Here is an FAQ released by CRA on the Federal wage subsidy:

Canada Revenue Agency

Frequently asked questions – Canada emergency wage subsidy (CEWS)

The following FAQs are intended to provide more in-depth technical information on the most commonly anticipated technical questions from businesses and tax professionals. These will be updated periodically as new questions arise. User friendly information, including a calculator has also been developed by the Canada Revenue Agency (CRA) and is now available under the Canada Emergency Wage Subsidy (CEWS).

Overview

  1. What is the Canada Emergency Wage Subsidy?

The Canada Emergency Wage Subsidy (wage subsidy) is a subsidy currently available for a period of twelve weeks (made up of three 4 week periods), from March 15, 2020 to June 6, 2020, that will provide a subsidy of 75% of eligible remuneration, paid by an eligible entity (eligible employer) that qualifies, to each eligible employee—up to a maximum of $847 per week.

The government has proposed the extension of the wage subsidy for an additional twelve weeks (i.e., three more 4 week periods). The government has approved regulations that allows all the rules related to the wage subsidy for the fourth period (June 7 to July 4, 2020), to be identical to the ones for the preceding third period (May 10 to June 6, 2020), as described in these questions. The government will announce shortly, details of potential changes to the program’s framework for the proposed fifth (July 5 to August 1, 2020) and/or sixth (August 2 to August 29, 2020) periods.

Eligible employers, such as business owners, that see a drop of at least 15% of their qualifying revenue in March 2020 and 30% for the following months of April, May and June, when compared to their qualifying revenue for the same period in 2019 (or the average of January and February 2020, in some circumstances), will qualify for the wage subsidy. Special rules apply for certain other employers.

Generally, the eligible employer’s wage subsidy amount for an eligible employee (does not include an employee who is without remuneration in respect of 14 or more consecutive days), on eligible remuneration paid in respect of a claim period, is the greater of:

  • 75% of the eligible remuneration paid in respect of each week, up to an amount of $847; and
  • the least of – the eligible remuneration paid in respect of each week, an amount of $847 and 75% of the employee’s average weekly eligible remuneration paid for the period between January 1 to March 15, 2020 (or as proposed, where the eligible employer elects, a period that begins on March 1 and ends on May 31, 2019).

More information on the meaning of eligible employer, eligible employee and qualifying revenue is provided below.

  1. What are the relevant periods for calculating the wage subsidy?

There are currently three periods that are relevant for calculating the wage subsidy. Additional periods have been proposed (see Q1). The government has approved regulations to maintain the same rules for the fourth period and will announce rules concerning the proposed fifth and sixth periods.

Qualifying period (Claim period)

The claim period, is the period for which an eligible employer can claim the wage subsidy for remuneration paid to eligible employees. An eligible employer may be able to claim the wage subsidy for one or more of the following claim periods:

  • the period that begins on March 15, 2020 and ends on April 11, 2020;
  • the period that begins on April 12, 2020 and ends on May 9, 2020;
  • the period that begins on May 10, 2020 and ends on June 6, 2020;
  • the period that begins on June 7, 2020 and ends on July 4, 2020;
  • the proposed period that begins on July 5, 2020 and ends on August 1, 2020; and
  • the proposed period that begins on August 2, 2020 and ends on August 29, 2020.

Current reference period

The current reference period with respect to a claim period, is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable prior reference period, to determine its revenue reduction. The applicable current reference period, for a claim period is:

  • March 2020 – for the claim period that begins on March 15, 2020 and ends on April 11, 2020;
  • April 2020 – for the claim period that begins on April 12, 2020 and ends on May 9, 2020;
  • May 2020 – for the claim period that begins on May 10, 2020 and ends on June 6, 2020; and
  • June 2020 – for the claim period that begins on June 7, 2020 and ends on July 4, 2020.

Prior reference period

The prior reference period, with respect to a claim period, is the period in respect of which an eligible employer’s qualifying revenue, would be compared to its qualifying revenue in the applicable current reference period, to determine its revenue reduction. The applicable prior reference period in respect of a claim period will depend on the approach the eligible employer chooses to compare its revenue.

Under the general year-over-year approach, the eligible employer compares its qualifying revenue in the current reference period to that of the same month for 2019. Under this approach, the prior reference period for a claim period is:

  • March 2019 – for the claim period that begins on March 15, 2020 and ends on April 11, 2020;
  • April 2019 – for the claim period that begins on April 12, 2020 and ends on May 9, 2020;
  • May 2019 – for the claim period that begins on May 10, 2020 and ends on June 6, 2020; and
  • June 2019 – for the claim period that begins on June 7, 2020 and ends on July 4, 2020.

Under the alternative approach, an eligible employer may compare its qualifying revenue in the current reference period, with that of its average revenue earned in the months of January and February of 2020. Hence, under the alternative approach, the prior reference period for a claim period is January and February 2020.

An eligible employer can use the alternative approach if:

  • on March 1, 2019, the eligible employer was not carrying on a business or otherwise carrying on its ordinary activities, or
  • the eligible employer elects (see note below) to use January and February 2020 as the prior reference period for all the claim periods described above.

Once an approach is chosen, the eligible employer would be required to use the same approach for the entire duration of the program.

Note: This election (see Q12-2), must be made and retained with the eligible employer’s other books and records (see Q33) in support of its wage subsidy claim and eligibility, and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

Eligibility

  1. Which employers are eligible for the wage subsidy?

For the purposes of the wage subsidy, an eligible employer means:

  • a corporation (other than a public institution) that is not exempt from tax under Part I of the Income Tax Act (the Act);*
  • an individual (including a trust);*
  • a registered charity (other than a public institution);
  • a person that is exempt from tax under Part I of the Act (other than a public institution), that is:
    • an agricultural organization;
    • a board of trade or a chamber of commerce;
    • a non-profit corporation for scientific research and experimental development;
    • a labour organization or society;
    • a benevolent or fraternal benefit society or order; and
    • a non-profit organization;
  • a partnership, each member of which is a person or partnership described in this list;
  • a prescribed organization, including certain Indigenous businesses.

A public institution is a school, school board, hospital, health authority, public university or college (see Q3-7). It also includes an organization described in any of paragraphs 149(1)(a) to (d.6) of the Act, for example, municipalities and local governments and tax-exempt Crown corporations.

*It is proposed that for a claim period that begins on or after May 10, 2020 (see Q3-01), this will be replaced by:

  • a corporation or a trust, other than a corporation or a trust that is exempt from tax under Part I of the Income Tax Act or is a public institution;
  • an individual other than a trust;

These proposed changes will only be administered and applied once the legislation has received Royal Assent.

3-01. Are all trusts eligible to claim the wage subsidy?

For a claim period that begins on or after March 15, 2020 and ends before May 10, 2020, trusts may be eligible employers.

For a claim period that begins on or after May 10, 2020, it is proposed that the following trusts are eligible employers:

  • a trust that is not exempt from tax under Part I of the Act and is not a public institution;
  • a trust that is exempt from tax under Part I of the Act (other than a public institution) because it is a registered charity or is one of the other types of eligible tax-exempt entities;
  • a trust that is a public institution if it is a prescribed organization (see Q3-2).

A trust that is an eligible employer may be able to claim the wage subsidy if it satisfies all the conditions (see Q4) to qualify for the wage subsidy in respect of that claim period. These proposed changes will only be administered and applied once the legislation has received Royal Assent.

3-1. How does the wage subsidy apply to an eligible employer that is a partnership?

While a partnership does not file an income tax return and is not taxed at the partnership level, it is deemed to be a taxpayer for the purposes of the wage subsidy.

For the purposes of the wage subsidy, a partnership is an eligible employer if each of its members is an eligible employer, including other partnerships that themselves are eligible employers (see Q3 and Q3-2).

Provided a partnership has an open payroll program (RP) account on March 15, 2020, and meets all other eligibility requirements (see Q4), it can make an application for the wage subsidy (see Q26).

A wage subsidy payment will be sent by direct deposit to the bank account on file for that RP account or by cheque to the address on file for that RP account, if there is no banking information associated with the RP account (see Q28).

A partnership is also deemed to be a taxpayer for the purposes of repaying amounts received under the wage subsidy, if it is found to not meet the eligibility requirements, or that are in excess of what it was entitled to.

Finally, where the anti-avoidance rule (see Q34) in respect of the wage subsidy for a claim period applies to a partnership, the partnership will be liable to the corresponding penalty as if it were a corporation and may have to pay back any wage subsidy that it received for that period.

3-2. Are there any prescribed organizations that are eligible employers for the purposes of the wage subsidy?

Yes, the following prescribed organizations will be eligible employers for the purposes of the wage subsidy:

  • certain Indigenous businesses; specifically:
    • a tax-exempt corporation (under paragraph 149(1)(d.5) of the Act) carrying on a business that is at least 90% owned by one or more Indigenous governments (see note 2 of Q3-3);
    • a tax-exempt corporation (under paragraph 149(1)(d.6) of the Act) carrying on a business that is owned 100% by one or more Indigenous governments or by tax-exempt corporations described above (see Q3-3);
    • a partnership, each member of which is an eligible employer or an Indigenous government (see Q3-4);
  • in respect of a claim period, a partnership, if throughout the claim period, 50% or more of the fair market value of all interests in the partnership are held – directly or indirectly, through one or more partnerships – by eligible employers (see Q3-5);
  • a registered Canadian amateur athletic association;
  • a registered journalism organization;
  • a person or partnership that operates a private school or private college.

As of March 15, 2020, the above prescribed organizations are eligible employers for the purpose of wage subsidy.

3-3. What is a tax-exempt corporation under paragraph 149(1)(d.5) or (d.6) for purposes of the prescribed organizations?

A tax-exempt corporation under paragraph 149(1)(d.5) of the Act, in the context of a prescribed organization refers to a corporation, where:

  • not less than 90% of the shares or capital (subject to note 1) are owned by one or more entities that are an Indigenous government (see note 2) described in paragraph 149(1)(c) that is a public body performing a function of government in Canada;
  • no more than 10% of the income of the corporation is earned from activities carried on outside the geographical boundaries of the Indigenous government (the 10% geographical boundaries income test); and
  • it carries on a business.

A tax-exempt corporation under paragraph 149(1)(d.6) (i.e., wholly-owned subsidiaries of certain corporations) in the context of a prescribed organization refers to a corporation where:

  • all of the shares (except directors’ qualifying shares) or the capital (subject to note 1) are owned by one or more entities each of which is
    • a tax-exempt corporation described in this paragraph or the paragraph above, or
    • an Indigenous government (see note 2) described in paragraph 149(1)(c) that is a public body performing a function of government in Canada;
  • the 10% geographical boundary income test as required in paragraph 149(1)(d.5) applies all the way down a chain of subsidiaries, i.e., each must meet the same 10% geographical boundary income test; and
  • it carries on a business.

Note 1: In the context of a corporation without share capital, the determination of the ownership necessitates a review of all the relevant documents such as articles of incorporation, by-laws and agreements relating to the operation and control of the corporation and its assets.

For purposes of determining the ownership tests in paragraphs 149(1)(d.5) and 149(1)(d.6) any right to acquire shares or capital of a corporation should be considered as though the right had been exercised.

No persons other than governmental bodies own shares that, in total, give them more than 10% of the votes that could be cast at any meeting of shareholders.

No person (or a group including any person) other than governmental bodies in fact controls the corporation.

