An Act Respecting further COVID-19 Measures Receives Royal Assent: What This Means for the CEWS

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On July 27, 2020, An Act Respecting further COVID-19 Measures (also referred to as Bill C-20, or the “Act”) received Royal Assent. Bill C-20, which we reviewed briefly while it was before the House of Commons in an earlier Focus Alert, passed the Senate without amendment and the Act has now come into effect. Since some of the most important legislative changes brought about by the Act relate to the Canada Emergency Wage Subsidy (or “CEWS”) which many employers have relied on throughout the COVID-19 pandemic, this article is intended to provide a more detailed review of the CEWS program, and in particular the changes brought about by this new legislation.

 

The CEWS and Bill C-20

As part of Canada’s COVID-19 Economic Response Plan, the CEWS was designed to assist employers in continuing to pay their employees and avoiding lay-offs during the COVID-19 pandemic. It was initially put in place to provide eligible employers with a wage subsidy of up to 75% for a 12-week period from March 15 to June 6, 2020, subject to a maximum of $847 per week per eligible employee.

On May 15, 2020, the Federal government announced that the CEWS would be extended for an additional 12 weeks to August 29, 2020. Shortly thereafter, on May 25, 2020, the Federal government launched a public consultation in order to obtain input from stakeholders on potential changes to the CEWS program. As a result of the CEWS consultation, the Federal government subsequently announced a further extension of the program to November 21, 2020.

Bill C-20 not only allows for the implementation of the extension through November 21 as well as for other substantive changes to the CEWS program, but also allows for further extension of the CEWS by way of regulation through December 19, 2020.

 

  • The Claim Periods

Despite Bill C-20, one thing that has not changed about the CEWS program is the reference to claim periods. Entitlement to the CEWS was always designed to be calculated with respect to individual 4-week claim periods. Under the new legislation, this continues to be the case going forward, as is detailed in the chart below:

Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9

 

March 15 – April 11 April 12 – May 9 May 10 – June 6 June 7 – July 4 July 5- August 1 August 2 – August 29 August 30 – September 26 September 27 – October 24 October 25 – November 21
Initial CEWS rules applicable New CEWS rules applicable (subject to limited exceptions)

 

A tenth claim period is contemplated under Bill C-20, to be permitted by Regulation and to end no later than December 31, 2020.

 

  • Redesigned CEWS Program

Employers who may have participated in the CEWS program during its first 4 periods will have to be mindful of the fact that the Act has made significant changes to the CEWS program which came into effect on July 5, 2020. Most notably, the Act divides the CEWS into two separate parts which will generally apply to Periods 5 through 9 (and the potential 10th claim period that could be added by Regulation):

  • A base subsidy available to all eligible employers but where the subsidy amount would vary depending on the scale of the revenue decline. This change would provide a benefit not only to employers who have lost less than 30% of their revenue due to the pandemic, but also to those who previously qualified for the CEWS under the previous threshold but no longer do as their business is gradually recovering; and
  • A top-up subsidy of an additional 25% for employers who have been most adversely affected by the pandemic. This change would primarily be intended to benefit employers in sectors that are recovering more slowly.

 

The below chart provides a summary of some of the most significant changes that Bill C-20 made to the CEWS program:

Before the Act Came into Force

(i.e., Periods 1 through 4)

After the Act Comes into Force

(i.e., Periods 5 through 9)

Duration of CEWS Program Initial 12-week period from March 15 to June 6, 2020

Subsequent extension for a further 12-week period to August 29, 2020

Extension with redesigned program details until November 21, 2020

Further extension possible by regulation to end no later than December 31, 2020

Eligibility Threshold Single threshold for CEWS → 75% subsidy available to employers experiencing a revenue drop of 30% or more Different thresholds for base subsidy versus top-up subsidy to expand eligibility criteria

Base subsidy: Gradually decreasing base subsidy available to all eligible employers experiencing a decline in revenues, with the subsidy amount varying depending on the scale of the revenue decline

Top-up subsidy: Up to an additional 25% for employers that have been most adversely affected by the COVID-19 crisis

Eligible Employee(s) Includes any individual employed in Canada, excluding employees who are without remuneration in respect of 14 or more consecutive days in an eligibility period Expanded effective July 5, 2020 so as to no longer exclude employees who are without remuneration in respect of 14 or more consecutive days in an eligibility period
Eligible Remuneration Includes salary, wages and other remuneration like taxable benefits; Does not include severance pay or items such as stock

 

No change to definition, but…

·       For active arm’s length employees, the amount of remuneration is based solely on the actual remuneration paid for the eligibility period, without reference to the pre-crisis remuneration concept used for earlier CEWS periods; and

·       For active non-arm’s length employees, modified special rules apply whereby the amount of remuneration is based on the employee’s weekly eligible remuneration or pre-crisis remuneration, whichever is less.

