whose salaries were increased to cope with pandemic demands).

Canadian Emergency Business Account (CEBA) Program:

This program will provide interest-free loans of up to $40,000 to small businesses and not-for-profits to help cover their operating costs during a period where their revenues have been temporarily reduced.  It appears that registered charities are excluded.  Generally, to qualify, an organization will need to demonstrate that it paid between $50,000 and $1 million in total payroll in 2019.  Although the criteria for the CEBA loans are being negotiated between financial institutions and the Minister of Finance, various details as they are settled are being communicated on various websites for the financial institutions.  This program is expected to be available by mid-April, and interested businesses are expected to work with their primary financial institutions to verify eligibility.  Some of the eligibility criteria include:

  • The organization has a business account with its primary financial institution that was opened prior to March 1, 2020.
  • The organization has a registered and operational business on or before March 1, 2020.
  • The applicant for the CEBA has the ability and authority to bind the organization.
  • Payroll expense of the organization is between $50,000 and $1 million, and the following information is provided: (i) the employer account number; (ii) employment income reported in Box 14 of the 2019 T4 Summary of Remuneration Paid; and (iii) a copy of the organization’s 2019 T4 Summary of Remuneration Paid (if requested).
  • The loaned funds may only be used to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance, debt payments and property tax.
  • The expectation is that the $40,000 loan is interest-free. $10,000, which is 25% of the loan, is eligible for complete forgiveness if $30,000 is fully repaid on or before December 31, 2022. Unpaid amounts remaining after this date may be converted into term loans or credit lines, the availability and terms of which vary across financial institutions.

Loan Guarantee for Small and Medium-Sized Enterprises

Export Development Canada (“EDC”) will provide funding to financial institutions so that they can issue new operating credit and cash flow term loans of up to $6.25 million each to small and medium-sized businesses. These loans will be 80% guaranteed by EDC, to be repaid within one year.

Co-Lending Program for Small and Medium-Sized Enterprises

The Business Development Bank of Canada (“BDC”) will work alongside financial institutions to co-lend term loans of up to $6.25 million each to small and medium-sized businesses. 80% of these loans will be provided by the BDC, with the remaining 20% by a financial institution.

New Tax Filing and Payment Flexibility

The federal government has deferred a number of tax filing and payment deadlines as follows:

  • Corporations – Corporations that would otherwise have a filing due date after March 18 and before June 1, 2020, have a deferred filing due date of June 1, 2020. Corporations may also defer the payment of any income tax amounts (tax balances, instalment) that become owing on or after March 18, 2020 and before September 1, 2020, until September 1, 2020 without interest or penalties.
  • Trusts – The due date for the trust return (including associated T3 reporting) for trusts with a year-end of December 31 is postponed to May 1, 2020. Trusts that have a filing due date in April or May have a deadline extension until June 1, 2020. Trusts may also defer the payment of any income tax amounts (tax balances, instalment) that become owing on or after March 18, 2020 and before September 1, 2020, until September 1, 2020 without interest or penalties.
  • Self-Employed Individuals – The due date for filing for self-employed persons and their spouses remains June 15, 2020. The payment deadline of any income tax amounts (tax balances, instalment) has been deferred to September 1, 2020.
  • Partnerships –  The due date for 2019 information returns (T5013) for partnerships has been extended to May 1, 2020.
  • Charities – The due date for information returns to be filed by charities (T3010), if  otherwise due between March 18, 2020 and December 31, 2020, has been extended to December 31, 2020.
  • Part XIII Returns – The due date for filing NR4 information returns has been extended to May 1, 2020, however the tax remittance continues to be due on the 15th of the each month following when an amount was paid or credited to a non-resident.
  • Payroll Remittances – No extension has been provided for payroll remittances.
  • Sales Tax – GST, HST duties and import tax amounts will be deferred until June 30, 2020.

Existing Supplemental Unemployment Benefit Plan (“SUB”)

Although the SUB has not been expanded by COVID-19 measures, it may continue to remain a useful tool for employers facing financial difficulty or who may not otherwise qualify for the wage subsidy. This plan allows an employer to top up employees’ EI benefits during a period of unemployment due to a temporary layoff for, among other things, sickness and quarantine. The weekly SUB payment plus the weekly EI benefit cannot exceed 95% of the employee’s normal weekly remuneration. Any Canadian employee can be subject to a SUB and approval from Service Canada must be obtained.


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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