On October 6, the CEWS FAQ was updated. It included the following:
Provided clarifying comments and examples in respect of baseline remuneration calculations.
Relief for claims related to cost-sharing arrangements was offered.
Clarifications on Joint Venture revenue recognition option.
Clarification on how the non-arm’s length revenue election works in respect of chains of entities.
Eligible employee status is determined in respect of each week in each claim period.
Clarification on the phrase “employed in Canada”.
Amounts paid as a maternity or parental top-up amount are generally considered salary, wages, and remuneration and would qualify as eligible remuneration.
Clarification of how to determine baseline remuneration. Click here.
Description on how denied (or partially denied) claims should be disputed depending on whether they were denied before or after September 21, 2020
Specific additions/changes:
3-8. Can an eligible employer that hires a third party to facilitate the administration of its payroll, qualify for the wage subsidy? Updated: October 6, 2020
The following was added to the end of the answer:
After the information is received and verified, the CRA may transfer the applicable remittances from the third party to the eligible employer’s new account, and will advise when the eligible employer can proceed with their wage subsidy application.
Generally, in situations where a third party was making payroll remittances on behalf of an employer, the employer will be expected to continue using their new payroll program account for all future payroll remittances. However, in certain situations, future payroll remittances can continue to be made using an existing payroll program account. For example, where a group of employers have entered into a cost-sharing arrangement where an agency relationship or a mandate exists (see Q3-9) but only one member of the group, acting as an agent or as a mandatary on behalf of the other employers, remits these amounts to the CRA, the group can continue using their existing payroll program account for all future payroll remittances.
3-9. Can an employer that participates in a cost-sharing arrangement qualify for the wage subsidy? New: October 6, 2020
A cost sharing arrangement (CSA) is generally an agreement under which the participants share certain costs, including the salary or wages that are paid to employees. Under a CSA, there may be one or more employers in respect of the employees.
A CSA is often established as an agency relationship or a mandate. In general terms, under the common law, “agency” is an express or implied contract whereby a party (the principal) engages another party (the agent) to perform certain tasks on its behalf or to bind it. In general terms, under the Civil Code of Quebec, “mandate” is a contract by which a person (the mandator) empowers another person (the mandatary) to represent the mandator in the performance of a juridical act with a third person.
As such, where the CSA represents a type of an agency relationship or a mandate for the employers, each of the separate eligible employers may qualify for the wage subsidy in respect of their portion of eligible remuneration paid to each eligible employee by the agent or the mandatary in respect of a week in a claim period, as long as all of the other eligibility criteria have been met (see Q4). Only the actual employer(s) can apply for the wage subsidy in respect of a particular employee (see note below).
In situations where only one of the employers in such a CSA, or an entity established by the participants for this purpose, had a payroll program account with the CRA on or before March 15, 2020, the other employers will need to register for their own payroll program account to apply for and receive the wage subsidy. Where this applies, the group of employers can continue making all of their future payroll remittances for the employees using their existing payroll program account (see Q3-8).
Note: Where an eligible employee is employed by two or more eligible employers that do not deal with each other at arm's length, the total amount of the wage subsidy in respect of that employee is subject to special limitations (see Q24).
Example 3-9A
A group of five medical professional corporations dealing at arm’s length, enter into a CSA to share certain costs, including the salary or wages that are paid to eight support employees. The agreement, which is an agency relationship, requires that the participants (the five medical professional corporations) use an entity established for this purpose (the agent) to perform certain tasks, such as paying employees, on each of their behalf. The medical professional corporations are each considered the employer on a proportionately agreed upon basis in respect of the employees. The entity established for this purpose has its own payroll program account to make payroll remittances for all eight support employees.
Given that an agency relationship exists, each medical professional corporation could qualify for the wage subsidy in respect of their portion of eligible remuneration paid to each eligible employee by the agent in respect of a week in a claim period, as long as all of the other eligibility criteria have been met (see Q4). Each corporation would need to obtain their own payroll program account to apply for and receive the wage subsidy.
The same results would be achieved where the CSA constitutes a civil law mandate, with the appointed entity acting as mandatary.
3-10. Can a joint venture qualify for the wage subsidy? New: October 6, 2020
The term “joint venture” is not defined in the Act. The CRA’s understanding of a joint venture is based on case law, which generally describes a joint venture as a limited business undertaking by two or more parties, in which the parties have a joint property interest in the subject matter of the venture and share control and management of the enterprise. A joint venture is not recognized as a taxpayer under the Act and does not have its own fiscal period.
A joint venture is not an eligible employer for the purposes of the wage subsidy. However, in certain circumstances, an eligible employer may use the qualifying revenue of a joint venture instead of its own qualifying revenue, in order to determine if it experienced the required reduction in revenue in order to qualify for the wage subsidy (see Q11).
4. How does an eligible employer qualify for the wage subsidy? Updated: October 6, 2020
The following was added to the end of the answer:
Note: Where an eligible employer (the acquirer) acquires the assets of a person or partnership (the seller) and satisfies the conditions described in Q8-3, the acquirer is deemed to have met the conditions related to having an open payroll account with CRA on March 15, 2020, or using a payroll service provider (see Q4) to make their payroll remittances on the eligible employer’s behalf, if the seller met those conditions.
