On July 17th 2020, the Government responded to recent feedback received from public consultation and addressed many of the concerns with the previous iteration of the Canada Emergency Wage Subsidy (CEWS) program (referred to as “CEWS 1.0”) by significantly revising the program (referred to as “CEWS 2.0”) by:

1. Extending the program to December 19th 2020,
2. Expanding the businesses and organizations that may qualify for the CEWS,
3. Expanding the eligible employers to not only include those that meet a 30% revenue decline threshold but those who have experienced any revenue decline (even 1%), and
4. Introducing a two-part subsidy consisting of a sliding scale “base subsidy” available to all eligible employers that experience a decline in revenues and a “top-up subsidy” that provides up to an additional 25% subsidy to  eligible employers who have experienced an average revenue decline in the prior 3 months of more than 50%.

Bottom line:   These proposals are complex as a result of the Federal Government’s attempt to more fairly apply the subsidy to employers experiencing a  decline in revenue (not just 30% or more).  The rules now apply as follows:

• For the claim periods March 15 to July 4 2020, the current rules (CEWS 1.0) will still apply and require at least a 30% revenue decline (15% for the March claim period);
• For the claim periods July 5 to August 29 2020, employers can choose between either using CEWS 1.0 or the new CEWS 2.0 to calculate the subsidy (whichever is greater);
• For claim periods August 30 to November 21, 2020, the new rules (CEWS 2.0) will  apply; and
• the rules for the December claim period have not yet been announced.

The maximum weekly wage subsidy  under CEWS 1.0 is $847 per employee per week and under CEWS 2.0 the maximum subsidy starts at $960 per employee per week for the July and August claim periods and drops in subsequent claim periods to finally end at $508 per employee per week for the November claim period. 

See the table below which summarizes most of the rules for calculating CEWS for the March 15 to November 21, 2020 claim periods. 

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BASE SUBSIDY UNDER THE NEW PROPOSED RULES (CEWS 2.0)

The base subsidy will be determined based on an eligible employer’s percentage decrease of qualifying revenues and is maximized when the revenue drop is 50% or more.

If the revenue drop is 50% or more, the base subsidy is equal to the amount of remuneration paid to the employee for the eligibility period multiplied by:

• 60% for the 5th and 6th claim periods in July and August (maximum benefit of $677 per employee per week)
• 50% for the 7th claim period in September (maximum benefit of $565 per employee per week)
• 40% for the 8th claim period in October (maximum benefit of $452 per employee per week)
• 20% for the 9th claim period in November (maximum benefit of $226 per employee per week)

The maximum benefit is received when the employee’s weekly remuneration is $1,129 or more

If the revenue drop is less than 50%, the base subsidy increases on a sliding scale based on the revenue decrease percentage.  The base subsidy percentage is calculated as the employee’s weekly remuneration multiplied by the revenue decline percentage multiplied by:

• 1.2 [to a maximum of 60% of eligible remuneration or $677 per employee per week] for the 5th and 6th claim periods in July and August
• 1.0 [to a maximum of 50% of eligible remuneration or $565 per employee per week] for the 7th claim period in September
• 0.8 [to a maximum of 40% of eligible remuneration or $452 per employee per week] for the 8th claim period in October
• 0.4 [to a maximum of 20% of eligible remuneration or $226 per employee per week] for the 9th claim period in November
• The maximum base subsidy percentage and amounts for December have not yet been announced.

For the 5 and 6^th claim periods in July and August, a “safe harbor” rule applies so that eligible employers with at least a 30% revenue decline percentage can receive the greater of the CEWS amount under the current rules (CEWS 1.0) or the subsidy under the new rules (CEWS 2.0).

TOP-UP SUBSIDY UNDER THE NEW PROPOSED RULES (CEWS 2.0)

The top-up subsidy applies to eligible employees that have experienced a 50% or more decrease in average monthly revenues for the preceding 3 months. The top-up subsidy rate is equal to 1.25 times the average revenue drop percentage in excess of 50% to a maximum of 25% (which is attained when the average 3-month revenue drop is at least 70%) of eligible remuneration.  The maximum top-up subsidy is $282  per employee per week.

For example, if the average monthly revenue drop percentage is 60%, then the top-up percentage is 12.5% [i.e. 1.25 * (60% – 50%)].

The maximum top-up subsidy percentage for December has not yet been announced.

COMBINED SUBSIDY UNDER THE NEW PROPOSED RULES (CEWS 2.0)

The combined maximum rate subsidy percentage and amount, including the base subsidy and the top-up subsidy, is:

• 85% of eligible remuneration or $959 per employee per week for the July and August claim periods
• 75% of eligible remuneration or $847 per employee per week for the September claim period,
• 65% of eligible remuneration or $734 per employee per week for the October claim period, and
• 45% of eligible remuneration or $508 per employee per week for the November claim period
• The maximum subsidy percentage and amount for the December claim period has not yet been announced.

The base subsidy and top-up subsidy are calculated on maximum remuneration per employee of $1,129 per week.

Reference periods for calculating the drop in qualifying revenues – CEWS 2.0

The government also expanded the various ways an eligible employer may calculate its revenue drop for the July to December claim periods. Specifically, an eligible employer may calculate its revenue drop as the greater of its percentage revenue decline when comparing the following periods:

Under the general approach

• The current month compared to the same month in 2019
• The previous month compared to the same month in 2019

Under the alternative approach

If an eligible employer elects, then the comparison is either:

• The current month compared to the average of January and February of 2020
• The previous month compared to the average of January and February 2020.

Note:   An eligible employer can use the general approach or the alternative approach but must do consistently for the July to December claim periods.

Other PROPOSED changes to the CEWS rules

The government also proposes to extend the subsidy to include eligible employees that are without remuneration for 14 or more consecutive days in a claim period starting with the July claim period.

There are also changes that apply to furloughed employees (employees on leave with pay) for the September to December claim periods to align the wage subsidy with the Canada Emergency Response Benefit (CERB) and employment insurance benefits.

The government also explains that for active arm’s-length employees, the amount of the subsidy will be based on actual remuneration paid for the claim period without reference to pre-crisis or “baseline” remuneration.

For employees who do not deal at arm’s length with their employer, the pre-crisis or baseline remuneration will still be relevant in determining the amount of the subsidy claim for such employees. There are now additional periods to determine  such employees’ pre-crisis or baseline remuneration which can be chosen on an employee-by-employee basis.

The government has also extended the wage subsidy application deadline to January 31st 2021.

There are proposed relieving measures to provide continuity for eligible employers:

• that have recently purchased all or substantially all of the assets of a Canadian business;
• with paymaster arrangements;
• who have undergone  a recent amalgamation or wind-up with another company to calculate their prior reference period revenue using their combined revenues.

If you have any questions or need assistance with your CEWS claims, please contact your trusted DMCL Business and Tax Advisor.