Note 2: For the purpose of these rules, an Indigenous government means an Indian, Inuit or Métis government or similar Indigenous governing bodies exempt from tax under paragraph 149(1)(c) (for the purpose of that paragraph, all bands created under the Indian Act meet the criteria to be considered municipal or public bodies performing a function of government in Canada).

3-4. If a partnership has one or more members that are Indigenous governments, will it qualify for the wage subsidy?

A partnership, each member of which is an eligible employer, or an Indigenous government (see note 2 of Q3-3), is an eligible employer for the purposes of the wage subsidy. If such a partnership meets all other conditions necessary to qualify (see Q4), it can make an application for the wage subsidy.

3-5. Where a partnership has both eligible employers (including prescribed organizations), and non-eligible employers as its members, will such a partnership qualify for the wage subsidy?

A partnership that is an eligible employer and meets all other conditions (see Q4) necessary to qualify in respect of a claim period, can make an application for the wage subsidy (see Q26) for that claim period.

Generally, for the purposes of the wage subsidy, a partnership is an eligible employer if each of its members is an eligible employer (individuals, taxable corporations, non-profit organizations, or registered charities), including prescribed organizations (see Q3-2) and other partnerships that themselves are eligible employers (see Q3).

However, where the partnership interests are held by both eligible and non-eligible employers, the partnership will be an eligible employer if, throughout the claim period, 50% or more of the FMV of all interests in the partnership are held – directly or indirectly, through one or more partnerships – by eligible employers.

3-6. If a partnership has one or more members that are prescribed organizations, will it qualify for the wage subsidy?

An entity that is a prescribed organization (see Q3-2) for the purposes of the wage subsidy is an eligible employer. Hence, a partnership that has one or more members that are prescribed organizations, will qualify for the wage subsidy provided:

  • all the remaining members are eligible employers (see Q3) or Indigenous governments (see note 2 of Q3-3), or
  • where the remaining members are not all eligible employers or Indigenous governments, then throughout the claim period, 50% or more of the fair market value of all interests in the partnership are held—directly or indirectly, through one or more partnerships—by eligible employers.

3-7. Are all schools and colleges eligible for the wage subsidy?

Public institutions, including colleges and schools, are not eligible employers for the purposes of the wage subsidy.

However, a person or partnership that operates a private school or private college is a prescribed organization and is an eligible employer for the purposes of the wage subsidy.

Private schools and private colleges include for-profit and not-for-profit institutions such as arts schools, language schools, driving schools, flight schools and culinary schools.

3-8. Can an eligible employer that hires a third party to facilitate the administration of its payroll, qualify for the wage subsidy?

In order to qualify for the wage subsidy, an eligible employer must meet certain conditions. One of these conditions is that the eligible employer had an open payroll program account with the CRA on March 15, 2020.

An employer, as the entity who has discretion over the amounts they pay to their employees, is responsible for the payroll withholding, remitting, and reporting obligations under the Income Tax Act. This entity is the one who must register a business number and payroll program account with the CRA.

In many circumstances, an employer will hire a third party to facilitate the administration of their payroll. This third party simply performs actions on the employer’s behalf and should, in all cases, be using the employer’s business number and payroll program account to perform these actions.

Employers who did not have their own business number and payroll program account with the CRA on or before March 15, 2020 would not meet the eligibility criteria, and subsequently, would not be eligible for the wage subsidy. The third party cannot apply for the wage subsidy on behalf of an employer by using their own business number and payroll program account.

Note: On June 10, 2020, the government introduced Bill C-17 in Parliament that proposes to extend eligibility for the CEWS to certain employers who did not have an RP account but instead use a payroll service provider who makes their payroll remittances on the provider’s RP account. The proposed change will only be administered and applied once the legislation has received Royal Assent.

  1. How does an eligible employer qualify for the wage subsidy?

In order to qualify for the wage subsidy in respect of a claim period, an eligible employer must meet the following conditions:

  • it had an open payroll program account with the CRA on March 15, 2020;
  • it experienced the required reduction in revenue for one or more claim period (see Q5);
  • it makes a wage subsidy application for the claim period, in a prescribed form and manner, before October 2020; and
  • the individual who has principal responsibility for the eligible employer’s financial activities attests that the application mentioned above is complete and accurate in all material respects.
  1. How is the reduction in revenue determined?

Once an eligible employer has calculated its qualifying revenue for each relevant reference period in a particular claim period, it would determine if it has experienced the required reduction in revenue to qualify for the wage subsidy for that claim period. However, the employer is under no obligation to prove that the decline in revenue is related to the COVID-19 crisis.

Table 1 below summarizes each relevant period and the required reduction in revenue to qualify to claim the wage subsidy.

Relevant Periods

Table 1
 Claim periodsRequired reduction in revenueReference periods for comparison under the general approachReference periods for comparison under the alternative approach
Period 1March 15 to April 11, 202015%March 2020 over March 2019March 2020 over average of January and February 2020
Period 2April 12 to May 9, 202030%Footnote 1April 2020 over April 2019April 2020 over average of January and February 2020
Period 3May 10 to June 6, 202030%May 2020 over May 2019May 2020 over average of January and February 2020
Period 4June 7 to July 4, 202030%June 2020 over June 2019June 2020 over average of January and February 2020

If an eligible employer has not experienced the required reduction in revenue to qualify to claim the wage subsidy for a particular claim period, it may still qualify to claim the wage subsidy for another claim period if it has experienced the required reduction in revenues in that other claim period.

Once an eligible employer has determined that it has experienced the required reduction in revenue for a particular claim period, it is automatically considered to have experienced the required reduction in revenue for the immediately following claim period (deeming rule). As a result, the employer does not have to make this determination again for that next claim period (see Table 2 below).

However, this deeming rule does not automatically extend to apply to the period after that next claim period. For example, if an eligible employer meets the condition for the reduction in respect of the first claim period – March 15 to April 11, 2020, the employer will be considered to have met the required reduction in revenue in respect of the second reference period – April 12 to May 9, 2020, without necessarily making a determination. But the eligible employer will have to make a determination for the third claim period – May 10 to June 6, 2020 (see Table 2 below).

In a situation where the eligible employer, subsequently determines that it actually experienced the required reduction in revenue, without applying the deeming rule, for the second claim period – April 12 to May 9, 2020, the eligible employer will be considered to have experienced the required reduction in revenue for that third claim period because of the deeming rule that can now be applied to the third period (see Example 1).

Table 2
Claim period 1
March 15 to April 11, 2020Footnote 2
Claim period 2
April 12 to May 9, 2020Footnote 2
Claim period 3
May 10 to June 6, 2020Footnote 2&Footnote 4
Reduction of revenue of less than 15%

Does not qualify under the regular rule

Reduction of revenue of less than 30%

Does not qualify under the regular rule

Reduction of revenue of less than 30%

Does not qualify under the regular rule

Reduction of revenue of less than 15%

Does not qualify under the regular rule

Reduction of revenue of 30% or more

Qualifies under the regular rule

Reduction of revenue of less than 30%

Does not qualify under the regular rule but qualifies under the deeming rule (because the employer meets the 30% reduction of revenue in the claim period 2)

Reduction of revenue of 15% or more

Qualifies under the regular rule

Reduction of revenue of less than 30%

Does not qualify under the regular rule but qualifies under the deeming rule (because the employer meets the required 15% reduction of revenue in the claim period 1)

Reduction of revenue of less than 30%

Does not qualify under the regular rule

The deeming rule does not apply because the reduction of revenue during the claim period 2 was not 30% or more.

Reduction of revenue of 15% or more

Qualifies under the regular rule

Reduction of revenue of 30% or more

Qualifies under the regular rule as well as under the deeming rule (because the employer meet the 15% reduction of revenue in the claim period 1)

Reduction of revenue of less than 30%

Does not qualify under the regular rule but qualifies under the deeming rule (because the employer meets the 30% reduction of revenue in the claim period 2)

Reduction of revenue of 15% or more

Qualifies under the regular rule

Reduction of revenue of 30% or more

Qualifies under the regular rule as well as under the deeming rules (because the employer meet the 15% reduction of revenue in the claim period 1)

Reduction of revenue of 30% or more

Qualifies under the regular rule as well as under the deeming rules (because the employer meets the 30% reduction of revenue in the claim period 2)

Example 1

XYZ Inc. started its operations in July 2019. It reported revenues of $100,000 in January 2020 and $140,000 in February 2020, for a monthly average of $120,000. In March, its revenues dropped to $90,000. Because revenues in March 2020 are 25% lower than $120,000, XYZ Inc. would be eligible for the wage subsidy for both the first claim period (March 15 to April 11, 2020), and the second claim period (April 12 to May 9, 2020), because of the deeming rule.

It should be noted that the automatic determination for the second period is not relevant for the determination of the required revenue reduction for the third period. XYZ Inc. would need to have experienced the required reduction of 30% in the third period to qualify for that period, or to have experienced the 30% required reduction for the second period (meaning, to have revenue of $84,000 or less – that is, 30% lower than $120,000 – for that second period. In that circumstance because it has qualified for the second period using the 30% required reduction, XYZ Inc. is automatically considered to have experienced the required reduction in revenue for the third claim period because of the deeming rule).

General “year-over-year” approach

For an eligible employer that was carrying on business—or otherwise carrying on its ordinary activities—on March 1, 2019, and is using the general year-over-year approach, the reduction in revenue determination is made by comparing the change in qualifying revenue, year-over-year, for the calendar month in which the claim period began.

If the qualifying revenue for the relevant month in the current year has declined when compared to the qualifying revenue for the relevant month in the prior year, by a percentage equal to or greater than the required reduction in revenue for the claim period (see Table above), then the eligible employer has experienced the required reduction in revenue for the claim period and qualifies to claim the wage subsidy for that claim period, assuming the other qualifying conditions are met (see Q4).

On the other hand, if the qualifying revenue for that current reference period has declined by a percentage less than the required reduction in revenue for the claim period, then the eligible employer has not experienced the required reduction in revenue when compared to that prior reference period and does not qualify to claim the wage subsidy for that claim period.

Example 2

An eligible employer is determining if it has experienced the required reduction in revenue to qualify in order to claim the wage subsidy for the first claim period, from March 15 to April 11, 2020. The eligible employer is using the general year-over-year approach to determine its reduction in revenue. Its qualifying revenues for March 2019 were $250,000 and its qualifying revenues for March 2020 are $180,000.

Because its qualifying revenue for March 2020 has declined by 28 % when compared to its qualifying revenue for March 2019, the eligible employer has experienced the required reduction in revenue of at least 15% for the first claim period and may qualify to claim the wage subsidy for that period.

Because it has qualified for the first claim period, the eligible employer is automatically considered to have experienced the required reduction in revenue for the second claim period (April 12 to May 9) and does not need to make the determination again when claiming the wage subsidy for that next claim period. For clarity, it will be deemed to have met the 30% test for the second period.

Alternative approach

For an eligible employer that was not carrying on business—or otherwise not carrying on its ordinary activities—on March 1, 2019, or that has elected to use this alternative approach (see note below) for all claim periods, the reduction in revenue determination is made by comparing the:

  • the qualifying revenue for the calendar month in which the claim period began; and
  • the average of the qualifying revenues earned in both January and February 2020.