8-02. Can the special rule used to calculate qualifying revenue discussed in Q8 be used in a direct chain of entities that are not dealing with each other at arm’s length? New: October 6, 2020
Special rules exist for an eligible employer that derives all or substantially all of its revenue from one or more particular persons or partnerships with which it does not deal at arm's length (see Q8). Where the conditions for applying this special rule are met, in determining the revenue reduction for the eligible employer for a particular claim period, a weighted-average approach is used to determine qualifying revenue for the current reference period.
This special rule may be used only by an eligible employer and those persons or partnerships not dealing at arm’s length with it and with whom it directly earns qualifying revenues. It cannot be used by a chain of entities where all of the particular person’s or partnership’s qualifying revenue is also received from persons or partnerships that are not dealing with each other at arm’s length.
13. Who is an eligible employee? Updated: October 6, 2020
The following was added to the bottom of the answer:
Note: Eligible employee status is determined in respect of each week in each claim period. So an employee that is not an eligible employee in a preceding claim period (because, for example, the 14 day remuneration condition for claim periods 1 to 4 has not been met), may become eligible in a following claim period (see Example 15A).
Q13-1. In determining who is an eligible employee, what is the meaning of the phrase, “employed in Canada”? New: October 6, 2020
An employee is “employed in Canada” if they are performing the duties of an office or employment in Canada. Generally, a person exercises the functions of their employment at the place where they are physically present. Thus, when that place is situated outside Canada, that person will not generally be considered as being “employed in Canada”. It is not necessary for an individual to be “employed in Canada” throughout the claim period to be an eligible employee. See Q13 for additional information on who is considered an eligible employee.
17-4. Are maternity or parental top-up payments included in eligible remuneration for purposes of computing the wage subsidy? New: October 6, 2020
Amounts paid by an eligible employer to an eligible employee as a maternity or parental top-up amount are generally considered salary, wages, and remuneration and would qualify as eligible remuneration.
To qualify for the wage subsidy, the maternity or parental top-up payments must be paid to the eligible employee by an eligible employer that qualifies for the wage subsidy, in respect of a particular week in the claim period. An employee on maternity leave will not be considered to be on leave with pay for purposes of the wage subsidy (see Q20-03).
18-2. Can eligible remuneration be retroactively paid to increase baseline remuneration? New: October 6, 2020
Click here for details.
29. Are there any special payroll withholding or T4 reporting requirements for the wage subsidy? Updated: October 6, 2020
There are no special withholding requirements for the wage subsidy. All amounts paid to an employee as salary, wages, and other remuneration, continue to be regular employment income that is subject to regular withholdings such as income tax, Canada Pension Plan contributions, and Employment Insurance premiums. The applicable source deductions must be calculated on the full amount of remuneration paid to employees, including the portion covered by the wage subsidy.
For the tax year 2020, in addition to reporting employment income in Box 14 or Code 71, employers will use new codes in the “other information” at the bottom of employees’ T4 slips when reporting employment income and retroactive payments in the following periods:
Code 57: Employment income – March 15 to May 9
Code 58: Employment income – May 10 to July 4
Code 59: Employment income – July 5 to August 29
Code 60: Employment income – August 30 to September 26
These additional reporting requirements will apply to all employers, and will help the CRA validate payments under the Canada Emergency Wage Subsidy, the Canada Emergency Response Benefit, and the Canada Emergency Student Benefit.
36. What is the recourse process when the CRA denies part or all of the wage subsidy amount claimed by an employer? Updated: October 6, 2020
Appropriate recourse is important to the CRA and to taxpayers. If an employer disagrees with the decision made by the CRA in regard to a wage subsidy claim, the suggested recourse procedures to be followed by an employer differ depending on when the employer is informed of that decision.
For full or partial claim denials received before September 21, 2020
If an employer disagrees with the decision made by the CRA in regard to the wage subsidy claim, the employer may request a second level review of the claim application. The request for a second level review must include all supporting documents (see Q33), and be submitted within 30 days of the date of the letter that communicated CRA’s original decision. The second level review is conducted by someone other than the original decision-maker.
Employers should submit their request online by logging into My Business Account and selecting “Register a formal dispute”.
While the CRA’s Appeals Branch (“Appeals”) portal is being used to expedite receipt and processing of all second level review requests, the review itself will not be undertaken by Appeals. The results of the second level review will be communicated in writing, after which a Notice of Determination or Notice of Assessment will be issued for the claim period. If the employer disagrees with the second level review decision, formal recourse rights (Notice of Objection, and appeal to the Tax Court of Canada) will be available through Appeals once the Notice of Determination or Notice of Assessment is issued. A Notice of Objection must be filed within 90 days from the date of the Notice of Determination or Notice of Assessment.
For full or partial claim denials received on or after September 21, 2020
Going forward, a Notice of Determination or Notice of Assessment will be issued to inform an employer when a claim is fully or partially denied.
If an employer disagrees with the Notice of Determination or Notice of Assessment, the employer can file a Notice of Objection within 90 days from the date of its issuance.
In either case, the employer should submit their recourse request online by logging into My Business Account and selecting “Register a formal dispute”.