 

Calculation of Base Subsidy CEWS Rate

Beginning in period 5, the CEWS base subsidy will be extended to all employers experiencing a revenue drop. This includes those experiencing a revenue drop of less than 30%, contrary to the eligibility criteria that applied in periods 1 through 4.

Subject to the safe harbour rules detailed below, for periods 5 through 9, the base subsidy rate is a specified rate, determined based on the change in an eligible employer’s monthly revenue, applied to the amount of remuneration paid to the employee for the eligibility period. It applies to remuneration of up to $1,129 per week.

The maximum base subsidy rate will apply to employers who experience a revenue drop of 50% or more, while a separate base subsidy rate will apply to employers who experience a revenue drop of less than 50%. The maximum base subsidy rate, which begins at 60% for periods 5 and 6, will be gradually reduced to 50% in period 7, 40% in period 8 and 20% in period 9. In addition, the separate base subsidy rate, which begins at 1.2 times the employer’s revenue drop for periods 5 and 6, will also be gradually reduced to 1.0 in period 7, 0.8 in period 8 and 0.4 in period 9. Both gradual decreases are intended to ensure a smooth phase-out of the program.

Rate Structure for Base Subsidy
  Period 5 Period 6 Period 7 Period 8 Period 9
Max. Weekly Benefit per Employee Up to $677 Up to $677 Up to $565 Up to $452 Up to $226
Revenue Drop of 50% +

 

60% 60% 50% 40% 20%
Revenue Drop of 0% to 49% 1.2 x Revenue Drop 1.2 x Revenue Drop 1.0 x Revenue Drop 0.8 x Revenue Drop 0.4 x Revenue Drop

 

 

Calculation of Top-Up CEWS Rate

Subject to the safe harbour rules detailed below, for periods 5 through 9, a top-up subsidy will now be available in addition to the base subsidy, but only to employers who have experienced a 3-month revenue drop of more than 50%. In such cases, the top-up rate is equal to 1.25 times the average revenue drop that exceeds 50%, up to a maximum top-up rate of 25% (which is attained at a revenue drop of 70%). For example, in the case where an employer suffered a 3-month average revenue drop of 65%, the top-up subsidy rate would be calculated as follows:

1.25 x (65% – 50%) = 18.75%

As with the base subsidy rate, the top-up subsidy rate applies to remuneration of up to $1,129 per week.

Generally, eligibility for the top-up subsidy will be determined based on the revenue drop experienced in the preceding 3 months in comparison with the same months in the prior year. Alternatively, however, it can be determined based on the revenue drop experienced in the preceding 3 months in comparison with January and February of 2020.

 

Calculation of Revenue Loss

In order to accurately calculate their revenues for the purposes of determining CEWS eligibility, employers must generally take into account only their revenues from arm’s length sources, excluding revenues from extraordinary items and amounts on account of capital. Registered charities and non-profit organizations are permitted to choose whether or not to also include any revenue received from government sources in their calculation, but must maintain their selection consistently throughout the program period.

Eligibility for the CEWS base subsidy is generally determined by comparing the change in an eligible employer’s monthly revenues, year-over-year, for the applicable calendar month. In periods 1 through 4, eligible employers were permitted to calculate their revenue loss using either the general approach (i.e., determining the change in an eligible employer’s monthly revenues by comparing to that same calendar month in the previous year) or the alternative approach (i.e., determining the change in an eligible employer’s monthly revenues by comparing to the average of January and February 2020). For example:

  Claim Period General Approach Alternative Approach
Period 5 July 5 – August 1, 2020 July 2020 over July 2019 or June 2020 over June 2019

 

July 2020 or June 2020 over average of January and February 2020

 

Separately, eligibility for the CEWS top-up subsidy is generally determined by comparing the change in an eligible employer’s revenues for a 3-month period. For example:

  Claim Period General Approach Alternative Approach
Period 5 July 5 – August 1, 2020 April to June 2020 over April to June 2019

 

April to June 2020 average over January and February 2020 average

Beginning in period 5, all eligible employers will be able to adopt the general approach to calculating revenue loss. However, eligible employers who elected to use the alternative approach for the first 4 periods will be permitted to continue with that same approach in period 5 and onwards, should they so choose. Conversely, eligible employers who elected to use the general approach for the first 4 periods will be permitted to switch to the alternative approach, should they so choose. Regardless of the approach the employer chooses to remain with or to switch to, that approach would then apply for period 5 and onwards with respect to the determination of eligibility for both the CEWS base subsidy and top-up subsidy.

