Published: August 6, 2020
Last Updated: October 25, 2021
Canada Emergency Wage Subsidy
Expansion – Additional Extension to December 19, 2020 – A Tax Lawyer Analysis
Background to the Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy (CEWS) was implemented by the Federal Government on April 11, 2020 due to the difficulties employers were facing due to Covid-19. The subsidies were intended as a temporary relief measure providing relief for a 24 week retroactively applying from March 15, 2020. The subsidy covered 75% of employees’ remuneration, up to a max of $847 per week per employee.
In order to qualify for the CEWS, an employer must be an individual, a corporation that is not exempt from income tax, certain corporations that are exempt from income tax, a charity, or one of several other types of registered organizations. Furthermore, an eligible employer must have suffered an eligible revenue reduction. This is determined by comparing the employer’s revenue during the month that is being claimed with either: 1) the corresponding month in 2019; or 2) the average revenue the employer earned in January and February of 2020. The employer meets the requirement where the reduction is at least 15% for March, 2020, or 30% for any of the subsequent months. Additionally, if an employer is eligible for one claim period, that employer will also automatically qualify for the following claim period.
Employers are able to apply online through their CRA My Business Account. Note that any employees who have been laid off or furloughed will not be eligible for the retroactive portion of this wage subsidy unless they are rehired and retroactively paid for the relevant periods.
Penalties for Incorrect CEWS Claims
Where the CEWS is overclaimed, the employer will need to repay the excess CEWS amounts. Furthermore, interest will apply on any overpaid amounts at the standard rate of 6% per annum.
Furthermore, caution needs to be taken as any person who knowingly, or under circumstances amounting to gross negligence, makes or participates in the making of, a false statement or omission in its CEWS application, is liable to a penalty equal to the greater of $100 and 50% of the difference between the amount of the CEWS claimed in the application and the amount of CEWS to which the employer is actually entitled to. That said, this penalty isn’t applicable simply because an employer overclaimed the CEWS, but only where the CRA can show that one or more incorrect statements were made knowingly (i.e. the person had actual knowledge or ought to have known that the statements were false) or under circumstances amount to gross negligence (i.e. conduct involving deliberate wrong doing or a marked departure from the standard by which a reasonably careful person would use).
There are further criminal penalties that could potentially be levied for the making of false statements. A person found to be liable can be convicted on: 1) summary conviction and fined between 50% and 200% of the amount of refund claimed above what the employer was actually entitled to or both the fine and imprisonment for not more than two years; or 2) convicted on indictment and fined between 100% and 200% of the excess refund and imprisonment for not more than five years.
For situations where an employer is a corporation, an officer, director, or agent of a corporation who directs, authorizes, assets to, acquiesces in, or participates in the commission of an offence by the corporation is a party to, and guilty of, the same offence. As such, that individual would then be liable to the same punishment provided for the offence – both civilly and criminally. Officers, directors, and agents of corporations involved in claiming the CEWS should be vigilant and confirm their eligibility with one of our experienced Toronto tax lawyers to ensure they are not unexpectedly on the hook for significant financial or even risk of jail time.
In addition, there are specific anti-avoidance rules associated with the CEWS. In particular, it applies where the employer enters into a transaction or participates in an event or takes an action that has the effect of reducing its qualifying revenues for the particular period; and it is reasonable to conclude that one of the main purposes of the transaction, even, series, or action is to cause the employer to qualify for the subsidy. When it applies, the employer is liable to a penalty of 25% of the amount of CEWS it claimed in addition to the obligation to repay the CEWS and any other penalties that may apply.
Canada Emergency Wage Subsidy Extension and Expansion
The government has announced that it will be extending the period where employers can receive the CEWS until December 19, 2020. Furthermore, new measures have expanded the CEWS to include some employers who did not meet the previous 30% revenue reduction requirement. Furthermore, the original 75% subsidy will be replaced with a new two-part subsidy which, combined, can equal up to 85% of eligible remuneration.
The flat 75% subsidy will be replaced with a base rate subsidy that is determined on a sliding scale plus a top-up subsidy for employers who have a revenue drop of more than 50%. The base rate subsidy will be set at a maximum subsidy rate of 60% in July and August for employers with a revenue drop of 50% or more, with this maximum subsidy rate dropping to 50% for September, 40% for October, and 20% for November. For employers who have revenue reductions below 50%, the subsidy rate is set at 1.2x the revenue drop for July/August, 1x the drop for September, 0.8x the drop for October, and 0.4x the drop for November (i.e. an employer with a 20% revenue drop in July will qualify for a subsidy rate of 24%). However, the government is also proposing a “safe harbor” rule which would allow employers with a revenue drop of 30% or more to receive the same 75% subsidy rate for the July and August periods.
The top-up subsidy will apply for employers that experience a three-month average revenue drop of more than 50%. This subsidy rate is equal to 1.25x the average revenue drop in excess of 50% with the maximum top-up rate achieved at a 70% revenue reduction. For example, a three-month revenue drop of 70% results in the maximum top-up rate of 25% (1.25 x (70%-50%) = 25%).
As such, the CEWS will now have a higher maximum subsidy of 85% for July/August, and will also reach more employers as those who were initially below the 30% revenue reduction threshold will now be able to qualify for some level of government support, though that support is now provided on a sliding scale rather than a flat amount. Speak to one of our experienced Toronto tax lawyers to learn more about how these changes affect you.
Pro Tax Tip – Correcting Mistakes
If you were denied the CEWS, the new legislation has proposed an appeals process going to the Tax Court of Canada based on the existing appeals process for notices of determination. On the other hand, if you believe you have made a mistake and overclaimed the CEWS, a voluntary disclosure can mitigate the negative consequences. If a voluntary disclosure is accepted, the CRA will waive some or all penalties related to the disclosure and may also provide partial interest relief. Our top Toronto tax lawyers can help you determine if you are eligible for the subsidy, help you with an appeal, or file a voluntary disclosure on your behalf.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."