On May 15, 2020, the Government of Canada announced that the Canada Emergency Wage Subsidy (“CEWS”) will be extended for an additional 12-week period to August 29, 2020. At the same time, the government announced retroactive regulatory changes, and legislative proposals expected to come into force at a later date. These changes were introduced in an effort to promote employment and stimulate economic recovery as restrictions are gradually lifted across Canada.
Immediate Changes to CEWS Eligibility:
The government introduced a series of regulations extending eligibility for the CEWS to the following categories of employers:
- Partnerships with one or more non-eligible members will be eligible so long as non-eligible entity partners control a minority of the partnership’s interests at fair market value during the qualifying period;
- Indigenous government-owned corporations that are carrying on a business and are tax-exempt under paragraph 149(1)(d.5) of the Income Tax Act, their wholly-owned subsidiaries that are carrying on a business and are tax-exempt under paragraph 149(1)(d.6) of the Income Tax Act, as well as partnerships where the partners are members of Indigenous governments and eligible employers;
- Non-public education and training institutions, including for-profit and non-profit private colleges, schools, and institutions (i.e., arts schools, language schools, driving schools, flight schools and culinary schools);
- National-level Registered Canadian Amateur Athletic Associations that are tax-exempt under paragraph 149(1)(g) of the Income Tax Act; and
- Registered Journalism Organizations that are tax-exempt under paragraph 149(1)(h) of the Income Tax Act.
These changes are retroactive to April 11, 2010, which means that the new eligibility rules apply to the first qualifying period starting March 15, 2020.
Proposed Legislative Changes:
The government also proposed the following legislative amendments, expected come into effect upon approval by Parliament:
- Support for Seasonable Employees and Employees Returning from Leave: Under the current legislation, the CEWS subsidy amount is the greater of:
- 75% of the amount of remuneration actually paid for a week, to a maximum of $847; and
- the lesser of:
- the amount of remuneration actually paid for a week, to a maximum of $847 per week; and
- 75% of the employee’s pre-crisis weekly remuneration.
Presently, “pre-crisis weekly remuneration” is calculated based on the period between January 1 and March 15, 2020. The present formula has the unintended consequence of reducing wage subsidies for certain seasonal employees, and for some employees who were on a leave of absence between January 1 and March 15, 2020. To address this unintended consequence, the government proposes to provide employers with the option to calculate “pre-crisis weekly remuneration” based on the period between March 1 and May 31, 2019, excluding any period of seven or more days without remuneration, and to allow employers to calculate average weekly remuneration an employee-by-employee basis.
- Amalgamated Entities: The government proposes to allow recently-amalgamated corporations to prove revenue decline based on combined revenues of the predecessor corporations to qualify for the CEWS.
- Tax-Exempt Trusts: The government proposes to change CEWS rules to better align with the tax treatment of trusts and corporations for the purpose of determining eligibility for the CEWS. Specifically, trusts with employees would continue to be eligible for the CEWS, subject to the following exceptions:
- Where the trust is a tax-exempt entity (other than a public institution), it would qualify only if it is a registered charity or another type of eligible tax-exempt entity.
- Where the trust is a public institution, it would qualify only if it is a prescribed organization.
The government has also announced that it may bring further changes to the program over the next month, including the present eligibility thresholds requiring that businesses experience a 30% decline in revenue.
Many thanks to Jan Nato for his assistance with this article.