Changes include:
The Answer was changed to question 18. “What is baseline remuneration?”
It went from
“Baseline remuneration means the average weekly eligible remuneration paid to an eligible employee by an eligible employer for the period that begins on January 1, 2020, and ends on March 15, 2020.”
to
“Baseline remuneration means the average weekly eligible remuneration paid to an eligible employee by an eligible employer during the period that begins on January 1, 2020, and ends on March 15, 2020.”
The answer was changed to Question 35. “Will the CRA publish a list of employers that have applied for the CEWS?”
It went from
“Yes. The Act authorizes the CRA to publish the name ….”
to
“The Act authorizes the CRA to publish the name ….”
New questions and answers include:
3-1. How does the wage subsidy apply to an eligible employer that is a partnership?
While a partnership does not file an income tax return and is not taxed at the partnership level, it is deemed to be a taxpayer for the purposes of the wage subsidy.
For the purposes of the wage subsidy, a partnership is an eligible employer if each of its members is an eligible employer, including other partnerships that themselves are eligible employers (see Q3).
Provided a partnership has an open payroll program (RP) account on March 15, 2020, and meets all other eligibility requirements (see Q4), it can make an application for the wage subsidy (see Q26).
A wage subsidy payment will be sent by direct deposit to the bank account on file for that RP account or by cheque to the address on file for that RP account, if there is no banking information associated with the RP account (see Q28).
A partnership is also deemed to be a taxpayer for the purposes of repaying amounts received under the wage subsidy, if it is found to not meet the eligibility requirements, or that are in excess of what it was entitled to.
Finally, where the anti-avoidance rule (see Q34) in respect of the wage subsidy for a claim period applies to a partnership, the partnership will be liable to the corresponding penalty as if it were a corporation and may have to pay back any wage subsidy that it received for that period.
5-1. Under the alternative approach (revenue comparison to the average of January and February of 2020) can an eligible employer use a daily average instead of a monthly comparison to calculate the percentage decrease in revenue?
No, the alternative approach provides for a comparison of qualifying revenue for the calendar month in which the claim period began to the average of the qualifying revenues earned in both for January and February 2020.
6-1. Does qualifying revenue include investment revenue, such as interest or dividends from investments in securities?
The qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. To the extent that investment revenue, such as interest or dividends from investments in securities, arises in the course of an eligible employer’s ordinary activities in Canada in the particular period, is not an extraordinary item or on account of capital, and is included in revenue under its normal accounting practices, it would generally be included in qualifying revenue.
6-2. Is government assistance directly related to the COVID-19 crisis considered an extraordinary item for purposes of calculating the qualifying revenue of an eligible employer?
Qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. Qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible employer in Canada in a particular period. For greater certainty, qualifying revenue does not include extraordinary items.
“Extraordinary items” is not a term defined in the Act. Generally, the CRA would expect extraordinary items to meet all three of the following characteristics:
Not be expected to occur regularly or frequently within several years
Grants or other government assistance that an entity is eligible to receive on a regular or reoccurring basis would not meet this criteria.
Not typical of the normal activities or risks inherent in the normal operations of the entity
Consideration should be given to the nature of the services or products offered by an entity and the normal environment in which it operates.
Primarily out of the control of owners or management
Consideration should be given to the extent that inflows are influenced by the decision of owners or management.
The determination of whether an entity has an extraordinary item is a question of fact. However, due to the highly unusual economic impact and response resulting from the COVID-19 crisis, the CRA would generally consider emergency government assistance, including assistance from provinces and municipalities, directly related to COVID-19 to be an extraordinary item. However, the CRA would not consider COVID-19 related government assistance to be extraordinary to the extent that it replaces or is meant to replace normal or recurring government assistance.
8-1. What is the meaning of the phrase “all or substantially all” in the special rules referred to in questions 8 and 11?
Generally, the phrase “all or substantially all” means at least 90%.
