Canada Emergency Wage Subsidy Update

On May 15, 2020, the Government of Canada announced the following changes to the Canada Emergency Wage Subsidy (the “CEWS”):

  • Extension of Relief Period: The CEWS will be extended by an additional 12 weeks to August 29, 2020.
  • Additional Types of Eligible Employers: Eligibility for the CEWS has been expanded to include the following categories of employers (retroactive to April 11, 2020 and applicable to all qualifying periods commencing on or after March 15, 2020):
    • partnerships with one or more non-eligible members if, throughout the relevant qualifying period, non-eligible persons or partnerships do not hold – directly or indirectly, through one or more partnerships – interests in the partnership having an aggregate fair market value that is more than 50% of the aggregate fair market value of all interests in the partnership;
    • Indigenous government-owned corporations that carry on a business and are tax-exempt under paragraph 149(1)(d.5) of the Income Tax Act (Canada) (the “ITA”), their wholly-owned subsidiary corporations that carry on a business and are tax-exempt under paragraph 149(1)(d.6) of the ITA, and partnerships each member of which is either an Indigenous government or an eligible employer;
    • national-level registered Canadian amateur athletic associations that are tax-exempt under paragraph 149(1)(g) of the ITA;
    • registered journalism organizations that are tax-exempt under paragraph 149(1)(h); and
    • non-public educational and training institutions (whether for-profit or not-for-profit).

The Government also announced its intention to propose the following legislative changes to ensure that the CEWS continues to meet its objectives:

  • Seasonal Employees and Employees Returning From Extended Leave: To bridge the gap in respect of seasonal employees and employees returning to work from extended leave, the Government intends to propose legislative changes to allow employers to choose, on an employee-by-employee basis, whether to calculate the baseline remuneration of the employee based on the average weekly remuneration paid to the employee in either of the following two periods (excluding any period of 7 or more consecutive days without remuneration):
    • from January 1 to March 15, 2020; or
    • from March 1 to May 31, 2019.
  • Amalgamations and Winding Ups: To accommodate certain amalgamations and wind-ups, the Government intends to propose legislative changes to allow a corporation formed on the amalgamation of two or more predecessor corporations (or a parent corporation on a winding-up of a subsidiary into the parent) to calculate its qualifying revenue for a prior reference period using the combined qualifying revenues of the predecessor corporations (or the parent corporation and its subsidiary) for the purposes of the CEWS revenue-decline test, unless it is reasonable to consider that one of the main purposes for the amalgamation (or the winding up) was to qualify for the CEWS.
  • Tax-Exempt Trusts: To better align the tax treatment of trusts and corporations for CEWS purposes, the Government intends to introduce the following additional eligibility requirements for certain trusts:
    • If the trust is a tax-exempt entity (other than a public institution), it must be a registered charity or one of the other types of eligible tax-exempt entities; and
    • If the trust is a public institution, it must be a prescribed organization.

The changes relating to seasonal employees/employees returning from extended leave and amalgamations and winding ups are proposed to be retroactive to April 11, 2020, and would apply to all qualifying periods commencing on or after March 15, 2020. The change relating to tax-exempt trusts is proposed to apply to all qualifying periods commencing on or after May 10, 2020.

The Government also announced that it “will consult with key business and labour representatives over the next month on potential adjustments to the program to incent jobs and growth, including the 30 per cent revenue decline threshold.”

At the time of writing, the specified percentage for determining whether the revenue-decline test is met in respect of the extended 12 week period from June 7 to August 29, 2020 has not been specified.

The Government’s press release and backgrounder to the announced changes to the CEWS can be found here and here. Additional tax commentary from our Firm on the subsidy can be found here.

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