There has been a flurry of information about the various emergency relief programs available to Canadians. The rules are changing rapidly and can be hard for small business owners to follow. Clearly Financials would like to share our summary of the information released yesterday on April 1, 2020 by the Prime Minister and Finance Minister.
Canada Emergency Wage Subsidy
To assist employers with keeping staff on payroll, or rehire workers previously laid off as a result of COVID-19.
Requirements
30% decline in revenue.
Compared month-by-month with the previous year.
Employers established after February 2019 would compare monthly revenues with a reasonable benchmark.
Eligibility Periods
Retroactive to March 15, 2020
Revenue Decline Period Payroll Eligibility Period
March 2020 over March 2019 March 15 – April 11
April 2020 over April 2019 April 12 – May 9
May 2020 over May 2019 May 10 – June 6
Subsidy Limits
The greater of:
75% of wages paid; or
Actual wages paid, up to 75% of pre-crisis weekly earnings.
Maximum of $847/week per employee.
No limit to number of staff per employer.
Therefore, if wages are 75% or less of pre-crisis earnings, the wage subsidy is 100% of wages paid.
Clarification of “Pre-Crisis Earnings” is expected to be released in the coming days.
Short-Term Implications
If you have no revenue, you can pay these amounts to your employees, and recover the funds when the subsidy becomes available to you.
You still need to pay CPP, EI, and any related benefits.
How to Apply
Apply through your CRA My Business Account online portal.
If you do not have an account yet, sign up now to expedite the process.
You must maintain records of how you calculated the subsidy. They do not need to be submitted with your application.
Special Rules
New Employees
If you hire a new employee, you can recover 75% of their wages to the same limits.
Non-Arm’s Length Employees
The CEWS is available for business owners, their employed family members, and other non-arms-length parties.
Subsidy Limits for Non-Arm’s Length Employees
Actual wages, up to 75% of pre-crisis weekly earnings
Max of $847/week
Compared to arm’s length employees, family members are limited by “pre-crisis” weekly earnings. If wages are increased now, the subsidy will not increase.
If you are compensated through dividends, you earned investment income, which was not subject to CPP, source deductions, or the RRSP contribution room system. Unfortunately, dividend earnings are not currently covered under the subsidy, which covers employment income.
Interaction with the 10% Subsidy
The 10% subsidy is still available for employers that do not qualify for the 75% subsidy.
Businesses may claim one or the other. You cannot overlap with the 75% CESW subsidy with the smaller 10% subsidy.
If you are already taking the smaller 10% subsidy, and qualify for the larger 75%, you can reduce the larger subsidy by the amount you already claimed.
Interaction with the Canada Emergency Response Benefit (CERB)
Employees receiving CERB are not eligible for the Canada Emergency Wage Subsidy for the weeks that they are receiving the CERB. Employers will need to pay attention to this.
Government Assistance is Taxable Income for the Employer
Like other benefits provided by the government, subsidy amounts received would be considered government assistance, and therefore included in the employer’s taxable income.
Ensuring Compliance
The government has announced significant consequences for anyone gaming the system.
Over-claimed amounts will need to be repaid. It has not been announced yet what types of interest or penalties may apply.
Providing false or misleading information, or misuse of funds from the program may result in fines or imprisonment.
In Closing
These are trying times for many people. We are working hard at Clearly Financials to support our local communities in Edmonton through these unprecedented challenges.
Realize that you are not alone, that we are in this together and most importantly that there is hope.
For other COVID-19 updates, please view the resources on our website.
Disclaimer
This is a summarized version of complex matters that are rapidly changing. We expect further clarification from the government in the coming days. Speak with one of our advisors if you have any questions about your specific accounting or tax needs.
Clearly Financials offers start-up, accounting, corporate tax, virtual CFO and advisory services for small businesses.
We also provide personal tax preparation services or individuals and families.
Our office is located in Edmonton, Alberta. Through the power of cloud technology, we are able serve clients throughout Canada.