On January 13, 2021, the CEWS FAQ was updated.
Key updates in the FAQs include:
when calculating the revenue reduction percentage, the forgivable portion of loans for CECRA are considered revenue, while the forgivable portion of CEBA loans are not
clarification provided on how the deeming rule works for Period 11
clarification provided on how to deal with salary received as a bonus
details provided on the register of wage subsidy applicants published
various items updated to incorporate the new claim rates for periods 11-13
New responses
5-03.2. How is the reduction in revenue for the immediately preceding claim period determined for purposes of the deeming rule for claim period 11? New: January 13, 2021
Generally, to determine if the deeming rule (see Q5-03) applies, an eligible employer must compare its reduction in revenue for the current claim period with its reduction in revenue for the immediately preceding claim period. However, the relevant reference periods for claim periods 10 and 11are the same (see Tables 2A and 2C). Accordingly, for the purposes of the deeming rule, the immediately preceding claim period for claim period 11 will be claim period 9 and not claim period 10.
VTN note: This response addresses the glitch that VTN noted in the original release of the associated regulations. We would expect underlying amendments to the regulations to be released shortly. Thanks go to the Department of Finance and CRA for dealing with our concerns rapidly.
6-2.2 Is a forgivable Canada Emergency Commercial Rent Assistance (“CECRA”) loan included in qualifying revenue? New: January 13, 2021
Yes. CECRA provided rent support to eligible small business tenants by granting interest-free, forgivable loans to qualifying commercial property owners. CECRA loans covered 50% of tenants’ monthly rent payments if property owners agreed to reduce their tenants’ rent by at least 75%. CECRA loans are forgiven on December 31, 2020, unless the owner fails to comply with program terms. A forgivable CECRA loan is included in the property owner’s taxable income when the loan is received.
A CECRA loan replaces a property owner’s regular rental revenue from their normal operations. Therefore, a forgivable CECRA loan is not considered an extraordinary item and would be included in the property owner’s qualifying revenue.
6-2.3 Is the forgivable portion of a Canada Emergency Business Account (“CEBA”) loan included in qualifying revenue? New: January 13, 2021
No. CEBA provides interest-free loans to small businesses and non-profit organizations. Repaying the balance of the loan on or before December 31, 2022, will result in a portion of the loan being forgiven. The forgivable portion of a CEBA loan is included in the recipient’s taxable income when the loan is received.
The forgivable portion of a CEBA loan meets all the characteristics of an extraordinary item (see Q6-2). Accordingly, the forgivable portion of a CEBA loan is not included in qualifying revenue.
Modified responses
3-9. Can an employer that participates in a cost-sharing arrangement qualify for the wage subsidy?
The following paragraph was added to the bottom of the previous response:
An employer, who participates in a CSA, and whose payroll was administered through an open payroll program account with the CRA on March 15, 2020, and on whose behalf payroll remittances were made, is eligible for the CEWS (provided it meets all other criteria). This may be the case even though the business number is attached to an administrator of the payroll that is not a ‘person or partnership’ for any other purpose under the Act.
17-5. Are bonuses paid to an eligible employee included in eligible remuneration for purposes of computing the wage subsidy? Updated: January 13, 2021
The parts in bold have been updated.
An amount paid as a bonus by an eligible employer to an eligible employee is generally considered salary, wages and remuneration, and would be considered eligible remuneration.
However, only eligible remuneration paid by an eligible employer to an eligible employee in respect of a week in a claim period is included for purposes of computing the wage subsidy. Therefore, an eligible employer may need to do a manual calculation to determine the amount that was paid in respect of each week in the claim period where a payment is in respect of more than one week.
For example, in the case of an annual bonus paid by an eligible employer to an eligible employee, it would generally be reasonable to consider that the annual bonus was earned throughout the fiscal period to which it relates.
Further, for the purposes of computing baseline remuneration in respect of an eligible employee for a claim period, a bonus amount must be paid during the relevant baseline remuneration period as described in Q18 to be considered. As the payment relates to more than one week, it would not be reasonable, for purposes of computing baseline remuneration, to include the full amount of the bonus. To calculate the average weekly eligible remuneration, the amount of the bonus is divided by the number of weeks included in the period to which it relates (see Q18-2).
