Written by Jaspreet Kaur, Anu Nijhawan, Jordan Fremont and Carl Cunningham
Update: On July 27, 2020, Bill C-20, An Act respecting further COVID-19 measures, received Royal Asset. It enacts the legislative proposals described below, without amendment.
On July 17, 2020, in response to public consultations, the Department of Finance, introduced draft legislative proposals which, if implemented, would extend the Canada Emergency Wage Subsidy (CEWS) to December 19, 2020, and significantly redesign the program.
Of particular note, under the proposed amendments, effective July 5, the CEWS would be redesigned to include two components:
- a scaled base subsidy available to all employers who experience any decline in monthly revenues; and
- a scaled top-up subsidy available to employers who experience a three-month average revenue drop of more than 50 percent.
The maximum wage subsidy would be available where an employer experiences a more than 50 percent drop in monthly revenues combined with a 70 percent drop in three-month average revenues—in such a case, the subsidy would initially be 85 percent of an employee's remuneration up to a maximum weekly benefit of $960, but this maximum weekly benefit amount would gradually reduce over several four week periods.
The updated estimated costs for the redesigned CEWS are $83.6 billion.
Notably, since the original CEWS legislation did not contemplate any extension beyond September 30, new legislation is required to implement the changes. The Liberal government has notified opposition parties of its intent to recall the House of Commons on July 20 to pass these and other measures.
Key Elements of the Redesigned Program
If the draft proposals are implemented, the most significant CEWS changes would be as follows:
- Allowing a further extension: The CEWS program would be further extended from August 29, 2020, to December 19, 2020, with proposed program details provided until November 21, 2020. The deadline for applications would be extended until January 31, 2021.
- Elimination of revenue drop test for the "base subsidy": In response to comments that the existing all-or-nothing 30% revenue decline test is not appropriate as the economy reopens but activity remains lower than normal for some businesses, the CEWS would be restructured to include a base subsidy for periods commencing July 5, 2020, available to all eligible employers that experience any decline in revenues, with the subsidy amount varying depending on the scale of revenue decline. This base subsidy would be at a specified rate of the reduction in an eligible employer's monthly revenues, applied to the amount of remuneration paid to the employee for the eligibility period, to an initial maximum of $677 per week on remuneration of up to $1,129 per week.
As summarized in the Department of Finance table below, the maximum base subsidy would be provided to employers with a revenue drop of 50 percent or more, but employers with a lower revenue drop would still qualify for a lower subsidy.
|Period||July 5–August 1||August 2–August 29||August 30–September 26||September 27–October 24||October 25–November 21|
|Max. weekly benefit per employee||Up to $677||Up to $677||Up to $565||Up to $452||Up to $226|
|Revenue drop 50% and over||60%||60%||50%||40%||20%|
|Revenue drop 0% to 49%||1.2x revenue drop||1.2x revenue drop||1.0x revenue drop||0.8x revenue drop||0.4x revenue drop|
By way of example, an employer with a 20 percent revenue drop applicable to the July 5–August 1 period would be entitled to 24 percent subsidy, whereas an employer with a 50 percent revenue drop for the same period would be entitled to a 60 percent subsidy.
- Introduction of a "top-up subsidy": In addition to the base subsidy amount, effective July 5, 2020, the CEWS would also include a top-up subsidy, up to a maximum (including the base subsidy) of 85 percent, up to $960 per employee. The top-up subsidy of up to 25 percent is intended to be available to the employers most adversely affected by the pandemic, being those employers who experience a three-month average revenue drop of more than 50 percent. Such employers would be entitled to a top-up subsidy up to a maximum top-up CEWS rate of 25 percent (which is attained at the 70 percent revenue drop decline).
The interaction of the base subsidy and the top-up subsidy is complex, requiring eligible employers to undertake numerous calculations. As an example, such interaction for the July 5–August 1 and August 2–August 29 periods is summarized in the Department of Finance table below:
Revenue drop in three-month reference period
Revenue drop in one-month reference period
|70% or more||50%–69%||0%–49%|
|50% or more||85% total subsidy: 60% base CEWS plus 25% top-up||72.5% total subsidy: 60% base CEWS plus 12.5% top-up||60% total subsidy: 60% base and no top-up|
|0%–49%||1.2x revenue drop||1.2x revenue drop + 1.25x three-month revenue drop over 50%||1.2x revenue drop|
|No revenue drop||25%: no base CEWS and 25% top-up||1.25x three-month drop over 50%||Nil|
- Safe harbour for July and August: To protect employers who have already made business decisions for July and August, and consistent with a general Parliamentary goal of avoiding retroactive legislation, the proposed changes include a safe harbour, whereunder, for July and August, employers would be entitled to the higher of the CEWS rates under the new proposals or the CEWS rates available under the previous regime.
- Furloughed Employees: The draft legislation also contains changes to the subsidy calculation for furloughed employees commencing August 30 to better align with the benefits provided under the Canadian Emergency Response Benefit and/or Employment Insurance. The employer portion of contributions in respect of the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan, and the Quebec Parental Insurance Plan in respect of furloughed employees would continue to be refunded to the employer.
Other Technical Changes
The draft legislative proposals also includes additional technical amendments to the CEWS, in addition to those earlier announced and summarized in our previous blog post. These technical changes include:
- The removal of the exclusion of eligible employees those employees that are without remuneration for 14 or more consecutive days, effective July 5, 2020.
- Providing an appeal process based on the existing procedure for notices of determination that allows for an appeal to the Tax Court of Canada.
- Providing continuity rules for the calculation of an employer’s drop in revenues in certain circumstances where the employer purchased all or substantially all the assets used in carrying on business by the seller.
- Allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue.
- Allowing entities that use the cash method of accounting to elect to use accrual based accounting to compute their revenues for the purpose of the CEWS.
Adapting the CEWS for the gradual reopening of Canada's economy is a welcome development for the business community. That said, the complexity of the proposed amended regime cannot be over-emphasized. For example, the base subsidy would continue to rely on the month-over-month revenue test, whereas the top-up subsidy would require employers to determine their three-month drop in revenue. There remain many areas of calculation and other uncertainty and significant penalties can apply where an employer receives the CEWS but is ultimately found not to be eligible. Employers are urged to consult with their advisors in determining their eligibility for the CEWS, understanding how much they may receive, and preparing for any review by the CRA.
The Bennett Jones Employment Services, Tax and Public Policy groups continue to monitor CEWS developments closely and will continue to collaborate with employers, government and other national and local organizations to understand the implications of these proposed changes. We would be pleased to assist you as you look to identify and implement strategies in connection with your evaluation of the CEWS. In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.