NOTE: the comments provided are based on the information available today and further announcements or changes could impact that information.

The Canadian Government announced that all eligible employers, which includes registered charities and non-profits in Canada, may apply for a subsidy to pay wages or to rehire affected employees previously laid off or furloughed due to the Covid-19 crisis. The subsidy would be effective retroactive to March 15, 2020. This subsidy provides for up 75% of the employee’s normal wage to a maximum of $847.00 per week or 75% of the wage, whichever is less.

For example: if a fictional registered charity has revenue typically of $500,000 per year and a payroll of $300,000 consisting of 10 employees.  That means this charity spends about 60% of its revenue on employees and that is fairly typical for some charities.  These employees have been sent home with pay.  They each earn $30,000/year which is $572.92/week.  If the charity has a decline in revenue of 40% for the three periods as noted in the Department of Finance release which puts them over the 15% decline in revenue for Period 1 and the higher 30% decline in revenue for Period 2 and 3.

 

Period datesBaseline revenueEligibility period revenueRequired reduction
March 15, 2020 to April 11, 2020
  • March 2019, or
  • Average of January and February 2020
March 202015%
April 12, 2020 to May 9, 2020
  • April 2019, or
  • Average of January and February 2020
April 202030%
May 10, 2020 to June 6, 2020
  • May 2019, or
  • Average of January and February 2020
May 202030%

 

The charity could apply for the subsidy and receive ($576.92 per employee X 75%) = $432.69/week or $847.00 whichever is the lessor. The charity would then apply through the MyBA account (or another portal) for a subsidy in the amount of 10 employees X $432.69 for a total of $4,326.90 per week and as there are 4 weeks in cycle (4 X $4,326.90) $17,307.60, plus the amount of employer-paid CPP and EI contributions.

In the end to pay your employees their full wage it costs you only 25% over the 12 week period.  Charities and non-profits to be eligible for the 75% don’t have pay the full salary.   It is important to know that the employer must pay its employees before the subsidy is applied for and the Government hopes that employers would make up the 25% difference to keep employees at the 100% of wages previously earned.

Here are some other points about the CEWS:

  • Reduced by the amount of earlier 10% wage subsidy, if any claimed, or amounts claimed by employees for CERB, if any.
  • Applies also to non‑profit organizations and registered charities but not “public bodies” like public universities, colleges, schools and hospitals.
  • When reference is made to non-profit organizations it is organizations that qualify under Section 149(1)(l) of the Income Tax Act (Canada).  Many groups that consider themselves “non-profit” don’t meet the requirements of Section 149(1)(l) and may not be entitled to the subsidy.  For further information on Section 149(1)(l) non-profits see the CRA’s NPORIP.  We will see how carefully CRA enforces that requirement and whether groups have to pay the funds back.
  • The Government has expanded the CEWS by introducing a new 100 percent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan.
  • With the wage subsidy – if you qualify for Period 1 then you also get Period 2 or if you qualify for Period 2 you get Period 3.  So if you only have a 15% decline in March you can still get 2/3 of the full wage subsidy as you will qualify for Period 1 and 2.
  • For registered charities and non-profit organizations, the calculation includes most forms of revenue, excluding revenues from non-arm’s length persons.
  • Registered charities and non-profits are allowed to choose whether or not to include revenue from government sources as part of the calculation. Once chosen, the same approach applies throughout the program period.
  • Can use either accrual or cash accounting – but keep it consistent for this purpose

 

While there may still be further changes here is some food for thought as it particularly relates to charities and non-profits:

  1. If your organization has no employees (which is about 1/2 of registered charities) this will not help your organization, no matter how important the work you do, no matter how much more the COVID-19 crisis has costed you because of reduced donations and increased expenditures to keep up with the need.
  2. If your organization has staff but they are “independent contractors” then you probably will not be benefiting from this wage subsidy.   Many people who are probably employees are treated as “independent contractors” for various reasons and it is important that charities and non-profits correctly categorize staff.
  3. Does the charity have the funds available to pay the wages upfront? For some with little by way of reserves, this could be a problem.
  4. How fast will the wage subsidy be available?  Not clear yet.  We know you can start applying April 27 on the MyBA system and another portal.  If your non-profit or charity is not on the MyBA system or you wish to understand more about that system, you might find this free recorded webinar helpful.  Details on the alternative application form or portal have not been released.  The Federal government has said “Alternatively, you may apply using a separate online application form (available April 27)”
  5. If you have restricted funds is their an amendment clause or cy pres clause to be able to access those funds.   You might want to get legal advice on that.  You cannot just take restricted funds and decide to unilaterally remove restrictions because it is a crisis.
  6. Can you raise the funds another way?  Would a large donor provide unrestricted funds in order to pay your employees? Perhaps that would work for some organizations? Or can you do crowdfunding? (ie lots of smaller donations)
  7. Could the charity be eligible and apply for the Small Business Loan program also announced which was opened up on April 9, 2020? Could they afford to repay the loan by 2022?
  8. Are your employees applying and collecting the Canada Emergency Response Benefit? They cannot collect both and it would be prudent to determine if the Response Benefit is better for the employees and if you do pay them, they will have to repay the Response Benefit.
  9. A benefit for your older employees, there is no break in service for CPP pensionable earnings which can affect the amount of CPP they can expect to receive.
  10. Another benefit is that if you provide an employer-paid Heath Care Plan they will not lose their benefits.
  11. One other benefit is that should you keep your employees on and pay them even though they are doing the right thing and staying home you are most likely gaining loyalty and respect from your staff.
  12. This subsidy is an arbitrary set of rules that treats all charities and non-profits who have a certain decline in revenue and have employees the same.  A think tank that has higher salary employees might get more out of this than a frontline health clinic in a poor neighbourhood.  To say that it is a blunt instrument, would be an understatement.  This subsidy goes to both charities that need to make significant public of their finances through the T3010 and filing of financial statements as well to non-profits, many of whom are not required to provide any transparency to the public and they don’t.
  13. Based on the current timing this is a subsidy of 75% of your salary costs if you meet the requirements for a 12 week period.   It is not an annual subsidy. It is one-off.  For this fictional $500,000 charity with $300,000 in payroll, it could bring in about $51,923.   Thinking from an annual perspective that is just over ten percent of its annual revenue. Many organizations have fluctuations from year to year that is greater than 10% of revenue.  I hope not too many organizations are pinning their survival on this wage subsidy.  There are many other things that organizations can and should do (or should have done years ago) to respond to prepare for adversity and to respond to this crisis although the wage subsidy seems to be getting a lot of attention.
  14. Few seem to be talking about it but some organizations will end up significantly better off with the wage subsidy while many will be worse off and not even able to claim the subsidy.
  15. My biggest concerns are that after the Federal and Provincial governments have spent $100 – $200 billion that there will be very little fiscal capacity left and a significant period of austerity, potentially irrespective of which government is in power at the Federal and Provincial levels.  With the charity sector alone receiving over $180 Billion per typical year in funding from different levels of government – significant austerity could hit the sector, and those that the sector serves, very hard.  Just to give you an idea.  If government funding of the sector is reduced next year by 10% then fundraising would have to be increased by 100% to make up for that loss.

 

You can see updated information on the wage subsidy on the CRA’s website.