Canada Emergency Wage Subsidy

Please review the following financial measures provided by the Government of Canada in dealing with COVID19.

The Canada Emergency Wage Subsidy

The federal government has announced a wage subsidy to cover 75% of salaries for businesses that qualify for up to 3 months.  The subsidy is retroactive to March 15, 2020.  The purpose of the wage subsidy program is to help employers that have been hurt by the Covid-19 pandemic and that there is incentive to keep workers employed. Eligible employers would include sole proprietorships, partnerships, corporations, non-profit  organizations and registered charities. 

Qualification

Eligible employers would have to have a 30% drop in their revenues and they would have to support their numbers.  The revenues would be defined that are earned from non related companies and would thus have to be recognized under the normal accounting method.  

The Amount of the Subsidy

The subsidy is based on remuneration to all employees paid between March 15, 2020 and June 6, 2020. The calculation is as follows: 75% of the gross wage paid up a maximum benefit of $847 per week.

The government of Canada has not properly defined what pre-crisis weekly remuneration is and will be coming out with this in the coming days. Please note, the government will also subsidize new employees hired during this period. Severance pay to employees terminated will not be covered by the subsidy.

The subsidy will also take into account owner operators wages that are on payroll. There is no limit on the subsidy that can be claimed by the employer. The government of Canada would prefer that employers would top-up salaries to bring them back to pre-crisis levels.

The calculation is based as follows:

847 per week divided by .75 equals a weekly gross of $1,129.33 per week $1,129.33 x 52 weeks equals an annual gross of  58,725.16

The government of Canada will only cover 75% of wages to a maximum amount of $58,725.16 which is $44,043.87.  We would strongly recommend that there is no game playing whereby you would increase the wages during the subsidy period and then reduce later. 

Eligible periods

Eligibility would be based on the employer’s monthly revenues, year-over-year based on the calendar month in which the period began.   

  Claiming period Reference period for eligibility
Period 1 March 15 – March 31 March 2019 over March 2020
Period 2 April 1 – April 30 April 2019 over April 2020
Period 3 May 1 – May 31 May 2019 over May 2020

Owner manager remuneration example

Annual salary 58,725.16

Payroll semi monthly on the 15th and 30th in the amount of 2,446.88

The maximum subsidy is  58,725.16 x 75% x 1/24 = 1835.16 per semi monthly pay period.

                                   Wages          Maximum subsidy

March 15, 2020    2,446.88      1,835.16

March 31, 2020    2,446.88      1,835.16 

April 15, 2020       2,446.88      1,835.16

April 30, 2020        2,446.88     1,835.16

May 15, 2020         2,446.88     1,835.16

May 31, 2020         2,446.88     1,835.16  

                               14,681.28   11,010.96

Therefore, if you paid yourself a salary of  $14,681.28 you would receive a subsidy reimbursement of  $11,010.96. This is on the assumption that your revenues have declined each month by 30%.  In summary put yourself on salary for say $60,000 and you will recover $11,010.96.  Please bear in mind that the subsidy will probably be taxable.

The Subsidy

If you have a semi monthly pay on March 15, 2020 and March 31, 2020. These two pay periods would qualify for the subsidy but you must calculate that revenues were down 30% from March 2019.

If you are a new business that established a payroll after February 2019. Your March 2019 revenues maybe nothing or very nominal but your March 2020 revenues maybe substantially higher. The government Canada suggests that you should still apply for the subsidy by comparing revenues on are reasonable benchmark basis. If your revenues considerably drop from February 2020 then you should still apply for the subsidy.

How to Apply

In order to apply for the Canada Emergency Wage Subsidy you must go online with the Canada Revenue Agency website. You must go the section My Business Account portal and set up your account if you don’t have one. 

Go to the CRA website  https://www.canada.ca/en/revenue-agency.html

Next go to the where it says Sign in to a CRA account .

There are three green tabs where it says CRA login services. Go to the middle tab where it says “My Business Account”.

Go into the area  Sign-in Partner Login/ Register. Go through the questions and register your account with CRA.     

You will need the following on hand to register: 

  • Social insurance number
  • Date of birth
  • Current address
  • Personal tax returns form the current or previous tax year
  • Business number 

The details on applying will be made available from the Government of Canada shortly but you must create your portal with CRA.

Businesses that do not qualify for enhanced wage subsidy will still qualify for the lower subsidy as per the following:

CRA has produced a temporary wage subsidy on income taxes withheld on payroll not CPP and EI. The subsidy can only be used by Canadian Controlled Private Corporations. This is only for existing payroll account not new accounts set up. CRA is applying a subsidy for wages paid to employees between March 18, 2020 and June 20, 2020.  It is very date specific as to the actual payroll date.  For example, if you paid your employees on March 15, 2020 you would not qualify.  Also, if your payroll is after June  20, 2020 then that pay would not qualify. This is only for pay periods that fall between these dates to qualify. 

CRA is providing a subsidy up to $25,000.  It is based on 10% of the gross wages in the period between March 18, 2020 and June 20, 2020.  The maximum subsidy per employee in the foregoing period is $1,375.00.  You still need to deduct the income taxes when you pay employees.  Your deduction for employees has nothing to do with the subsidy.

Example

If you have 5 employees earning  $4,100 for a total monthly payroll of  $20,500, the subsidy would be 10% of  $20,500.

The subsidy would thus be ( $20,500 x 10%)  $2,050.  Therefore, $2,050 can be reduced from source deductions for the following month.  If you are a regular remitter and your next source deduction is due April 15, 2020 this example would allow you to reduce your source deductions by $2,050.  The amount of subsidy should be reflected in income.  Keep in mind that you can’t reduce the source deductions based on payroll made to employees on March 17 or prior.  If you have an accounting package the journal entry will be debit source deductions payable and credit a new account called subsidy revenue.

If you have not used up the total subsidy up until the June 20th payroll, you can still utilize it outside the period. Please bear in mind that this does not affect associated companies.

Canada Emergency Response Benefit

This is designed for Canadians that are not eligible for EI, and if you’ve lost 100% of your income.

For 14 days you can apply for the Canada Emergency Response Benefit (CERB) as a temporary income support. CERB will provide you with $500 per week for up to 16 weeks. If you qualify for employment insurance, you cannot apply for CERB.

In order to qualify you must be at least 15 years old and have stopped working because of COVID-19.  You must have had income in 2019 of at least $5,000 or 12 months prior to the application.  You have to be without employment income or self-employment income for 14 days.  For subsequent benefits you must have no income.

The maximum benefit is $500 per week x 16 weeks totaling $8,000.

The benefit period is available from March 15, 2020 to October 3, 2020.

You must apply on or before December 2, 2020. Starting April 6, 2020 there will be a portal to apply.

Tax deadlines

The deadline for filing your personal income return is June 1, 2020.   The deadline to pay your taxes is September 1, 2020. The deadline for payment of corporate taxes coming due after March 18, 2020 and before September  1, 2020 must be paid prior to September  1, 2020.

For example,  if you have a December 31, 2019 year your taxes are due by March 31, 2020 if you are a CCPC and your year end is due June 30, 2020.  Therefore,  you tax payment deadline is now September  1, 2020.  This does not excuse you from filing.  If you have a non CCPC with a January 31 year end and you are a non CCPC your taxes would normally be due on March 31, 2020.  Since March 31 falls after March 18, 2020 then the taxes are due September  1, 2020 but the year end is due July 31, 2020. At this point there are no extensions for filing corporation tax returns and there is no relief for filing and payment of GST/HST returns.