The Federal Government recently passed Bill C-20, receiving Royal Assent on July 27th, 2020. Bill C-20 provides another 12-week extension to the Canada Emergency Wage Subsidy (CEWS), which further extends the program until November 21st, 2020 (likely extension to December 19th, 2020, but program details for that period are expected to be proposed at a later date). The Bill makes some significant changes to the amount of benefit an employer can receive per employee, how the program operates, and how the subsidies are calculated. It also includes some minor retroactive changes for all eligibility periods.
The biggest change to the CEWS is how the subsidy amount is calculated starting from period 5 (July 5th) onwards. The government has now implemented a new 2-part calculation for “active” employees and a separate calculation for furloughed employees. The new wage subsidy calculation no longer uses 75% of eligible remuneration up to the maximum $847 weekly benefit, but rather the employer will be entitled to a percentage of an employees pay that is directly linked to the employer’s decline in revenue for that specific qualifying period. The 30% revenue calculation that determined eligibility has also been eliminated for period 5 onwards. Instead, it is now a sliding scale that allows an “eligible employer” to receive the subsidy that is proportional to the percentage of revenue decline they have seen. There is also now an additional top-up subsidy for businesses who have experienced a revenue decline greater than 50%. The new formula for determining the subsidy is equal to:
(Base % + Top-up %) X Eligible Remuneration (up to $1,129 per week)
It is important to note that the definition of “Eligible Remuneration” remains the same as the original rules.
The Base Percentage is based on the employer’s “revenue reduction percentage” (RRP) for the individual qualifying period, which is equal to:
1 – (the current period qualifying revenue / prior reference period qualifying revenue)
The base percentage is then calculated for each individual qualifying period by multiplying the RRP by a defined multiple. This is then capped at a set percentage when the decline in revenue exceeds 50%. This is outlined in the table below:
|50% & Over||60%||60%||50%||40%||20%|
|0% – 49%||1.2 x reduction %||1.2 x reduction||1.0 x reduction||0.8 x reduction||0.4 x reduction|
|Max Weekly Base Subsidy/Employee||$677||$677||$565||$452||$226|
As outlined, the maximum base percentage that can be used for the subsidy calculation declines throughout the remaining claim periods, starting at 60% for periods 5 and 6.
As an example, if an employer had a revenue reduction of 35% during Period 5, they would multiply that by 1.2, which would equate to 42%. That is what they would then use to calculate their wage subsidy.
There is now also a top-up percentage available for those employers who have had an average 3-month revenue drop of 50% or more. For employers with a 3-month average revenue drop between 50-69%, the top-up percentage is:
1.25 X (top-up revenue reduction percentage – 50%)
As an example, if your 3-month average revenue reduction equalled 60%, then the top-up percentage would be 12.5%. This is calculated as: 1.25 X (60%-50%) = 12.5%. For employers with a 3-month average revenue decline of 70% or more, the top-up percentage is capped at 25%.
Under the new rules, the maximum amount an employer can receive per employee per week is 85% of the maximum weekly subsidy amount per employee of $1,129.
|Max weekly benefit (base + top-up)||$960||$960||$847||$734||$508|
CLAIM PERIODS & “SAFE-HARBOUR” RULE
The new time periods for determining the base and top-up subsidies are outlined in the following table:
BASE SUBSIDY PERIOD
TOP-UP SUBSIDY PERIOD
|Period 5||July 2020 vs. July 2019 or Jan/Feb 2020 Avg.||Avg. of Apr-Jun 2020 vs same period in 2019 or Jan/Feb 2020 avg.|
|Period 6||Aug 2020 vs. Aug 2019 or Jan/Feb 2020 Avg.||Avg. of May-Jul 2020 vs same period in 2019 or Jan/Feb 2020 avg.|
|Period 7||Sept 2020 vs. Sept 2019 or Jan/Feb 2020 Avg.||Avg. of Jun-Aug 2020 vs same period in 2019 or Jan/Feb 2020 avg.|
|Period 8||Oct 2020 vs. Oct 2019 or Jan/Feb 2020 Avg.||Avg. of Jul-Sep 2020 vs same period in 2019 or Jan/Feb 2020 avg.|
|Period 9||Nov 2020 vs. Nov 2019 or Jan/Feb 2020 Avg.||Avg. of Aug-Oct 2020 vs same period in 2019 or Jan/Feb 2020 avg.|
It is important to note that if you choose to use the alternative approach (January & February average) as the benchmark for the base subsidy, then you must also use that for the top-up subsidy as well.
The Bill also allows for a transition period for qualifying period 5 and 6, which is effectively referred to as the “safe harbour” rule. This outlines that for these two periods (July 5th to August 1st and August 2nd to 29th) an employer can still use the original rules to calculate their subsidy amount if they would have been entitled to a larger subsidy amount under those rules compared to the new rules.
Here are some additional notes regarding the changes:
- Expansion of who is deemed an “Eligible Employee”: The restriction that prohibited an employee from qualifying who was without remuneration for 14 or more consecutive days during the claim period has been removed for period 5 and onwards.
- Employees on Leave with Pay: specific rules now apply for employees on leave with pay from periods 7 to 9 (amount still to be determined by regulation). For periods 5 and 6 the wage subsidy calculation for these employees will be based on the old rules; however, only a nominal revenue decline will be required by the employer (anything more than zero).
- The deadline for submitting a CEWS application for any claim period was extended to January 31, 2021.
- The CRA has published an online calculator to help in determining CEWS amounts.
- Although not part of Bill C-20, the government indicated they will be publishing a list of all CEWS recipients that will be public.
In conclusion, the recent changes to the CEWS aim to keep individuals employed while removing the disincentive of meeting revenue reduction thresholds to qualify for the program under the previous rules. The goal here was to provide a subsidy that is proportional to the financial impact that COVID-19 has had on a business’ revenue. The above synopsis is meant to provide an overview of the recent rule changes; however, the rules and calculations are complex, and the subsidies will vary based on a business’ individual circumstances. Your TPC Financial Group Ltd. advisor in conjunction with your accountant can assist in determining both your eligibility and the subsidy amount you could receive from the newly expanded CEWS program.