If the qualifying revenue for the calendar month in which the claim period began has declined, when compared to the average of the qualifying revenues earned in both January and February 2020, by a percentage equal to or greater than the required reduction in revenue for the claim period (see Table above), then the eligible employer has experienced the required reduction in revenue for the claim period and may qualify to claim the wage subsidy for that claim period, assuming the other qualifying conditions are met (see Q4).

When the alternative approach is chosen, the average qualifying revenue will be calculated as follows:

Average qualifying revenue = 0.5xAx(B/C) where

A= qualifying revenues for the months of January and February of 2020

B= number of days in January and February 2020

C= number of days in January and February of 2020 during which the eligible employer was carrying on business —or otherwise carrying on its ordinary activities.

Where a business is carried on throughout January and February 2020, the factor (B/C) will be 1. Hence, there will be no adjustment to the average qualifying revenue.

In a situation where an eligible employer was not carrying on business—or otherwise not carrying on its ordinary activities— through out the months of January or February 2020, for example, in the case of a new business that started mid January, the qualifying revenues for the months of January and February 2020 will be grossed up by the factor (B/C), to make the comparison of the qualifying revenue in the prior reference period comparable to the qualifying revenue in the current period (see Example 4).

However, if operations began anytime after February 2020, the employer would not be eligible for the wage subsidy.

If the qualifying revenue for that current reference period has declined by a percentage less than the required reduction in revenue when compared to that prior reference period (January and February 2020), then the eligible employer has not experienced the required reduction in revenue for the claim period and does not qualify to claim the wage subsidy for that claim period.

Note: This election (see Q12-2), must be made and retained with the eligible employer’s other books and records (see Q33) in support of its wage subsidy claim and eligibility, and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

Example 3

Assuming an eligible employer did not experience the required reduction in its qualifying revenue in the first claim period (March 15- April 11, 2020), the eligible employer will then determine if it has experienced the required reduction in revenue to qualify in order to claim the wage subsidy for the second claim period, (April 12 to May 9, 2020). The eligible employer has elected to apply the alternative approach to determine its reduction in revenue. The average of qualifying revenues earned in both January and February 2020 were $1 million and its qualifying revenue for April 2020 is $900,000.

Because its qualifying revenue for April 2020 has declined by only 10% when compared to the average of its qualifying revenues earned in both January and February 2020, the eligible employer has not experienced the required reduction in revenue of at least 30% for the second claim period. It will therefore, not qualify for the wage subsidy for that period.

Because it has not qualified for the second claim period, the eligible employer must make the determination for the next claim period if it seeks to make a wage subsidy claim for that period

Example 4

An eligible employer is determining if it has experienced the required reduction in revenue to qualify in order to claim the wage subsidy for the first claim period, from March 15 to April 11, 2020. Since the eligible employer began operations only on January 14, 2020, it must use the alternative approach to determine its reduction in revenue. Its total qualifying revenues earned in January and February 2020 was $90,000. Its average qualifying revenue for the two months will be $57,447 [0.5×90,000x(60/47]. Its qualifying revenue for March 2020 is $39,600.

Because its qualifying revenue for March 2020 has declined by 31% when compared to the average of its qualifying revenues earned in both January and February 2020, the eligible employer has experienced the required reduction in revenue of at least 15% for the first claim period and will qualify to claim the wage subsidy for that period.

Because it has qualified for the first claim period, the eligible employer is automatically considered to have experienced the required reduction in revenue for the second claim period (April 12 to May 9, 2020).

5-1. Under the alternative approach can an eligible employer use a daily average instead of a monthly comparison to calculate the percentage decrease in revenue?

No, the alternative approach provides for a comparison of qualifying revenue for the calendar month in which the claim period began to the average of the qualifying revenues earned in both for January and February 2020.

Calculating Revenues

  1. What is qualifying revenue?

Qualifying revenue of an eligible employer means the inflow of cash, receivables, or other consideration arising in the course of its ordinary activities in Canada in a particular period. These inflows are generally from the sale of goods, the rendering of services, and the use—by others—of the eligible employer’s resources.

In the case of an eligible employer that is a registered charity, qualifying revenue generally includes gifts and other amounts received in the course of its ordinary activities. Where it operates a related business (as defined in subsection 149.1(1) of the Act), the revenue from that related business is also included in the registered charity’s qualifying revenue.

In the case of an eligible employer that is a non-profit organization, qualifying revenue generally includes membership fees and other amounts received in the course of its ordinary activities.

Qualifying revenue excludes amounts from extraordinary items, amounts on account of capital and amounts from persons or partnerships that the eligible employer was not dealing with at arm’s length. Amounts from the Canada Emergency Wage Subsidy and the 10% Temporary Wage Subsidy for Employers are ignored when calculating qualifying revenue.

An eligible employer’s qualifying revenue is used to determine the required reduction in revenue necessary to qualify for the Canada Emergency Wage Subsidy (see Q5).

6-1. Does qualifying revenue include investment revenue, such as interest or dividends from investments in securities?

The qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. To the extent that investment revenue, such as interest or dividends from investments in securities, arises in the course of an eligible employer’s ordinary activities in Canada in the particular period, is not an extraordinary item or on account of capital, and is included in revenue under its normal accounting practices, it would generally be included in qualifying revenue.

6-2. Is government assistance directly related to the COVID-19 crisis considered an extraordinary item for purposes of calculating the qualifying revenue of an eligible employer?

Qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. Qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible employer in Canada in a particular period. For greater certainty, qualifying revenue does not include extraordinary items.

“Extraordinary items” is not a term defined in the Act. Generally, the CRA would expect extraordinary items to meet all three of the following characteristics:

  1. Not be expected to occur regularly or frequently within several years

Grants or other government assistance that an entity is eligible to receive on a regular or reoccurring basis would not meet this criteria.

  1. Not typical of the normal activities or risks inherent in the normal operations of the entity

Consideration should be given to the nature of the services or products offered by an entity and the normal environment in which it operates.

  1. Primarily out of the control of owners or management

Consideration should be given to the extent that inflows are influenced by the decision of owners or management.

The determination of whether an entity has an extraordinary item is a question of fact. However, due to the highly unusual economic impact and response resulting from the COVID-19 crisis, the CRA would generally consider emergency government assistance, including assistance from provinces and municipalities, directly related to COVID-19 to be an extraordinary item. However, the CRA would not consider COVID-19 related government assistance to be extraordinary to the extent that it replaces or is meant to replace normal or recurring government assistance.

6-3. Can an eligible employer deduct its bad debts when determining its qualifying revenue under the accrual method?

When using the accrual method in accordance with its normal accounting practices, an eligible employer should usually not be able to deduct its bad debts (or an allowance for bad debts), when determining its qualifying revenue.

6-4. Can a corporation formed on the amalgamation of two or more predecessor corporations, or where one corporation is wound up into another, qualify for the wage subsidy?

Yes, in accordance with proposed legislation, a new corporation formed on an amalgamation of two or more predecessor corporations (pursuant to subsection 87(1) of the Act), or where one corporation is wound up into another on a tax-deferred basis (pursuant to subsection 88(1) of the Act), may be eligible for the wage subsidy provided all other required conditions (see Q4) have been satisfied.

For the purposes of the wage subsidy, a new corporation formed on an amalgamation of two or more predecessor corporations pursuant to subsection 87(1) of the Act, is deemed to be the same corporation as, and a continuation of, each predecessor corporation. Consequently, the new corporation will use the combined qualifying revenue of the predecessor corporations to calculate its qualifying revenue for each relevant reference period in a particular claim period to determine if it has experienced the required reduction in revenue to qualify for the wage subsidy for that claim period. In the case of a subsidiary corporation that is wound up into its parent on a tax-deferred basis in accordance with subsection 88(1) of the Act, the parent’s qualifying revenue will be combined with its subsidiary’s qualifying revenue for each relevant reference period in a particular claim period to determine if it has the required reduction in revenue for a particular claim period.

However, in either of these situations, the wage subsidy will be denied if it is reasonable to consider that one of the main purposes for the amalgamation (or the wind-up) was to qualify for the wage subsidy.

This rule applies to the claim period starting March 15, 2020 and subsequent claim periods. These proposed changes will only be administered and applied once the legislation has received Royal Assent.

6-5. Where a sole proprietorship business is incorporated, can the corporation use the revenue of proprietorship for the prior period to determine the decline in its qualifying revenue?

No. Where an eligible employer (the new corporation) was not carrying on business or otherwise carrying on its ordinary activities on March 1, 2019, it is required to use the “alternative approach” (see Q5) to calculate its decline in revenue. That is, the reduction in revenue determination is made by comparing the qualifying revenue for the calendar month in which the claim period began with the average of the qualifying revenues earned in January and February 2020.

Where an eligible employer was not carrying on business or otherwise not carrying on its ordinary activities throughout all of January and February 2020, as in the case of a new business that started mid-January, the qualifying revenues for the months of January and February 2020 will be grossed up under the alternative approach for the comparison of the qualifying revenue in the prior reference period to the qualifying revenue in the current reference period (see Example 4). If the eligible employer did not have any revenue during January and February 2020 or if it incorporated after February 2020, then it will not be eligible for the wage subsidy.

6-6. Can an eligible employer’s qualifying revenue for a reference period be adjusted to account for changes in business operations of an eligible employer’s business?

No. Subject to the special rules discussed in Q7 to Q12, an eligible employer should use its normal accounting practices when determining its qualifying revenue. Qualifying revenue means the inflow of cash, receivables or other consideration arising in the course of the eligible employer’s ordinary activities in Canada in a particular period and excludes revenue received from extraordinary items (see Q6-2).

Aside from the special rules, there are no provisions that allow an eligible employer to adjust qualifying revenue from prior reference periods or current reference periods in order to account for changes in operation levels. For example, an eligible employer would not be able to make adjustments to its qualifying revenue calculations for a prior reference period with unusually low revenue caused by an interruption to its operations due to damage to equipment or premises, an employee lock-out or strike, or a supply chain disruption. Likewise, qualifying revenue calculations cannot be adjusted for a recent expansion of an eligible employer’s normal operations, such as adding additional locations to a business or the purchase of a competitor’s assets.

An eligible employer has the option of using the average of qualifying revenues in January and February 2020 for the prior reference period instead of using the general “year-over-year” approach (see alternative approach in Q5). An eligible employer who was not carrying on a business (including a situation described in Q6-5), or otherwise not carrying on its ordinary activities (such as a complete halt in operations) on March 1, 2019, must use this alternative approach.

6-7. How do foreign exchange rate fluctuations affect the computation of qualifying revenue?

The qualifying revenue of an eligible employer is determined in accordance with its normal accounting practices. Where an eligible employer’s normal accounting practice is to convert the inflow of cash, receivables and other consideration to Canadian currency from a foreign currency, then the eligible employer would be expected to use the Canadian currency equivalent of the amounts in the computation of qualifying revenue.

6-8. How will an eligible employer that files its income tax returns using a functional currency compute its qualifying revenue?

Where an eligible employer that is a corporation files its income tax return using a functional currency, that currency is the primary currency in which the eligible employer maintains its books and records for financial reporting purposes, and using that currency would likely be part of its normal accounting practice. Since the qualifying revenue of an eligible employer is determined in accordance with its normal accounting practices, and on that basis, it should be determined in such currency.

  1. Are there special rules for calculating the qualifying revenue of a registered charity or non-profit organization?

Yes. In addition to the qualifying revenue inclusions specific to registered charities and non-profit organizations (see Q6), these eligible employers may elect (see note below) to exclude funding received from government sources when determining their qualifying revenue.

