COVID 19 Update: Government Enacts Legislation and Provides Details Concerning Application for Canada Emergency Wage Subsidy

In sessions held on April 11, 2020, the Canadian House of Commons and Senate passed the COVID-19 Emergency Response Act, No. 2. (the “CEWS Act”) implementing the $71B Canada Emergency Wage Subsidy (the “CEWS”) previously announced by the Canadian Government.

Key details of the CEWS are as follows:

  • The CEWS will be administered by the Canada Revenue Agency under the Income Tax Act and provides eligible employers with a subsidy of up to 75% on the first $58,700 (or $847 per week) of remuneration paid to employees for a period of up to 12 weeks retroactive from March 15, 2020 to June 6, 2020. The CEWS Act provides the government with the ability to extend the CEWS program to September 30, 2020.
  • To claim the subsidy, an employer must have suffered a drop of 15% in revenue in March 2020 and 30% in April and May 2020. The employer can choose whether to compare revenue against the corresponding month in 2019 or against an average of revenue earned in January and February 2020. The CEWS Act provides the government with the ability to change the qualifying revenue reduction criteria.
  • There are three eligibility periods (March 15 – April 11; April 12 – May 9; and May 10 – June 6) for the CEWS and if an employer is determined to qualify for a specific period they will automatically qualify for the next period, but will have to meet the criteria to qualify for subsequent periods. For example, an employer eligible for the first claiming period will automatically qualify for the second, but will have to again demonstrate the required revenue drop to be eligible for the third period.
  • The provisions of the CEWS Act are largely consistent with the initial announcements by the Government concerning the CEWS, but include additional details, such as the smaller 15% revenue reduction for March 2020 and additional provisions relating to calculating revenues for corporate groups, joint ventures and entities operating not at arm’s length.
  • Beginning April 27 2020, Employers will be able to apply for the CEWS though their Canada Revenue Agency My Business Account portal or through a separate online application. In advance of applying, employers are required to calculate the estimated subsidy for their business and the Government has provided a subsidy calculator to assist with this. All applications will have to be submitted by September 30, 2020.

CEWS Eligibility

Eligible Employers

Employers who are eligible for the CEWS are taxable corporations, individuals, non-profit organizations, charities, and partnerships consisting of eligible employers. Public bodies, such as municipalities, Crown corporations, universities and hospitals, are not eligible for the CEWS. Number of employees is not a factor in determining eligibility.

Required Revenue Reduction

In order to be eligible, an employer must have experienced a decrease in qualifying revenue in the month of March, April or May. The CEWS will be in place for 12 weeks retroactive from March 15 to June 16, 2020, divided into three qualifying periods for which an employer can claim subsidy for eligible remuneration paid to employees during that period. Eligibility for each qualifying period has a corresponding required reduction in revenue and reference period for determining that revenue reduction:

Qualifying period Claim period Required reduction in revenue Reference period for determining reduction in revenue
Period 1 March 15 to April 11 15% March 2020 over:

·       March 2019 or

·       Average of January and February 2020

Period 2 April 12 to May 9 30% Eligible for Period 1


April 2020 over:

·       April 2019 or

·       Average of January and February 2020

Period 3 May 10 to June 6 30% Eligible for Period 2


May 2020 over:

·       May 2019 or

·       Average of January and February 2020

When applying for the CEWS, an employer must choose either to measure revenue reduction against the corresponding month in 2019 or against the average of January and February 2020. The chosen reference period must be used through the entire program. In other words, employers cannot toggle between January and February 2020 and the corresponding 2019 month for different CEWS qualifying periods.

In recognition of the time between when revenue is earned and when it is paid, revenue may be measured either on the basis of accrual accounting (as it is earned) or cash accounting (as it is received). Again, the employer must select the approach (accrual or cash accounting) at the time it applies for the CEWS, and such selection will apply through the duration of the program.

The CEWS Act provides additional rules for calculating qualifying revenue for certain employers:

  • Corporate Groups: Eligible employers who operate through multiple entities in the same corporate group can jointly elect to calculate qualifying revenue on a consolidated basis in accordance with relevant accounting principles. There is no ability to apply consolidation on a selective basis, so an election will apply across all affiliated entities in the corporate group. Employers will need to carefully consider whether or not applying consolidation will allow the employer greater access to the CEWS.
  • Joint Ventures: Where an eligible employer is owned by participants in a joint venture, the employer may use the qualifying revenue of the joint venture to determine the revenue reduction. This provision is only available if all or substantially all of the employer’s income is in respect of the joint venture.
  • Non-Arm’s Length Revenues: Where all or substantially all of an eligible employer’s revenue is from one or more non-arm’s length persons or partnerships, the employer can jointly elect with such persons and partnerships to calculate the revenue reduction with reference to the weighted sum of the reduction in qualifying revenue of the non-arm’s length persons or partnerships.
  • Charities and Non-Profits: Charities and non-profit organizations can choose whether or not to include or exclude government funding when calculating their loss of revenue.

The CEWS Act gives the Government the ability to extend the CEWS until September 30, 2020 and to make changes to the revenue reduction criteria for eligibility.

Eligible Employees

Individuals employed in Canada are considered eligible employees for the CEWS, unless the individual has been without remuneration for 14 or more consecutive days in the eligibility period (i.e., from March 15 to April 11, from April 12 to May 9, or from May 10 to June 6). Individuals who are not eligible employees for the CEWS may be entitled to receive the Canadian Emergency Response Benefit.