An eligible employer will not be eligible for the wage subsidy in respect of eligible remuneration paid to an eligible employee with which it does not deal at arm’s length (for example, an owner-manager) for a week in the claim period, if it did not pay any eligible remuneration during the employee’s relevant baseline remuneration period described in Q18 (see Q17-2). If a bonus was paid in a relevant baseline period, a proration will generally be necessary to determine a weekly amount.
Example 17-5A
Max manages the operations of XYZ Inc. and also owns all of the issued shares of the corporation. XYZ Inc. is an eligible employer. Max’s only remuneration is a semi-annual bonus paid on January 15 and July 15, 2020.
During the period from January 1 to March 15, 2020, Max received a semi-annual bonus of $20,000 that relates to the 26 week period ending on December 31, 2019. As the bonus was paid during the relevant baseline period for Max, he will have baseline remuneration for purposes of the wage subsidy. In this situation, for the purposes of computing Max’s baseline remuneration, Max’s average weekly eligible remuneration would be calculated by dividing the total eligible remuneration paid by XYZ Inc. ($20,000) by the total number of weeks to which the eligible remuneration paid relates (26 weeks). Accordingly, Max’s baseline remuneration for the period January 1 to March 15, 2020, would be $769.23 per week ($20,000/26 = $769.23.)
It is now July 15, 2020, and Max has received his second semi-annual bonus of $15,000 that relates to the 26 week period ending on June 30, 2020. Given that only eligible remuneration paid by an eligible employer to an eligible employee in respect of a week in a claim period is included for purposes of computing the wage subsidy, XYZ Inc. will need to do a manual calculation to determine the amount that was paid in respect of each week in the claim period for which it wishes to apply (i.e., one or all of claim periods 1 to 4). In this situation, given that the semi-annual bonus relates to the 26 week period ending on June 30, 2020, it would be reasonable to consider that $576.92 ($15,000/26 = $576.92) was paid in respect of each week during this period for purposes of computing the wage subsidy.
20-1. What is meant by base wage subsidy and top-up wage subsidy for the claim periods 5 to 13? Updated: January 13, 2021
The parts in bold have been updated.
Effective for claim periods 5 to 13, the wage subsidy calculation consist of two parts:
a base portion of the wage subsidy (base wage subsidy) available to all eligible employers that are experiencing a decline in qualifying revenues, with the wage subsidy amount varying depending on the scale of qualifying revenue decline; and
a top-up portion of the wage subsidy (top-up wage subsidy), for those eligible employers that have been most adversely affected by the COVID-19 crisis, of up to an additional 25% for claim periods 5 to 10 and of up to 35% for claim periods 11 to 13.
20-3. How is the top-up wage subsidy calculated for claim periods 5 to 13? Updated: January 13, 2021
The following has been added to the bottom of the previous response.
For claim periods 11 to 13, the top-up percentage, of an eligible employer for a claim period, means the lesser of 35% and the percentage determined by the formula:
1.75 × (employer’s top-up revenue reduction percentage for the claim period − 50%)
If the top-up revenue reduction percentage of the eligible employer is equal to or less than 50%, the employer will not be eligible for the top-up wage subsidy.
As with the base percentage, the top-up percentage applies to eligible remuneration of up to $1,129 per week.
* For claim periods 11 to 13, an eligible employer’s top-up revenue reduction percentage is equal to its revenue reduction percentage (see Q 20-2) for the period.
30. Will the wage subsidy be automatically applied against outstanding debt? Updated: January 13, 2021
The part in bold has been updated.
With the exception of any wage subsidy specific debt, wage subsidy payments will not be automatically applied against any outstanding debt you have with the CRA.
However, the legislation gives the CRA the ability to administer the wage subsidy program fairly and reasonably and allows for a common-sense approach to dealing with situations that prevent compliance with our tax laws.
The CRA does have the discretion to reduce the amount of the wage subsidy payment if an applicant owes or are about to owe a debt and the CRA determines there is a risk of not collecting all or part of your tax debt.
35. Will the CRA publish a list of employers that have applied for the wage subsidy? Updated: January 13, 2021
The part in bold has been updated.
The Act authorizes the CRA to publish the name of any eligible employer that makes an application for the wage subsidy. A register of wage subsidy recipients is now available. The register provides lists that display the legal name and operating/trade name of corporations who have received or will soon receive the wage subsidy. In the interest of privacy, sole proprietors, partnerships, and trusts are not displayed on the lists. The register is updated daily as applications are received, cancelled, or withdrawn.