This election applies to the determination of qualifying revenue for all of an eligible employer’s prior reference periods and current reference periods.

Note: This election (see Q12-2), must be made and retained with the eligible employer’s other books and records in support of its wage subsidy claim and eligibility (see Q33), and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

  1. Are there special rules for calculating the qualifying revenue of an eligible employer that derives its revenue from one or more non-arm’s length persons or partnerships?

Special rules exist for an eligible employer that derives all or substantially all of its revenue from one or more particular persons or partnerships with which it does not deal at arm’s length.

Essentially, if the eligible employer and each of these particular persons or partnerships with which it does not deal at arm’s length jointly elect (see note below), the eligible employer’s qualifying revenue for the prior reference period is deemed to be $100 and a weighted-average approach (see Example 6), is used to determine qualifying revenue for the current reference period.

When calculating the qualifying revenue for the current reference period under this rule, the eligible employer’s qualifying revenue includes amounts derived from persons or partnerships not dealing at arm’s length with it.

The amount used for each of the particular person’s or partnership’s qualifying revenue is modified to include revenues earned outside of Canada. The particular person or partnership can be either a resident or a non-resident.

For more information about non-arm’s length, please see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length.

Note: This election (see Q12-2), must be made and retained with the eligible employer’s other books and records in support of its wage subsidy claim and eligibility (see Q33), and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

Example 5

Corporation A, an eligible employer, provides management services, including payroll services, to Corporation B. All of Corporation A’s revenues are from Corporation B with which it does not deal at arm’s length. Corporation B’s revenues are from arm’s-length customers.

Under the special rule, in order to determine whether Corporation A can qualify for the wage subsidy, Corporation A’s qualifying revenue for the current reference period is determined by reference to the required reduction in qualifying revenue for Corporation B for that reference period.

Example 6

All or substantially all of the revenues of Corporation X, (an eligible employer), are from two corporations (Corporation Y and Corporation Z) with which it does not deal at arm’s length.

Corporation X’s total revenue for March 2020 was $1,450 of which $400 was attributable to Corporation Y and $1,000 was attributable to Corporation Z. $50 was from an arm’s-length taxpayer. Corporation X’s arm’s-length revenue is not included in the calculations.

Corporation Y’s qualifying revenue for March 2020 was $1,000 and for March 2019 was $1,500.

Corporation Z’s qualifying revenue for March 2020 was $1,300 and for March 2019 was $2,000.

Calculation of Corporation X’s qualifying revenue for the current reference period:

Qualifying revenue (QR) calculation in relation to Corporation Y:

$100 x $400 (QR attributable to Corporation Y)/$1,400 (Corporation X’s total QR from non-arm’s-length persons or partnerships) x $1,000(Corporation Y QR for current reference period)/$1,500 (Corporation Y QR for prior reference period) = 19

QR calculation in relation to Corporation Z:

$100 x $1,000 (QR attributable to Corporation Z)/$1,400 (Corporation X’s total QR from non-arm’s-length persons or partnerships) x $1,300(Corporation Z’s QR for current reference period)/$2,000 (Corporation Z’s QR for prior reference period) = 46

The weighted average qualifying revenue for Corporation X for the current reference period is $65 ($19+$46). Since the prior reference period’s qualifying revenue is deemed to be $100, Corporation X has experienced the required reduction in revenue of at least 15% for the claim period. Corporation Y and Corporation Z must jointly elect with Corporation X in order to use this special rule.

8-01. Where an eligible employer elects to calculate its qualifying revenue using the special rule (see Q8), can a non-resident’s qualifying revenue be computed using a foreign currency?

Special rules exist to calculate the qualifying revenue of an eligible employer that derives all or substantially all of its revenue from one or more particular persons or partnerships with which it does not deal at arm’s length. Under this special rule, a weighted average approach includes the qualifying revenue of the particular non-arm’s length person or partnership in the calculation (see Q8). The qualifying revenue of an entity is determined in accordance with its normal accounting practices. Where the particular non-arm’s length person’s or partnership’s normal accounting practice is to maintain books and records in a foreign currency, the eligible employer may use the foreign currency amounts used by the non-resident person or partnership to maintain its books and records to determine the particular non-arm’s length person’s or partnership’s qualifying revenue for the prior reference period and the current reference period.

8-1. What is the meaning of the phrase “all or substantially all” in the special rules referred to in questions 8 and 11?

Generally, the phrase “all or substantially all” means at least 90%.

This requirement will be considered to be met where at least 90% of an eligible employer’s qualifying revenue is from one or more particular persons or partnerships with which it does not deal at arm’s length.

However, the “all or substantially all” test could, depending on the circumstances and context, be satisfied even if the 90% level is not strictly achieved.

8-2. What factors are used to determine if a partnership is not dealing at arm’s length with a partnership of which it is a member?

Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length provides guidance on the meaning of arm’s length.

Where persons are not related to each other, the arm’s length determination is a question of fact and each transaction or series of transactions must be examined on its own merits, in light of all the facts and circumstances of that particular situation.

The following criteria have generally been used by the courts in determining whether non-related parties engaging in a transaction are not dealing at arm’s length:

  • whether there is a common mind which directs the bargaining for both parties to a transaction;
  • whether the parties to a transaction act in concert without separate interests; and
  • whether there is de facto control (that is, control in fact).

It is not required that all three tests be satisfied in every case. In any particular case, any one or more of the criteria may be of greater or lesser importance in the determination whether the parties are dealing at arm’s length.

Paragraphs 1.42 to 1.44.1 of the Folio summarize the factors to be considered in situations involving partnerships:

  • Where a partnership owns a majority of the issued voting shares of a corporation, the partnership will not be considered to deal at arm’s length with the corporation.
  • Where one partner is in a position to control a partnership, that partner is not considered to be dealing at arm’s length with the partnership. For example, a partner can be in a position to control a partnership through ownership of a controlling interest or through a mandate vested in that partner by the other partners. However, when a partner is not in a position to control a partnership and that partner has little or no say in directing the operations of the partnership, it is generally recognized that the partner is dealing at arm’s length with the partnership.
  • Where a related group of partners owns a controlling interest in a partnership, each member of that related group will not be considered to deal at arm’s length with the partnership.
  • Partners are not necessarily considered not to deal at arm’s length with each other in transactions outside of their partnership activity merely because they are members of the same partnership. However, their partnership in business would be a factor to be considered in any other transaction between them.
  • The determination of whether a partnership is dealing at arm’s length with a person who is not a partner will generally be made on the basis of the relationship of the directing minds of the partnership and the person at the relevant time.
  1. Are there special rules for calculating the qualifying revenue of a group of eligible employers?

The qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. Consequently, when a group of eligible employers generally prepares consolidated financial statements, each member of the group will determine its qualifying revenue in accordance with those statements.

However, each member of such a group may determine its qualifying revenue separately and not based on the consolidated statements, so long as every member of the group determines its qualifying revenue on that separate basis.

Example 7

Corporation A owns all the shares of Corporation B. Both corporations are eligible employers. Corporation A prepares consolidated financial statement for accounting purposes. Assume that there is no intercompany revenue. Below are the qualifying revenue for each corporation as well as their qualifying revenue on a consolidated basis for March 2019 and March 2020.

Example 7 table
 Qualifying revenue for March 2019Qualifying revenue for March 2020Reduction in Qualifying revenue in March 2020 as compared to March 2019
Corporation A$1,000,000$1,000,0000%
Corporation B$1,000,000$800,00020%
Total on a consolidated basis$2,000,000$1,800,00010%

In accordance with normal accounting practice Corporations A and B will not be eligible for the wage subsidy as their qualifying revenue, determined on a consolidated basis, has not experienced the required reduction in revenue of at least 15%.

Therefore, Corporation A and Corporation B have decided to determine their qualifying revenue separately. In that case, while Corporation A will not qualify for the wage subsidy, as it has not experienced the required reduction in revenue of at least 15%, Corporation B will qualify for the wage subsidy because its qualifying revenue has dropped by more than 15%.

9-1. How is the qualifying revenue arising in the course of ordinary activities in Canada determined when a consolidated group includes non-residents of Canada?

A non-resident may be part of a group of eligible employers that normally prepares consolidated financial statements (see Q9) or a member of an affiliated group of eligible employers that jointly elects to compute qualifying revenue on a consolidated basis as described in Q10. In accordance with accounting principles for consolidation, consolidated revenue excludes transactions between members of the group but includes global revenue of the group. The qualifying revenue of an eligible employer does not include the portion of consolidated revenue that does not arise in the course of ordinary activities in Canada. The eligible employer can however include the portion of the consolidated revenue that arises in the course of ordinary activities in Canada whether or not the ultimate sale to third parties occurs in Canada.

For example, an amount representing a portion of the revenue from a sale to a third party by a non-resident member of the group may be included in computing the qualifying revenue of the eligible employer if it can be demonstrated that it arose in the course of the ordinary activities of the group in Canada. In determining whether a portion of the amount of a sale to a third party arose in Canada, each transaction or series of transactions will need to be considered in light of the facts and circumstances of that particular situation.

  1. Are there special rules for calculating the qualifying revenue of members of an affiliated group?

If an eligible employer and each member of an affiliated group of eligible employers of which the eligible employer is a member jointly elect (see note below), the qualifying revenue of the affiliated group, determined on a consolidated basis in accordance with relevant accounting principles, is to be used for each member of the group. This rule applies even if one or more members of an affiliated group may have no revenue to report in the claim period.

If this election is made, all members of the affiliated group of eligible employers must use this method for calculating the qualifying revenue. Eligible employers that are affiliated with the group cannot choose to form smaller affiliated groups or choose to not be part of the affiliated group for the purpose of the election and calculating qualifying revenue. This means that it is the broadest affiliated group of eligible employers that must elect and not a subset of that group.

Note: This election (see Q12-2), must be made and retained with the eligible entity’s other books and records (see Q33) in support of its wage subsidy claim and eligibility, and the individual who has principal responsibility for the eligible entity’s financial activities must attest that this is the case.

Example 8

Individual Mr. A, owns all the shares of Corporation A and his spouse Mrs. A, owns all of the shares of Corporation B. Both corporations are eligible employers. Corporation A and Corporation B form an affiliated group and each corporation is a member of that group. Assume that there is no intercompany revenue. Below are the qualifying revenues for each corporation as well as on a consolidated basis, assuming such a consolidation was done, for March 2019 and March 2020.

Example 8 table
 Qualifying revenue for March 2019Qualifying revenue for March 2020Reduction in Qualifying revenue in March 2020 as compared to March 2019
Corporation A$200,000$200,0000%
Corporation B$200,000$100,00050%
Total on a consolidated basis$400,000$300,00025%

Because Corporation A and Corporation B are members of an affiliated group, they could jointly elect that the qualifying revenue of the affiliated group be determined on a consolidated basis in accordance with relevant accounting principles, and the consolidated amount will be used as the qualifying revenue by each member of the group. Thus, both Corporations A and B will be eligible for the wage subsidy, as their qualifying revenue, determined on a consolidated basis, has dropped by more than 15%. Without this election only Corporation B would qualify for the wage subsidy.

10-1. What is the meaning of the term “affiliated” and “affiliated group” in the special rules referred to in question 10?