This requirement will be considered to be met where at least 90% of an eligible employer’s qualifying revenue is from one or more particular persons or partnerships with which it does not deal at arm’s length.
However, the “all or substantially all” test could, depending on the circumstances and context, be satisfied even if the 90% level is not strictly achieved.
8-2. What factors are used to determine if a partnership is not dealing at arm’s length with a partnership of which it is a member?
Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length provides guidance on the meaning of arm’s length.
Where persons are not related to each other, the arm’s length determination is a question of fact and each transaction or series of transactions must be examined on its own merits, in light of all the facts and circumstances of that particular situation.
The following criteria have generally been used by the courts in determining whether non-related parties engaging in a transaction are not dealing at arm's length:
whether there is a common mind which directs the bargaining for both parties to a transaction;
whether the parties to a transaction act in concert without separate interests; and
whether there is de facto control (that is, control in fact).
It is not required that all three tests be satisfied in every case. In any particular case, any one or more of the criteria may be of greater or lesser importance in the determination whether the parties are dealing at arm’s length.
Paragraphs 1.42 to 1.44.1 of the Folio summarize the factors to be considered in situations involving partnerships:
Where a partnership owns a majority of the issued voting shares of a corporation, the partnership will not be considered to deal at arm's length with the corporation.
Where one partner is in a position to control a partnership, that partner is not considered to be dealing at arm's length with the partnership. For example, a partner can be in a position to control a partnership through ownership of a controlling interest or through a mandate vested in that partner by the other partners. However, when a partner is not in a position to control a partnership and that partner has little or no say in directing the operations of the partnership, it is generally recognized that the partner is dealing at arm's length with the partnership.
Where a related group of partners owns a controlling interest in a partnership, each member of that related group will not be considered to deal at arm's length with the partnership.
Partners are not necessarily considered not to deal at arm’s length with each other in transactions outside of their partnership activity merely because they are members of the same partnership. However, their partnership in business would be a factor to be considered in any other transaction between them.
The determination of whether a partnership is dealing at arm’s length with a person who is not a partner will generally be made on the basis of the relationship of the directing minds of the partnership and the person at the relevant time.
10-1. What is the meaning of the term “affiliated” and “affiliated group” in the special rules referred to in question 10?
The definitions of “affiliated persons” and “affiliated group of persons” in the Act apply for purposes of the special rule for calculating revenue of members of an affiliated group. Some examples of “affiliated persons” are:
an individual and their spouse or common-law partner;
two corporations if each is controlled by a person, and those two persons are affiliated with each other;
two corporations if one corporation is controlled by one person who is affiliated with each member of a group that controls the other corporation;
two corporations if each corporation is controlled by a group and each member is affiliated with at least one member of the other group.
An affiliated group of persons means a group of persons each member of which is affiliated with every other member.
12-1. Can an eligible employer change their approach used for calculating the qualifying revenue from claim period to claim period?
Special rules described in Q8-Q12 exist for an eligible employer to calculate its qualifying revenue.
Any of these special rules may apply to an eligible employer for the relevant reference periods used for a particular claim period, provided all the requirements of such rule have been met for that particular claim period. Once a specific rule is chosen, the eligible employer must use the same rule for calculating qualifying revenue for the prior and current reference periods used for the particular claim period.
However, for the special rules described in Q8-Q11 (these questions relate to substantially all sales from NAL parties, groups of companies, affiliated groups, and joint ventures), an eligible employer may choose to apply a different approach in a subsequent claim period, provided that all the requirements for the application of that different rule are met for that subsequent claim period.
An eligible employer that chooses to determine its revenues based on the cash method, as described in Q12, must use this method for all claim periods.
14-1. If an eligible employer rehires an employee or hires a new employee who may have received CERB payments, will the employee be required to repay any or all of the CERB payments?
