The federal government today announced that CEWS applications will open on Monday April 27, 2020. The CRA provided an on-line CEWS calculator (see https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html) to assist employers in calculating their CEWS claim. As Canadian employers prepare to submit their first CEWS application, there are a number of considerations that we wanted to bring your attention.
Automatic Qualification for Following Period – The legislation released April 11, 2020 contained a surprise deeming rule that had not been previously announced. If an employer qualifies for the CEWS for one period by suffering the required decline in revenue, it will automatically qualify for the immediately following period. For example, if an employer suffers a revenue decline in March 2020 of 15% or more when compared to the appropriate prior period, it will automatically qualify for April 2020 even if April revenue has not declined 30%. Employers need to be aware of this as they prepare their CEWS application for subsequent periods.
Cash vs Accrual Basis – As previously reported to you, an employer may select to compute revenue for purposes of the CEWS on a cash or accrual basis. The selected basis of computing revenue must be used for all CEWS applications. There may be an advantage for an employer to delay their CEWS applications until June 2020 at which time the revenue for March, April and May under the cash and accrual basis for all three periods will be known. We appreciate that this may not be practical for many employers who need immediate access to the CEWS funds.
Baseline Remuneration – To prevent business owners from increasing remuneration to maximize the CEWS, the CEWS formula restricts the CEWS to 75% of the average weekly wage paid between January 1 and March 15, 2020 which is defined as baseline remuneration. This applies to remuneration paid to all employees.
Can the CEWS Equal 100% of Salary – We have received several questions concerning whether or not 100% of an employee’s salary could be recovered by the CEWS. Based upon the CEWS formula this is not possible if the remuneration paid to an employee during the CEWS eligibility periods remains unchanged from baseline remuneration for that employee. It could be achieved however if remuneration paid during the CEWS eligibility period is reduced by 25% or more from baseline remuneration.
Revenue from Related Sources – In computing revenue for purposes of the CEWS, revenue from related persons or partnerships is excluded. This can lead to one employer in a related group not being eligible for the CEWS while the entire group as a whole has suffered the required revenue decline. Two special revenue computation rules are provided to address this issue. First, an affiliated group of employers may elect to compute their revenue on a consolidated basis. Second, if 90% or more of total revenue is from related sources, a special formula is provided that allows the employer to compute their revenue decline based upon the revenue decline of related customers. These rules are particularly complex and you may require our assistance for their implementation.
We have established a dedicated team to assist clients in preparing their CEWS applications. If you need help, please contact us. We are here for you.