The definitions of “affiliated persons” and “affiliated group of persons” in the Act apply for purposes of the special rule for calculating revenue of members of an affiliated group. Some examples of “affiliated persons” are:

  • an individual and their spouse or common-law partner;
  • two corporations if each is controlled by a person, and those two persons are affiliated with each other;
  • two corporations if one corporation is controlled by one person who is affiliated with each member of a group that controls the other corporation;
  • two corporations if each corporation is controlled by a group and each member is affiliated with at least one member of the other group.

An affiliated group of persons means a group of persons each member of which is affiliated with every other member.

10-2. Can affiliated corporations that are not in the same ownership chain, determine their qualifying revenue on a consolidated basis, even if they cannot prepare consolidated financial statements?

On the assumption that affiliated corporations that are not in the same ownership chain, are otherwise eligible employers, they can jointly elect to determine their revenue on a consolidated basis, as though the relevant accounting principles for consolidation applied to them. This means, for example, that intercompany transactions should be eliminated.

Where there are multiple entities in an affiliated group, if an election (see Q12-2) is going to be made, all eligible employers in the affiliated group must consolidate for the purpose of calculating qualifying revenue. It is not possible to have only some of those eligible employers in the affiliated group elect to consolidate.

This consolidation would be solely for purposes of calculating qualifying revenue for members of an affiliated group for purposes of the wage subsidy.

  1. Are there special rules when an eligible employer is owned by participants in a joint venture?

If all of the interests in an eligible employer are owned by participants in a joint venture and all or substantially all of the qualifying revenue of the eligible employer is in respect of the joint venture, then the eligible employer may use the qualifying revenues of the joint venture (determined as if the joint venture were an eligible employer), instead of its qualifying revenues, to determine if it experienced the required reduction in revenue in order to qualify for the wage subsidy.

  1. Can I use the cash method of accounting when determining my qualifying revenue?

Qualifying revenue of an eligible employer is to be determined in accordance with its normal accounting practices.

If the normal accounting practices of an eligible employer is the accrual method, the employer would be allowed to elect (see note below) to calculate its qualifying revenue under the cash method instead of the accrual method, but not a combination of both. The election will apply for all claim periods.

However, where the eligible employer determines its qualifying revenue under the cash method, in accordance with its normal accounting practices, it cannot elect to use the accrual method.

Note: This election (see Q12-2), must be made and retained with the eligible employer’s other books and records (see Q33) in support of its wage subsidy claim and eligibility, and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

12-1. Can an eligible employer change their approach used for calculating the qualifying revenue from claim period to claim period?

Special rules described in Q8-Q12 exist for an eligible employer to calculate its qualifying revenue.

Any of these special rules may apply to an eligible employer for the relevant reference periods used for a particular claim period, provided all the requirements of such rule have been met for that particular claim period. Once a specific rule is chosen, the eligible employer must use the same rule for calculating qualifying revenue for the prior and current reference periods used for the particular claim period.

However, for the special rules described in Q8-Q11, an eligible employer may choose to apply a different approach in a subsequent claim period, provided that all the requirements for the application of that different rule are met for that subsequent claim period.

An eligible employer that chooses to determine its revenues based on the cash method, as described in Q12, must use this method for all claim periods.

12-2. Is there a specific form where an eligible employer could attest that appropriate elections have been made?

Eligible employers will use form RC661 Attestation for owner/managers and/or senior employees (comptroller/VP Finance/CFO) of an eligible employer applying for the Canada Emergency Wage Subsidy, to certify and attest that the wage subsidy application is complete and appropriate elections have been made (or that no election is required). The elections, where applicable, must be made and retained with the eligible employer’s other books and records (see Q33), in support of its wage subsidy claim and eligibility, and the individual who has principal responsibility for the eligible employer’s financial activities must attest that this is the case.

Eligible Employees

  1. Who is an eligible employee?

An eligible employee, in respect of a week in a claim period, means an individual employed in Canada by the eligible employer in the claim period, as long as the employee has not been without remuneration from the eligible employer in respect of a period of 14 or more consecutive days in the claim period.

Eligible employee status is determined in respect of each week in each claim period, so an employee that is not an eligible employee in a preceding claim period (because, for example, the 14 day remuneration condition has not been met) may become eligible in a following claim period (see example under Q15).

  1. Can an eligible employer claim the wage subsidy for an employee that the employer hires back and pays retroactively?

Yes. It is possible for an eligible employer to hire back eligible employees and pay them retroactively in respect of a claim period, to be able to qualify for the wage subsidy. Refer to Example 12.

Further, if such an employee has received a Canada Emergency Response Benefit (CERB) payment from the CRA for a claim period, and it is later determined that they are no longer eligible for the CERB, whether due to the employment or otherwise the employee is required to repay the CERB payment. There are ways for the employee to return or repay the CERB amount. For more details on repayment, please refer to Return or repay on the Apply for CERB web page.

14-1. If an eligible employer rehires an employee or hires a new employee who may have received CERB payments, will the employee be required to repay any or all of the CERB payments?

Individuals are required to repay the CERB if they no longer meet the eligibility requirements for the four-week period in question. For example, consider a laid off employee who has applied for the CERB for the four-week period of April 12 – May 9. At the time of application, the laid off employee expected to have little or no work or income for the four-week period of April 12 – May 9. However, the laid off employee finds out immediately afterwards that their employer will rehire them and will give back-pay for that same four-week period. In this situation, the rehired employee will be asked to repay the CERB for that four-week period of April 12 – May 9.

The conditions under which an employee is required to pay back the CERB differ slightly depending on whether it is the first four-week period for which the employee claimed the CERB, or whether it is for the subsequent four-week period.

For the first four-week CERB eligibility period, the employee will need to repay the $2,000 for this period if they have or will earn, for a period of two consecutive weeks in this four-week period, more than $1,000 (before taxes) from employment and self-employment income.

For the second four-week CERB eligibility period, the employee will need to repay the $2,000 for an eligibility period if they have or will earn more than $1,000 (before taxes) from employment and self-employment income during that period.

We will provide additional scenarios and examples shortly.

How to return a CERB payment

  1. Can an eligible employer claim the wage subsidy in respect of an eligible employee who has received payments under the CERB?

Yes, in certain situations, an eligible employer may be eligible to claim the wage subsidy in respect of an eligible employee who has received payments under the CERB program. However, as explained above (see Q13), where an individual has not been paid any remuneration from the eligible employer in respect of a period of 14 or more consecutive days in a claim period, the individual will not qualify as an eligible employee for that period of employment. Therefore, the eligible employer will not be eligible for the wage subsidy in respect of that employee for that claim period.

The onus is on the eligible employer to ensure that an employee, who has not been paid eligible remuneration in respect of 14 or more consecutive days in a claim period, is not included for that claim period. However, it is the employee’s responsibility to determine their eligibility for the CERB for any period.

Where an employee has received a CERB payment from the CRA and it is later determined that they are no longer eligible for the CERB, whether due to the employment or otherwise, the employee is required to return or repay the CERB payment. For more details, please refer to Return or repay on the Apply for CERB web page.

Example 9

Carl, as a sole proprietor, owns a corner store in London, Ontario, where he normally employs Molly on a full-time basis and two other employees on a part time basis. Carl had laid off all his employees on March 15, 2020, due to a decreased demand for his shop’s goods and services. However, following the announcement of the wage subsidy, Carl has determined that he is an eligible employer and decided to re-hire Molly—effective April 5, 2020—. He also hires a new employee, Paul, on April 12th. Paul was laid off by his previous employer due to the COVID-19 crisis.

Even though Molly was employed for a week in the first claim period (March 15, 2020, to April 11, 2020), she is not an eligible employee in that period because she was without remuneration from Carl for more than 14 consecutive days (21 days – March 15, 2020, to April 4, 2020). However, she may be an eligible employee in the following claim period (April 12-May 9, 2020), assuming Carl keeps Molly on his payroll and continues to pay her.

If Carl had instead chosen to rehire and pay Molly retroactively to March 15, 2020, she would have qualified as an eligible employee for the first claim period. In this scenario, Carl would have been eligible to claim the wage subsidy for the first claim period, in respect of the eligible remuneration paid to Molly.

Paul receives eligible remuneration starting April 12. Assuming Paul is not without eligible remuneration in respect of 14 or more consecutive days in the second claim period (April 12, 2020 – May 9, 2020), Paul would qualify as an eligible employee and Carl would be eligible to claim the wage subsidy with respect to the eligible remuneration paid to Paul, for the second claim period.

Now assume that both Paul and Molly received CERB payments during the time they were laid off, and Paul continued to receive CERB payments after he was hired. Carl’s eligibility for the wage subsidy will not change because of the CERB payments to Molly and Paul. However, it is Paul and Molly’s responsibility to determine their eligibility for the CERB for any period. If they have received a CERB payment and they are no longer eligible, they are required to repay the CERB payment.

  1. Can a non-resident employee be an eligible employee?

Yes, since eligible employee status is determined based on where the individual is employed and not where the individual resides. Generally, a non-resident individual employed in Canada during a claim period will qualify as an eligible employee as long as all other conditions to be an eligible employee are met.

Eligible Remuneration

  1. What is eligible remuneration?

Eligible remuneration of an eligible employee means amounts paid to employee as salary, wages, and other remuneration, certain taxable benefits (provided such amounts are actually paid), and fees, commissions or other amounts paid for services. These are amounts for which an eligible employer would generally be required to make payroll deductions to be remitted to the CRA. The following amounts are not considered eligible remuneration:

  • a retiring allowance;
  • an amount deemed to have been received by the eligible employee as an employment benefit in respect of a stock option agreement;
  • any amount received that can reasonably be expected to be paid or returned, directly or indirectly, to the eligible employer or to a person (or a partnership) at the direction of the eligible employer or with whom the eligible employer does not deal at arm’s length;
  • any amount that is paid in respect of a week in the claim period, if, as part of an arrangement involving the eligible employee and the eligible employer:
    • the amount is in excess of the eligible employee’s baseline remuneration,
    • after the claim period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and
    • one of the main purposes for the arrangement is to increase the amount of the wage subsidy.

17-1. Are tips included in eligible remuneration?

Whether tips are included in eligible remuneration depends on the type of tips received by the eligible employee. Controlled tips as well as declared tips are eligible remuneration for the purpose of the wage subsidy. However, direct tips are not eligible remuneration for the purposes of the wage subsidy.

The CRA webpage on Tips and gratuities describe three types of tips:

  • Controlled tips: The term controlled tips refers to tips that an employer controls or possesses and then must pay to the employee.
  • Direct tips: Direct tips are paid directly by the customer to the employee. The employer has no control over the tip amount or its distribution. The employer is merely a conduit for the tip from the customer to the employee.
  • Declared tips (in the province of Quebec only): Declared tips are the amount of tips that provincial law requires an employee to declare to their employer along with their controlled tips. Employees working in a regulated establishment in Quebec must declare their direct tips to their employer.

17-2. In an owner-managed corporation, is the salary and dividends paid to the owner-manager considered eligible remuneration for the purpose of the wage subsidy?

In an owner managed corporation, the owner-manager may pay themselves dividends rather than salaries. In addition, such payments may not be made on a regular basis throughout the year.

For the purpose of the wage subsidy, dividends are not considered eligible remuneration. Accordingly, an eligible employer that pays a dividend instead of salary to an owner-manager that is also an eligible employee in a claim period, will not be eligible for the wage subsidy in respect of that dividend. Further, where an eligible employer pays the owner-manager both dividends and salary in a claim period but has not paid any salary during the period that begins on January 1, 2020 and ends on March 15, 2020 (baseline remuneration), it will not be eligible for the wage subsidy in respect of eligible remuneration paid to the owner-manager in the claim period.