Individuals are required to repay the CERB if they no longer meet the eligibility requirements for the four-week period in question. For example, consider a laid off employee who has applied for the CERB for the four-week period of April 12 – May 9. At the time of application, the laid off employee expected to have little or no work or income for the four-week period of April 12 - May 9. However, the laid off employee finds out immediately afterwards that their employer will rehire them and will give back-pay for that same four-week period. In this situation, the rehired employee will be asked to repay the CERB for that four-week period of April 12 – May 9.
The conditions under which an employee is required to pay back the CERB differ slightly depending on whether it is the first four-week period for which the employee claimed the CERB, or whether it is for the subsequent four-week period.
For the first four-week CERB eligibility period, the employee will need to repay the $2,000 for this period if they have or will earn, for a period of two consecutive weeks in this four-week period, more than $1,000 (before taxes) from employment and self-employment income.
For the second four-week CERB eligibility period, the employee will need to repay the $2,000 for an eligibility period if they have or will earn more than $1,000 (before taxes) from employment and self-employment income during that period.
17-1. Are tips included in eligible remuneration?
Whether tips are included in eligible remuneration depends on the type of tips received by the eligible employee. Controlled tips as well as declared tips are eligible remuneration for the purpose of the wage subsidy. However, direct tips are not eligible remuneration for the purposes of the wage subsidy.
The CRA webpage on Tips and gratuities describe three types of tips:
Controlled tips: The term controlled tips refers to tips that an employer controls or possesses and then must pay to the employee.
Direct tips: Direct tips are paid directly by the customer to the employee. The employer has no control over the tip amount or its distribution. The employer is merely a conduit for the tip from the customer to the employee.
Declared tips (in the province of Quebec only): Declared tips are the amount of tips that provincial law requires an employee to declare to their employer along with their controlled tips. Employees working in a regulated establishment in Quebec must declare their direct tips to their employer.
17-2. In an owner-managed corporation, is the salary and dividends paid to the owner-manager considered eligible remuneration for the purpose of the wage subsidy?
In an owner managed corporation, the owner-manager may pay themselves dividends rather than salaries. In addition, such payments may not be made on a regular basis throughout the year.
For the purpose of the wage subsidy, dividends are not considered eligible remuneration. Accordingly, an eligible employer that pays a dividend instead of salary to an owner-manager that is also an eligible employee in a claim period, will not be eligible for the wage subsidy in respect of that dividend. Further, where an eligible employer pays the owner-manager both dividends and salary in a claim period but has not paid any salary during the period that begins on January 1, 2020 and ends on March 15, 2020 (baseline remuneration), it will not be eligible for the wage subsidy in respect of eligible remuneration paid to the owner-manager in the claim period.
26-1. How do my biweekly, monthly, or semi-monthly pay periods align with the eligible remuneration paid in respect of each week?
An eligible employer’s payroll frequency (whether biweekly, semi-monthly, monthly, etc.) has no effect on the calculation of eligible remuneration paid for purposes of the wage subsidy. While the eligible remuneration must have been paid to the eligible employee, it does not matter whether the employee receives their paycheque for a week at the end of the week, at the end of the month, or otherwise. If an employer’s payroll cycle does not align with the wage subsidy for the claim periods, they will have to do a manual calculation to reflect the remuneration paid in respect of that claim period. Employers will not be permitted to use an average of the daily wages paid. The eligible remuneration reported on an employer’s wage subsidy application must reflect the actual amount paid in respect of the claim period.
Below are two examples of when an eligible employer can claim the wage subsidy if it pays their eligible employees on a monthly basis.
Two examples provided.
26-2. Can I use an average daily wage if my payroll cycle does not align exactly with the wage subsidy claim period or do I have to use an exact daily figure?
In calculating the wage subsidy for an eligible employee for a particular week in a claim period, the eligible employer takes into account amounts paid to the employee in respect of that week. If an employee’s remuneration fluctuates from day to day, for example depending on shifts and hours worked, employers will not be permitted to use an average of the daily wages paid to calculate the subsidy. In addition, an employer cannot use an average of total daily wages for all eligible employees to calculate the total subsidy for each week, as the subsidy must be determined on an employee-by-employee basis.