 

Calculation of Total CEWS Rate

Subject to the safe harbour rules detailed below, an employer’s total entitlement to the CEWS must be calculated by adding the base subsidy CEWS rate to the top-up CEWS rate. As a result, it may be as high as 85% in some cases (i.e., 60% base subsidy rate + 25% top-up subsidy rate).

Maximum Combined Base Subsidy + Top-Up Subsidy
  Period 5 Period 6 Period 7 Period 8 Period 9
Max. Weekly Benefit per Employee Up to $960 Up to $960 Up to $847 Up to $734 Up to $508
Revenue Drop of 50% +

 

85%

[60% base CEWS + 25% top-up]

85%

[60% base CEWS + 25% top-up]

75%

[50% base CEWS + 25% top-up]

65%

[40% base CEWS + 25% top-up]

 

45%

[20% base CEWS + 25% top-up]

Revenue Drop of 0% to 49% 49%

[(1.2 x 20% Revenue Drop) + 25% top-up]

49%

[(1.2 x 20% Revenue Drop) + 25% top-up]

45%

[(1.0 x 20% Revenue Drop) + 25% top-up]

41%

[(0.8 x 20% Revenue Drop) + 25% top-up]

33%

[(0.4 x 20% Revenue Drop) + 25% top-up]

 

 

Safe Harbour Rule

The Act includes safe harbour rules applicable to periods 5 and 6 (i.e., July 5 through August 29, 2020) pursuant to which eligible employers who would have had access to a greater CEWS subsidy rate under the initial CEWS structure applicable between periods 1 and 4 than under the new CEWS structure will remain eligible for a 75% subsidy rate, provided they can continue to show a revenue decline of 30% or more. Essentially then, they are entitled to a rate that is at least as generous as they would have had under the initial CEWS structure.

 

CEWS Support for Laid Off Employees

It is important to note that the amendments to the CEWS program as detailed above apply only to the calculation of the subsidy for active employees. In the case of employees subject to temporary lay-off, the calculation of the subsidy for periods 5 and 6 will continue to remain the same as it was for periods 1 through 4. It will be based on the greater of:

  • For arm’s length employees, 75% of the amount of remuneration paid, up to a maximum of $847 per week; and
  • 75% of the employee’s pre-crisis weekly remuneration, up to a maximum benefit of $847 per week or the amount of remuneration paid, whichever is less.

Beginning in period 7, CEWS support for employees subject to temporary lay-off will be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) program and through Employment Insurance (EI), in order to ensure the equal treatment of all furloughed employees.

 

Making a CEWS Claim

As was the case under the initial rules, employers continue to be able to apply online for the CEWS through their CRA “My Business Account”. Generally speaking, employers who are registered for direct deposit with the CRA and who are approved to receive the CEWS can expect to receive payment within approximately 10 days. Some applications may be subject to a pre-claim review, and special requirements may apply to those that are expecting to receive a substantial payment through the CEWS program (> $25 million). All applications are subject to a final deadline of February 2021.

 

Record-Keeping Requirements

Not only are employers required to calculate the value of their estimated claim under the CEWS program themselves, they must also keep adequate records in order to support said claim with respect to each and every qualifying period. In addition, employers are required to keep a signed attestation and record of any elections made for the purposes of determining “qualifying revenue” and are required to produce those records to the CRA upon request.

 

Reporting Requirements

Presently, employers must report the eligible remuneration paid to each employee during the qualifying periods using a new code under the “Other Information” section at the bottom of T4 slips. Additional information and guidance with respect to reporting requirements on T4 slips is expected to be released before the end of the calendar year.

 

Penalties for Misuse

Any employer who makes a claim under the CEWS program when they were not in fact eligible will be required to repay the improperly claimed subsidy in full. However, additional penalties may apply in various scenarios, including but not limited to the following:

  • In the event that an employer was to engage in the artificial reduction of their qualifying revenues in order to make a claim under the CEWS program, they will be required to repay 125% of the value of the improperly claimed subsidy.
  • In the event that an employer was to knowingly, or under circumstances tantamount to gross negligence, make a false statement or omission in the CEWS program application, they will be liable to a penalty valued at up to 50% of the difference between the amount of the wage subsidy that it claimed in the application and the amount of the wage subsidy it was actually entitled to receive.
  • In cases of fraud, an employer may face additional consequences including but not limited to fines and imprisonment.

 

In Our View

The recent changes to the CEWS are complex and far too intricate to detail in a single Focus Alert. To access additional information on the CEWS program, including how to properly calculate revenue drops for the purpose of determining eligibility for both the base subsidy and the top-up subsidy, the Government of Canada has published comprehensive resources which are easily accessible online.

 

For further information or advice on your rights and obligations as an employer when dealing with COVID-19 and similar issues, please contact Kecia Podetz at 613-940-2752Lauren Jamieson at 613-563-7660 ext. 236 or Erica Bennett at 613-940-2748.