Example 9-1

Katherine, who manages the operations of XYZ Inc., also owns all of the issued shares of the corporation. XYZ Inc. is an eligible employer and has continuously employed two employees in Canada.

During the period from January 1 to March 15, 2020, Katherine received average weekly eligible remuneration of $500 (baseline remuneration) and also received a dividend of $2,000 per month.

On account of decreasing revenues during the COVID-19 crisis, XYZ Inc. is no longer able to retain its two employees and lays them off. Katherine continues to operate XYZ Inc.’s business.

XYZ Inc. maintains Katherine’s weekly salary of $500, but her dividend payment is reduced to $1,000 per month.

Since Katherine does not deal at arm’s length with XYZ Inc., the wage subsidy amount in respect of a week in a claim period will be limited to the lesser of the amount of the eligible remuneration paid in respect of the week (up to a maximum of $847) and 75% of the eligible employee’s baseline remuneration.

Accordingly, XYZ Inc.’s wage subsidy amount for a week in a claim period is $375, which represents 75% of the baseline remuneration of $500. It does not include the dividend that was paid to Katherine, as dividends are not considered eligible remuneration. XYZ Inc. is thus entitled to a total wage subsidy amount of $1,500 for the 4 week claim period (i.e. $375 x 4 weeks = $1,500).

Example 9-2

In Example 9-1 now consider a situation where XYZ Inc. pays Katherine no salary but only a dividend of $2,000 per month for the period from January 1 to March 15, 2020. All other facts remain the same.

Since Katherine does not deal at arm’s length with XYZ Inc., the wage subsidy amount in respect of a week in a claim period will generally be limited to the lesser of the amount of the eligible remuneration paid in respect of the week (up to a maximum of $847) and 75% of the eligible employee’s baseline remuneration.

In this scenario, though Katherine received eligible remuneration during the claim period, her baseline remuneration is nil because she received only dividend from January 1 to March 15, 2020, and dividends are not considered eligible remuneration for the purposes of the wage subsidy. Therefore, in this situation, the wage subsidy amount of XYZ Inc. for the claim period is nil.

17-3. Are sick pay, vacation pay and statutory holiday pay included in eligible remuneration?

Amounts paid by an eligible employer to an eligible employee as sick pay, vacation pay or statutory holiday pay is generally considered part of an employee’s normal salary, wages, and remuneration and would qualify as eligible remuneration.

However, to be eligible for the wage subsidy, the eligible remuneration paid to an eligible employee must be in respect of a week in a claim period (see Q26-1). Therefore, to qualify for the wage subsidy, the sick pay, vacation pay or statutory holiday pay must have been paid to the eligible employee in respect of a particular week in the claim period. This would generally be the case where an eligible employee is absent from work on paid sick or vacation time during a week in the claim period or when a statutory holiday falls during a week in the claim period. If an eligible employee’s vacation pay entitlement is paid out in addition to their base salary or wages on every paycheque (for example, if 4% is added to each paycheque in lieu of paid vacation time off), the vacation pay would be considered in respect of the same week as the salary or wages paid and also qualify for the wage subsidy.

Sick pay or vacation pay would not be considered in respect of a week in the claim period and would not qualify for the wage subsidy where an employee receives a lump-sum amount that accrued in a prior period. However, where an eligible employee receives a lump-sum amount of vacation pay for a week when the employee is taking what would otherwise be unpaid vacation time, a reasonable amount of the lump-sum may be considered to have been paid in respect of the week (see Example 9-3).

Note: If an eligible employer enters into an arrangement to change the method used for paying an eligible employee’s vacation pay or uses accrued vacation pay to increase the employee’s remuneration during a claim period when the employee is not taking vacation time, the amount may be excluded from the employee’s eligible remuneration.

Example 9-3

Chad works part time and earns $350 per week before vacation pay. Chad is entitled to two weeks of unpaid vacation time a year and 4% vacation pay (accrued on his gross wages). Under an agreement with his employer, Chad may request to have all or a portion of the accrued vacation pay paid out at any time.

Chad took one week of unpaid vacation time between May 3 and May 9, 2020. On May 3, 2020, Chad had a $600 balance of accrued vacation pay and requested that $500 of that balance be paid out for the week of May 3, 2020. In this scenario, $350 of the $500 vacation pay Chad received would generally be considered to be in respect of the week of May 3, 2020 and will qualify for the wage subsidy.

Example 9-4

Angelica receives an annual salary of $31,200, or the equivalent of $600 per week. Angelica is also entitled to four weeks of paid vacation time a year. Under Angelica’s contract of employment, she is not allowed to carry over more than six weeks of vacation time into her employer’s following fiscal year. All accrued vacation in excess of six weeks is paid out in cash at the employee’s current rate of pay. On April 30, 2020, the fiscal year end of her employer, Angelica had eight weeks of accrued paid vacation time. Angelica’s employer will therefore pay out her excess two weeks of vacation, and proposes to do so in a lump sum payment of $1,200 on her next paycheque in addition to her normal salary for the pay period. In this scenario, the $1,200 lump sum payment for Angelica’s excess vacation will not qualify for the wage subsidy.

  1. What is baseline remuneration?

Baseline remuneration means the average weekly eligible remuneration paid to an eligible employee by an eligible employer during the period that begins on January 1, 2020, and ends on March 15, 2020. However, any period of seven or more consecutive days for which the employee was not remunerated is excluded from the calculation.

The government has proposed that where an eligible employer elects, it can instead use a period that begins on March 1 and ends on May 31, 2019 (see Q18-1).

18-1. Can eligible remuneration be retroactively paid to increase baseline remuneration?

No. A payment of eligible remuneration from an eligible employer to an eligible employee made subsequent to the period that begins on January 1, 2020 and ends on March 15, 2020, is excluded from baseline remuneration. For a payment of eligible remuneration to be included in baseline remuneration, such an amount must be paid between January 1, 2020 and March 15, 2020, inclusive.

Note: On May 15, 2020, the government announced a proposal to amend the wage subsidy to allow employers to choose one of two periods when calculating the baseline remuneration of their employees. Specifically, employers would be allowed to calculate baseline remuneration for an employee as the average weekly remuneration paid to the employee from January 1 to March 15 of 2020, or, alternatively, as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019, in both cases excluding any period of 7 or more consecutive days without remuneration. Employers would be able to choose which period to use on an employee-by-employee basis.

This proposed change is not yet enacted and would come into effect when it receives Royal Assent. The change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first claim period starting March 15, 2020 and subsequent claim periods.

This proposed change does not impact the above response that eligible remuneration cannot be paid retroactively to increase baseline remuneration.

  1. Will an eligible employer qualify for the wage subsidy in respect of eligible remuneration that it pays, if the amount is not taxable to the eligible employee?

Eligible remuneration of an eligible employee means amounts for which the eligible employer would generally be required to make payroll deductions to be remitted to the CRA, irrespective of whether the amounts are taxable to the eligible employee. For example, salaries and wages paid to a status IndianFootnote 3 whose income is exempt from tax under a specific provision of the Act are considered eligible remuneration and would qualify for the purpose of calculating the wage subsidy.

Calculating the wage subsidy

  1. How is the wage subsidy calculated?

For an eligible employer that qualifies for the wage subsidy, the amount of the wage subsidy for a claim period is the total of the following amounts in respect of the claim period (there is no overall limit on the wage subsidy amount that an eligible employer may claim):

  • Total of all amounts, each of which is for an eligible employee in respect of a week in the claim period, equal to the greater of
    1. the least of
  1. 75% of eligible remuneration paid to the eligible employee in respect of that week,
  2. $847, and
  • if the eligible employee does not deal at arm’s length with the eligible employer in the claim period, $0, and
    1. the least of
      1. the amount of eligible remuneration paid to the eligible employee in respect of that week,
      2. 75% of baseline remuneration in respect of the eligible employee determined for that week, and
      3. $847;
  • Total of the employer contributions to Employment Insurance (EI), the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), and the Quebec Parental Insurance Plan for an eligible employee for each week in the claim period throughout which week that employee is on leave with pay and for which claim period the employer is eligible for the wage subsidy for the employee (see Note 1 below)
    Less:
  • Total of all amounts claimed or intended to be claimed under the 10% Temporary Wage Subsidy for Employers, by the eligible employer that qualifies for the Canada Emergency Wage Subsidy for the claim period; and
  • Total of all amounts received by the eligible employee for each week in the claim period as a work-sharing benefit under the Employment Insurance Act (see Note 2 below).

Note 1: In general, for the amount in (II), an eligible employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the eligible employer for that week but does not perform any work for the employer in that week. This amount in (II), would not be available for eligible employees that are on leave with pay for only a portion of a week. In addition, regular rules will apply in calculating the employer contributions in respect of that employee.

Note 2: On an administrative basis, CRA will accept a reasonable estimate of work sharing benefits received by eligible employees if the eligible employer does not have the exact amount.

Example 10

John and Zac own a corporation, XYZ Ltd. that operates a garage in London, Ontario. They are working full time, but do not draw any salary, and have two full time employees each earning a weekly salary of $1,200 (their baseline remuneration), for an annual salary of $62,400, and two part-time employees, each earning $500 per week (their baseline remuneration), for an annual salary of $26,000. John and Zac have reduced their opening hours due to decreased demand for their service following the COVID-19 crisis, and laid off all their employees effective March 15, 2020. Following the announcement of the wage subsidy, they decide to re-rehire, effective April 12, 2020, two of their laid off employees, Ahmed (full time employee) and Ken (part-time employee). These employees are paid the same weekly salary that they received before being laid-off – $1,200 and $500 respectively (eligible remunerations).

Assume that XYZ Ltd. is an eligible employer that qualifies for the wage subsidy and it does not receive any other subsidy. Further assume that the rehired employees are employed for the entire claim period April 12 – May 9, 2020. The weekly qualifying remuneration for the claim period is calculated as follows:

Example 10 table
 AhmedKen
75% of eligible remuneration [A]$900$375
Maximum amount (i.e. $847) [B]$847$847
Nil, for non-arm’s length employees [C]N/AN/A
Lesser of Amounts A to C [D]$847$375
Eligible remuneration [E]$1,200$500
75% of baseline remuneration [F]$900$375
Maximum amount (i.e. $847) [G]$847$847
Lesser of Amounts E to G [H]$847$375
Qualifying weekly remuneration per employee; Greater of Amounts D and H [I]$847$375
Total number of eligible employees [J]11
Total Qualifying remuneration; Amount I multiplied by Amount J [K]$847$375
Total for the claim period; Amount K multiplied by 4 (number of weeks in the claim period)$3,388$1,500

Total Canada Emergency Wage Subsidy that XYZ Ltd. is eligible to claim for the claim period is: $4,888 ($3,388 + $1,500)

Example 11

In the above Example 10, now consider a situation where the owners, John and Zac draw a weekly salary of $1,500 (annual salary of $78,000), and continue to do so during the claim period indicated in the above example. In addition, the two employees are now rehired for a reduced weekly salaries of $900 for Ahmed and $300 for Ken (their respective eligible remunerations). The weekly qualifying remuneration for the claim period is calculated as follows:

Example 11 table
 AhmedKenOwner (John and Zac)
75% of eligible remuneration [A]$675$225$1,125
Maximum amount (i.e. $847) [B]$847$847$847
Nil, for non-arm’s length employees [C]N/AN/A$0
Lesser of Amounts A to C [D]$675$225$0
Eligible remuneration [E]$900$300$1,500
75% of baseline remuneration [F]$900$375$1,125
Maximum amount (i.e. $847) [G]$847$847$847
Lesser of Amounts E to G [H]$847$300$847
Qualifying weekly remuneration per employee; Greater of Amounts D and H [I]$847$300$847
Total number of eligible employees [J]112
Total Qualifying remuneration; Amount I multiplied by Amount J [K]$847$300$1,694
Total for the claim period; Amount K multiplied by 4 (number of weeks in the claim period)$3,388$1,200$6,776

Total Canada Emergency Wage Subsidy that XYZ Ltd. is eligible to claim for the claim period is: $11,364 ($3,388 + $1,200 + $6,776)

Note: As can be seen from the above example, where the eligible remuneration is equal to or less than 75% of the baseline remuneration for an eligible employee, the employer is eligible for 100% wage subsidy in respect of that employee (in this case, salary paid to Ken in respect of the claim period) to a maximum of $847 per week.