The Government has advised that employees who have been laid off or furloughed can become eligible for the CEWS retroactively, as long as employees are rehired and their retroactive pay and status meet the eligibility criteria for the claim period. Employers must rehire and pay such employees before they can include them in the subsidy calculation. The Government has also advised that rehired employees that received or continue to receive the Canada Emergency Response Benefit may be required to repay some or all of the amounts they received.

Other Programs If Not Eligible

Employers who do not qualify for the CEWS can immediately take advantage of the previously announced 10% Temporary Wage Subsidy for Employers which covers 10% of wages paid from March 18, 2020 to June 19, 2020, up to a maximum of $1,375 per eligible employee and $25,000 per employer.


Wage Subsidies

The CEWS will cover up to 75% of an eligible employee’s first $58,700 in eligible remuneration (salary, wages or other remuneration like taxable benefits, but excluding certain remuneration such as severance pay, stock options and vehicle allowances), providing a maximum of $847/week per employee.

The amount of the CEWS will be calculated on an employee by employee basis, and will vary depending on whether the employee was employed before or after March 15, 2020 and whether the employee is non-arm’s length to the employer (e.g. individuals carrying on business through professional corporations):

Employee Status Eligible Amount of CEWS
Existing Employee Greater of:*

·       75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and

·       the lesser of (i) the amount of remuneration paid, (ii) 75% of the employee’s average weekly pre-crisis remuneration (i.e. remuneration paid between January 1 and March 15, 2020), and (iii) a maximum benefit of $847 per week.

*In effect, for employees that receive the same weekly remuneration before and after the start of the COVID-19 crisis, employers may be eligible for a subsidy of up to 100% of the first 75% of weekly remuneration paid to the employee, subject to the $847 weekly maximum. For employees whose wages have been reduced by 25% or less against their pre-crisis remuneration the subsidy will be the lesser of 75% of their pre-crisis remuneration and $847 per week. For employees who are paid less than 75% of their pre-crisis remuneration, the subsidy will be the lesser of the actual wages paid and $847 per week.

New Employees 75% of salaries and wages paid to the new employee, up to a maximum benefit of $847 per week
Non-Arm’s Length Employees Lesser of:*

·       the amount of remuneration paid;

·       75% of the employee’s pre-crisis remuneration; and

·       $847 per week.

*The subsidy is only available in respect of non-arm’s length employees employed prior to March 15, 2020

There is no overall limit on the subsidy amount that an eligible employer may claim under the CEWS.

The amount an employer is eligible for under the CEWS will be reduced by the amount of the benefits employees receive through employment insurance if they are participating in the Work-Sharing program as well as any amounts employers receive through the 10% Temporary Wage Subsidy for Employers.

Employer-Paid Contribution Refunds

Eligible employers are also entitled to receive a 100% refund for certain employer-paid contributions to Employer Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan for those employees on leave with pay and for which the employer is eligible to claim for the CEWS.

This refund is not subject to the weekly maximum benefit of $847 and there is no overall limit on the refund amount that an eligible employer may claim. Employers are required to continue to collect and remit employer and employee contributions to each program as usual.

Repayment and Penalties

Both the Prime Minister and Finance Minister have emphasized CEWS funds are to be used solely for the payment of employee wages and that improper use of the program will result in severe penalties.

An employer who accesses CEWS funds and is later determined to be ineligible will be required to repay any overpayments and may be liable for a penalty of up to 50% of such overpayment in the event the employer knowingly (or in circumstances amounting to gross negligence) submits a CEWS application containing false information.

The CEWS Act also includes a specific anti-avoidance rule to prevent employers from engaging in transactions with a main purpose of reducing qualifying revenue. Employers found in breach this rule will be required to repay the CEWS funds received and may be liable for a penalty equal to 25 percent of the funds claimed.

Timing and How to Apply

The Government has advised that beginning April 27, 2020 employers will be able to apply for the CEWS through the Canada Revenue Agency My Business Account portal or through a separate online application form to be made available. Persons representing an employer may apply through the Represent a Client portal.

Employers are advised to register for a My Business Account before applying and ensuring their business details and direct deposit information for payroll accounts are up to date. Employers expecting subsidies of $25 million or more are also reminded they will need to be registered for the Large Value Transfer System if they are not already.

Before applying employers will also need to calculate their estimated subsidy and the Canada Revenue Agency website includes a calculator to help employers calculate the estimate and some specific line amounts they will need to enter into the CEWS application.

Employers may be required to provide a full list of their employers and their Social Insurance Numbers after they have applied.

More information is constantly being released. Check our COVID-19 page for updates as new details emerge.

Additional Considerations

  • CEWS Funds are Taxable Income –The CEWS funds are considered government assistance and are therefore included in the employer’s taxable income.
  • Names of Employers Claiming CEWS May Be Made Public – The CEWS Act permits the Minister of National Revenue to publicize the name of any person or partnership that claims the CEWS. Employers will want to consider any potential reputational impact that could result from the Minister disclosing the employer’s name as an entity claiming the CEWS.
  • Record-Keeping – Employers are advised to keep good records demonstrating the remuneration paid to employees and the reduction in revenue over the qualifying periods.

Additional Information on Government Measures

EKB’s team remains committed to helping you and your business through these challenging times. More information about government measures to support individuals and businesses during the pandemic is available in our regularly updated article: COVID-19 – Government Response

This article was updated on April 21, 2020.

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