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Canada Emergency Wage Subsidy extended to Aug. 29


May 20, 2020
By Colleen Cross
Photo: AlexLMX / AdobeStock

Ottawa – The federal government will extend the Canada Emergency Wage Subsidy by an additional 12 weeks to Aug. 29, 2020 and consult with business and labour representatives over the next month on potential adjustments to the program to stimulate jobs and growth, including the 30 per cent revenue decline threshold.

The following regulatory and legislative changes were announced:

Regulatory changes

The government has made regulatory changes to prescribe certain types of organizations in order to extend eligibility for the CEWS to additional groups. The prescribed organizations described below may now begin applying for the CEWS, provided they meet all other eligibility criteria.

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Partnerships with one or more non-eligible members

Currently, in order for a partnership to be eligible for the CEWS, all of its members must be eligible entities (generally, individuals, taxable corporations, non-profit organizations, or registered charities). As a result, partnerships in which non-eligible entities hold even a minority interest are currently precluded from claiming the CEWS.

Partnerships will be eligible entities for purposes of the CEWS so long as non-eligible members, taken together, do not hold a majority of the interests in the partnership. Specifically, in order for a partnership to qualify for the CEWS, the fair market value of interests in the partnership held by non-eligible entities at all times in the qualifying period must not exceed 50 per cent of the fair market value of all interests in the partnership.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Indigenous government-owned businesses

Currently, in order for Indigenous government-owned corporations to be eligible for the CEWS, they must be taxable. The government is extending eligibility for the CEWS to include Indigenous government-owned corporations that are carrying on a business and are tax-exempt under paragraph 149(1)(d.5) of the Income Tax Act, as well as their wholly-owned subsidiaries that are carrying on a business and are tax-exempt under paragraph 149(1)(d.6) of the Income Tax Act. As well, partnerships where each partner of the partnership is either an Indigenous government or an eligible employer will be eligible entities for purposes of the CEWS. This rule is in addition to the rule for partnerships outlined above. Indigenous governments would include First Nation bands, self-governing Indigenous governments and other comparable Indigenous governing bodies.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Registered Canadian amateur athletic associations

Registered Canadian Amateur Athletic Associations (RCAAAs) are national associations responsible for the promotion of sport on a nation-wide basis, and are heavily involved in the preparation of Canada’s Olympic teams. There are approximately 125 RCAAAs in Canada, including Hockey Canada, Lacrosse Canada and Biathlon Canada.

Because provincial, regional and local members of an RCAAA are considered non-profit organizations, they are eligible for the CEWS. However, the national-level RCAAAs are currently excluded because they fall under a category of tax-exempt entity that is not explicitly included in the list of eligible entities for the CEWS.

The government is extending CEWS eligibility to national-level RCAAAs that are tax-exempt under paragraph 149(1)(g) of the Income Tax Act.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020, and subsequent qualifying periods.

Registered journalism organizations

Canadian journalism organizations generally qualify for support under the CEWS. However, non-profit Canadian journalism organizations that register as qualified donees under the new “registered journalism organization” category would be ineligible for the CEWS. This is because this new category of tax-exempt entities is not explicitly included in the list of eligible entities for the CEWS.

To address this discrepancy, the government is extending eligibility for the CEWS to registered journalism organizations that are tax-exempt under paragraph 149(1)(h) of the Income Tax Act.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020, and subsequent qualifying periods.

Non-public educational and training institutions

The government will allow private colleges and private schools to be eligible entities for purposes of the CEWS. This will allow non-public educational and training institutions to qualify for the wage subsidy. This would include for-profit and not-for-profit institutions such as arts schools, language schools, driving schools, flight schools and culinary schools.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020.

Proposed legislative changes

The government also intends to propose legislative amendments to ensure that the CEWS continues to meet its objectives. These proposed changes are explained below. They would come into effect upon being enacted.

Support for seasonal employees and employees returning from extended leave

Under the CEWS, the subsidy amount for a given employee on eligible remuneration paid in respect of the period between March 15 and June 6, 2020 is the greater of:

  • 75 per cent of the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week; and
  • the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week, or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less. The pre-crisis remuneration for a given employee is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.

In addition, a special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in respect of any week in a qualifying period, up to a maximum benefit of the lesser of $847 per week and 75 per cent of the employee’s pre-crisis weekly remuneration. In effect, the subsidy is available in respect of non-arm’s length employees only for those employed prior to March 16, 2020.

These rules can lead to unintended outcomes in some situations, such as when employees were on parental, disability, or unpaid leave from January 1 to March 15 of 2020, or when individuals – whether dealing at arm’s length or non-arm’s length with their employer – are employed on a seasonal basis.

To bridge these gaps, the government proposes to amend the CEWS 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 change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020, and subsequent qualifying periods.

Amalgamations

Corporations formed on the amalgamation of two or more predecessor corporations (or where one corporation is wound up into another) may not qualify for the CEWS since they would not have benchmark revenues to prove a revenue decline or their benchmark revenues may not provide a full picture of their pre-crisis revenues.

The government proposes to amend the CEWS to allow corporations formed on an amalgamation of two or more predecessor corporations (or where a corporation is wound up into another), to calculate benchmark revenue for the CEWS revenue-decline test using their combined revenues, unless it is reasonable to consider that one of the main purposes for the amalgamation (or the winding up) was to qualify for the CEWS.

This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Tax-exempt trusts

Under the current rules, trusts are eligible for the CEWS, as they are generally considered to be individuals for tax purposes. The government proposes to amend the CEWS to better align the tax treatment of trusts and corporations for CEWS purposes. As a result, trusts with employees would continue to be eligible for the CEWS, subject to the following added exceptions:

  • In cases where the trust is a tax-exempt entity (other than a public institution), it would qualify only if it is a registered charity or one of the other types of eligible tax-exempt entities.
  • In cases where the trust is a public institution, it would qualify only if it is a prescribed organization.

This change is proposed to apply in respect of the third qualifying period (May 10 to June 6) and any subsequent qualifying period.