Example 12

Eliza and Abdi own a corporation, Alpha Ltd., that operates a take-out restaurant in Sudbury, Ontario. They are working full time, each drawing a salary of $1,000 per week (baseline remuneration), and have four part-time employees, each earning $500 per week (baseline remuneration), for a total weekly payroll of $4,000. Eliza and Abdi have reduced their opening hours due to decreased demand for their service following the COVID-19 crisis, and laid off two of their employees effective March 15, 2020. Following the announcement of the wage subsidy, they decide to re-hire them effective March 28, 2020. Eliza and Abdi also decided to pay their two employees retroactively for the entirety of the time they had been laid off.

However, these two rehired employees are not being asked to report to work during this challenging period and will be paid only $300 per week while the retained employees will be paid a weekly salary of $600, (both eligible remunerations). Alpha Ltd. did not receive any other subsidy or work-sharing benefits during the claim period, beginning March 15, 2020 and ending April 11, 2020.

Assuming that Alpha Ltd. is an eligible employer that qualifies for the wage subsidy, the qualifying weekly remuneration for the claim period is calculated as follows:

Example 12 table
 Retained employeeRehired employeeOwner (Eliza and Abdi)
75% of eligible remuneration [A]$450$225$750
Maximum amount (i.e. $847) [B]$847$847$847
Nil, for non-arm’s length employees [C]N/AN/A$0
Lesser of Amounts A to C [D]$450$225$0
Eligible remuneration [E]$600$300$1,000
75% of baseline remuneration [F]$375$375$750
Maximum amount (i.e. $847) [G]$847$847$847
Lesser of Amounts E to G [H]$375$300$750
Qualifying weekly remuneration per employee; Greater of Amounts D and H [I]$450$300$750
CPP withholdings eligible for refund; [J] (see note below)$0$15.75$0
EI withholdings eligible for refund; [K] (see note below)$0$6.60$0
Total of Amounts I to K [L]$450$322.35$750
Total number of eligible employees [M]222
Total Qualifying remuneration; Amount L multiplied by Amount M [N]$900$644.70$1,500
Total for the claim period; Amount N multiplied by 4 (weeks) [O]$3,600$2,579$6,000
10% Temporary subsidy received for the claim period [P]$0$0$0
Work-sharing benefit received for the claim period [Q]$0$0$0
Amounts that reduce the wage subsidy; Amount P plus Amount Q [R]$0$0$0
Canada Emergency Wage Subsidy that Alpha Ltd. is eligible to claim for the claim period; Amount O minus Amount R$3,600$2,579$6,000

Total Canada Emergency Wage Subsidy that Alpha Ltd. is eligible to claim for the claim period is: $12,179 ($3,600 + $2,579 + $6,000)

Note: The CPP and EI amounts eligible for refund is provided for illustrative purposes only.

  1. Will I be eligible for both the Canada Emergency Wage Subsidy and the 10% Temporary Wage Subsidy for Employers?

You may be eligible for both the Canada Emergency Wage Subsidy (CEWS) and the 10% Temporary Wage Subsidy for Employers (10% temporary wage subsidy). However, for an eligible employer that is eligible for both subsidies for a period, all amounts that the employer claims under the 10% temporary wage subsidy for remuneration paid in a specific claim period, reduce the amount available to be claimed under the CEWS in that same period.

The 10% temporary wage subsidy is equal to 10% (or a lower percentage that the employer elects – see note below), of the remuneration that an eligible employer pays from March 18, 2020 to June 19, 2020, up to $1,375 for each employee, to a maximum of $25,000 total per employer.

If the income taxes you deduct with respect to the remuneration you paid are not sufficient to offset the value of the subsidy in that period, you can reduce future payroll remittances to benefit from the subsidy. However, the entire amount claimed under the 10% temporary wage subsidy must be applied to reduce the CEWS for the claim period in which the remuneration is paid.

Note: If an eligible employer completes their CEWS application and does not enter any amount for the 10% temporary wage subsidy, the CEWS will be determined as if the employer is electing 0% as the prescribed percentage for calculating their 10% temporary wage subsidy and requesting the maximum CEWS. However, the eligible employer should indicate the 0% election on the self-identification form under the 10% temporary wage subsidy program.

Example 13

Assume an eligible employer is eligible for both the subsidies. It calculates its 10% temporary wage subsidy as $2,050 on remuneration paid from April 12 to May 9, 2020 (which coincides with the second claim period), using the 10% rate. However, it only deducted $1,050 of federal, provincial, or territorial income tax from its employees for that period.

While the eligible employer can still reduce a future payroll remittance by $1,000 in respect of the balance (even if that remittance is in respect of remuneration paid after May 9, 2020), its CEWS claim for the same period (April 12 to May 9, 2020), is reduced by the entire amount of $2,050.

Example 13-1

In Example 13, assume the eligible employer elects to apply a percentage less than 10% to determine the 10% temporary wage subsidy such that the subsidy is now only $1,050. It is now able to offset the entire $1,050 of the subsidy against the $1,050 from the federal, provincial, or territorial income tax withheld from its employees for that period. In this situation, its CEWS claim for the same period (April 12, to May 9, 2020), is reduced by only $1,050.

Example 13-2

Now assume in Example 13, the eligible employer elects a percentage of 0% for the 10% temporary wage subsidy. Consequently that subsidy will be nil on remuneration paid from April 12, to May 9, 2020 (which coincides with the second claim period). In this situation, it does not reduce the amount of federal, provincial, or territorial income tax withheld from its employees for that period. In addition, its CEWS claim for the same period (April 12, to May 9, 2020), is not reduced. Where the eligible employer does not claim any amount, it should indicate the 0% election on the self-identification form under the 10% temporary wage subsidy program.

  1. Can I claim the wage subsidy for an eligible employee even if they were hired after March 15, 2020?

Yes, an eligible employer may be able to claim the wage subsidy for eligible remuneration paid to eligible employees hired after March 15, 2020.

However, for an eligible employee that does not deal at arm’s-length with the eligible employer, it may be able to claim the wage subsidy only if that employee was employed by the eligible employer and has been paid eligible remuneration during the period that begins on January 1, 2020 and ends on March 15, 2020 (or as proposed, where the eligible employer elects, a period that begins on March 1 and ends on May 31, 2019, baseline remuneration, see Q18 & 18-1).

Example 14

ABC Ltd. is an eligible employer and John is the sole shareholder of the corporation having two employees. It laid off its employees at the beginning of March 2020. However, on March 16, ABC Ltd. hires two new employees, Ali and John’s wife Sally. Since Sally does not deal at arm’s length with ABC Ltd. and she was not an employee of ABC Ltd. prior to March 16, 2020, ABC Ltd. will not be eligible for wage subsidy in respect of eligible remuneration paid to Sally. Provided Ali otherwise qualifies as an eligible employee of ABC Ltd. and receives eligible remuneration, ABC Ltd. may be eligible to claim wage subsidy in respect of the eligible remuneration paid to Ali.

  1. Can an eligible employer claim the wage subsidy for an eligible employee even if they do not deal at arm’s length with each other?

An eligible employer may be eligible to claim the wage subsidy in respect of an eligible employee who does not deal at arm’s length with it, provided the individual was an eligible employee of the eligible employer anytime during the period beginning January 1 and ending March 15, 2020, and was paid eligible remuneration for that time (baseline remuneration).

Example 15

Consider the example in Q 22. In that example, if Sally was an eligible employee of ABC Ltd. anytime during the period beginning January 1 and ending March 15, 2020 and received baseline remuneration, even if she was laid off and rehired after March 15, 2020, ABC Ltd. may be eligible for the wage subsidy for the claim period that she was employed.

  1. Is there a special rule for the amount of wage subsidy that can be claimed if an eligible employee is employed by two or more eligible employers?

Generally, there is no limit on the wage subsidy amount that an eligible employer may claim or the total number of eligible employees it could employ during the claim period. However, there is a special rule where an eligible employee is employed in a week by two or more eligible employers that do not deal with each other at arm’s length. In this situation, the total amount of wage subsidy in respect of the eligible employee for that week cannot exceed the amount that would arise if the eligible employee’s eligible remuneration for that week were paid by only one eligible employer that qualifies for the wage subsidy.

  1. Is the wage subsidy considered taxable income?

Yes. The wage subsidy received by an eligible employer is considered assistance received from a government immediately before the end of the claim period to which it relates. The amount is taxable and is to be included in computing the income of the eligible employer. The eligible remuneration paid to the employee will be a deductible expense for the employer.

However, the wage subsidy received by the eligible employer will not be included in the calculation of its qualifying revenue.

Claiming the wage subsidy

  1. When can I claim the wage subsidy?

Eligible employers that qualify to claim the wage subsidy will be able to apply to the CRA starting on April 27, 2020.

Applications in respect of a claim period can be made only after the end of the claim period, provided the eligible employer has paid the eligible remuneration that it is claiming for that period.

Additionally, wage subsidy applications must be made before October 2020.

26-1. How do my biweekly, monthly, or semi-monthly pay periods align with the eligible remuneration paid in respect of each week?

An eligible employer’s payroll frequency (whether biweekly, semi-monthly, monthly, etc.) has no effect on the calculation of eligible remuneration paid for purposes of the wage subsidy. While the eligible remuneration must have been paid to the eligible employee, it does not matter whether the employee receives their paycheque for a week at the end of the week, at the end of the month, or otherwise. If an employer’s payroll cycle does not align with the wage subsidy for the claim periods, they will have to do a manual calculation to reflect the remuneration paid in respect of that claim period. Employers will not be permitted to use an average of the daily wages paid. The eligible remuneration reported on an employer’s wage subsidy application must reflect the actual amount paid in respect of the claim period.

Below are two examples of when an eligible employer can claim the wage subsidy if it pays their eligible employees on a monthly basis.

Example 16

An eligible employer pays its sole eligible employee monthly, on the first of each month for the previous month, based on an annual salary of $52,000 per year. The eligible employee would therefore have $1,000 of pay for each of the four weeks in the first claim period (that begins on March 15, 2020 and ends on April 11, 2020).

Once the eligible employer has paid the eligible employee for each of the weeks in the claim period, the eligible employer would be able to apply for the wage subsidy. In this example, that would be after the eligible employee is paid on May 1, 2020, because the eligible employee’s April 1, 2020 paycheque does not reflect the eligible employee’s salary for a portion of the first claim period (i.e., April 1, 2020 to April 11, 2020).

The wage subsidy would be calculated based on the $1,000 per week that the eligible employee is paid for each of the weeks in the first claim period.

Similarly, the eligible employer would be able to apply for the wage subsidy for the second claim period (that begins on April 12, 2020 and ends on May 9, 2020) after it has paid the eligible employee for each of the weeks in that period. This would be after the June 1, 2020 paycheque is paid and would also be calculated based on the $1,000 per week that the eligible employee is paid for each of the weeks in the second claim period.

If the eligible employer does not qualify for the wage subsidy in the third claim period (that begins on May 10, 2020 and ends on June 6, 2020), the eligible employer would still be entitled to the wage subsidy in respect of the eligible employee’s salary for the second claim period even though the June 1, 2020 paycheque is paid during the third claim period. That is because the wage subsidy calculation is based on an eligible employee’s pay for each of the weeks in the relevant period regardless of the eligible employer’s pay cycle.

Example 17

The facts are the same as in example 1, except that the eligible employer had laid off the eligible employee in early March 2020 and, in May 2020, the eligible employer rehired the eligible employee retroactive to March 15, 2020. In this example, the eligible employee is paid for the period from March 15 to the end of May in their June 1, 2020 paycheque.

As with the first example, the eligible employer would be able to apply for the wage subsidy in respect of each of the first two claim periods after it pays its eligible employee for the weeks covering these periods (i.e., on June 1, 2020) and the wage subsidy would be calculated based on the $1,000 per week that the eligible employee is paid for those weeks. The wage subsidy in relation to remuneration paid in respect of the third claim period (from May 10 to June 6) could then be claimed after the July 1, 2020 paycheque, assuming the eligible employer qualifies for wage subsidy for the third claim period.

26-2. Can I use an average daily wage if my payroll cycle does not align exactly with the wage subsidy claim period or do I have to use an exact daily figure?

In calculating the wage subsidy for an eligible employee for a particular week in a claim period, the eligible employer takes into account amounts paid to the employee in respect of that week. If an employee’s remuneration fluctuates from day to day, for example depending on shifts and hours worked, employers will not be permitted to use an average of the daily wages paid to calculate the subsidy. In addition, an employer cannot use an average of total daily wages for all eligible employees to calculate the total subsidy for each week, as the subsidy must be determined on an employee-by-employee basis.

  1. How do I claim the wage subsidy?

Eligible employers will be able to apply for the wage subsidy through the CRA’s My Business Account portal or the Web Forms application.

Representatives (authorized at a level 2 or 3) will be able to apply for the wage subsidy on behalf of their clients through the Represent a Client service, as well as through the Web Forms application.

To log in to or register for the CRA’s online services, go to canada.ca/taxes-business-online.

To use the Web Forms application, or if you have misplaced or do not have a web access code, go to canada.ca/taxes-iref.

When completing the application, you will need:

  • your payroll program account number (123456789RP0001, for example);
  • to know which claim period you are applying for;
  • all of the information necessary to complete the applicable fields in the application.

The processing of the wage subsidy will be performed at the payroll program account level, so you will have to file a separate application for each payroll program account. For example, if you have two payroll program accounts (123456789RP0001 and 123456789RP0002, for example) and are claiming wage subsidy for eligible employees under each account, you must file 2 separate applications.

When you apply for the wage subsidy, you will be asked to enter amounts such as the number of eligible employees and total eligible remuneration paid to those employees in respect of the claim period. To get ready, we have created a web page where you can determine these amounts and preview your subsidy now, based on information you enter. For more information, go to Calculate your subsidy amount.

Upon completion of your application, you will be required to keep records supporting your wage subsidy claim (see Q33).

  1. How soon can I expect to receive my wage subsidy after applying?

For most complete applications that pass our system validations, a payment will be issued automatically, though some applications may be selected for a pre-claim review.

While delays may occur if additional review is required or the CRA needs to contact you, you can generally expect to receive your payment within 10 business days if you are registered for direct deposit on your payroll account.

If you are not registered for direct deposit, please allow additional time for your cheque to be delivered by mail to the address on your payroll account.

Direct deposit is a fast, convenient, reliable, and secure way to get your CRA payments directly into your account at a financial institution in Canada. To enrol for direct deposit or to update your banking information, go to Direct deposit.

Note: If you are expecting an amount of $25 million or more, you need to be registered for both direct deposit and the Large Value Transfer System.

28-1. In what circumstances will I have to return or repay any or all of the wage subsidy that I received?

Generally, an employer would be required to repay all amounts paid under the wage subsidy if the CRA determined during the post-payment review or audit, that it did not meet the eligibility requirements (see Q4).

An employer will also have to return or repay all or part of the wage subsidy where:

  • it made an error in the calculation of the amount claimed for a period, thereby reducing the amount originally claimed;
  • it noticed that it did not qualify for the wage subsidy after submitting the application and receiving the wage subsidy;
  • it noticed that it made a data entry error (typo), thereby reducing the amount originally claimed for a period;
  • on a review of its claim by the CRA after it received the subsidy, the claim amount was either rejected or reduced by the CRA.

Note: Interest may apply to excess wage subsidy amounts received. Penalties may also apply in cases of fraudulent claims (see Q34).

  1. Are there any special T4 reporting requirements for the wage subsidy?

Employers will be expected to report the eligible remuneration paid to each employee in respect of the claim periods using three new codes in the “Other information” area at the bottom of the employees’ T4 slips. More information on the T4 reporting requirements will be released before the end of the year.

  1. Will the wage subsidy be automatically applied against outstanding debt?

No, wage subsidy payments will not be automatically applied against any outstanding debt you have with the CRA.

However, the legislation gives the CRA the ability to administer the wage subsidy program fairly and reasonably and allows for a common-sense approach to dealing with situations that prevent compliance with our tax laws.

The CRA does have the discretion to reduce the amount of the wage subsidy payment if an applicant owes or are about to owe a debt and the CRA determines there is a risk of not collecting all or part of your tax debt.

  1. Will the CRA withhold my wage subsidy because of outstanding returns?

No, wage subsidy payments will not be automatically withheld because of outstanding returns under the Income Tax Act or the Excise Tax Act (as well as certain other tax related laws).

However, the legislation gives the CRA the ability to administer the wage subsidy program fairly and reasonably and allows for a common-sense approach to dealing with situations that prevent compliance with our tax laws.

The CRA does have the discretion to withhold the amount of the wage subsidy payment in cases where there is a significant history of not complying with a duty or obligation under our tax laws.

Ensuring Compliance

  1. How will the CRA Ensure Compliance?

The CRA will use a combination of automated queries and validation within its data, follow-up phone calls to verify certain elements of the claim when necessary, and more comprehensive post-payment reviews or audits.

The CRA will monitor the initial intake of claims and adjust its queries as necessary. The extent of future post-payment reviews will depend on the conclusions the CRA reaches as it reviews the intake of claims.

As with the CERB, the CRA is actively monitoring the situation to ensure that compliance with the tax laws is assured.

In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, the employer would be required to repay amounts paid under the wage subsidy if they do not meet the eligibility requirements.

  1. What books and records do I need to support my claim?

The CRA expects that you will maintain adequate books and records to ensure that your claim is accurate and complete, and clearly supports your eligibility for the wage subsidy for a claim period.

Books and records includes ledgers, journals, financial statements, contracts, elections, calculations or other working papers, payroll records, sales invoices and any other relevant document. For additional information about adequate records and recordkeeping, please see What are records and who has to keep them?

To support the claim in your wage subsidy application that your revenue for a current reference period has declined sufficiently from the relevant prior reference period, adequate calculations should generally be prepared and maintained through working papers. In situations where a small employer does not maintain detailed monthly records, the CRA will be reasonable; however, any assumptions made in any calculation should be included in the documentation and available for review if requested.

In addition to showing the calculation of the wage subsidy claimed for each eligible employee, the documentation maintained must also include an analysis of the nature of the remuneration. Dividends and other ineligible remuneration should be recognized and then clearly indicated as having been removed from the calculation. Supporting documentation should be retained.

A signed attestation, and record of any elections (see Q12-2), made for the purposes of determining your qualifying revenue, must also be maintained and made available to the CRA upon request.

  1. Are there penalties for non-compliance?

Yes. Due to a specific anti-avoidance rule, an employer will not be eligible to claim the wage subsidy for a claim period if the employer (or a person or partnership that does not deal at arm’s-length with that employer) participates in a plan that has one of the main purposes of effectively reducing the employer’s qualifying revenues for the current reference period, in order to qualify for the subsidy. Where this anti-avoidance rule applies, the employer will be liable to a penalty equal to 25% of the amount of wage subsidy that is claimed in its application, and will have to pay back any wage subsidy that it received. If an employer knowingly, or under circumstances amounting to gross negligence, generally makes, or is involved in the making of a false statement or omission in its wage subsidy application for a claim period, the employer is liable to a penalty (commonly referred to as the “gross negligence penalty”) of up to 50% of the difference between the amount of wage subsidy that it claimed in its application and the amount of wage subsidy to which it is actually entitled.

Penalties may apply in cases of fraudulent claims. The penalties may include fines or even imprisonment.

Finally, if a person (such as an accountant or tax preparer) files or prepares the wage subsidy application on behalf of the employer, they could be subject to a third-party penalty under the Act, if they know, or would reasonably be expected to know, that the application contains false statements, including an omission of information. Third-party penalties are explained in detail in the CRA’s Information Circular IC01-1, Third-Party Civil Penalties.

  1. Will the CRA publish a list of employers that have applied for the CEWS?

The Act authorizes the CRA to publish the name of any eligible employer that makes an application for the wage subsidy. The CRA will provide updates regarding the timely publication of a list or registry of wage subsidy applicants. The process for making this information available is still under consideration.

  1. What is the recourse process when the CRA denies part or all of the wage subsidy amount claimed by an employer?

If an employer disagrees with the decision made by the CRA in regard to the wage subsidy claim, the employer may request a second level review of the claim application. The request for a second level review must include all supporting documents (see Q33), and be submitted within 30 days of the date of the letter that communicated CRA’s original decision. The second level review is conducted by someone other than the original decision-maker.

Employers should submit their request online by logging into My Business Account and selecting “Register a formal dispute”. While the CRA’s Appeals Branch (“Appeals”) portal is being used to expedite receipt and processing of all second level review requests, the review itself will not be undertaken by Appeals.

Once a Notice of Assessment or Notice of Determination, as applicable, has been issued for the employer’s income tax return for the taxation year in which the claim period ends, formal recourse rights (notice of objection, and appeal to the Tax Court of Canada), through Appeals will still be available if the employer disagrees with the second level review decision.

Footnotes

Footnote 1

If the eligible employer meets the 15% required reduction in revenue for the first claim period – March 15 to April 11, 2020, it will be deemed to have met the 30% required reduction in revenue for the second claim period – April 12 to May 9, 2020 (see Table 2).

Footnote 2

For the required reduction in revenue to qualify to claim the wage subsidy under the general and alternative approach see Table 1

Footnote 3

We use the term “Indian” because it has a legal meaning in the Indian Act.

Footnote 4

Rules for claim period 4 will be the same as those for claim period 3.