CEWS Update – Detailed Tax Commentary on the CEWS Amendments in Bill C-20

| 26 minutes

On July 17, 2020, the government of Canada (the “Government”) released details, as well as draft legislative proposals to amend, inter alia, the Income Tax Act (Canada) (the “ITA”), in respect of a redesigned Canada Emergency Wage Subsidy (“CEWS”) program. The legislative proposals, in the form of Bill C-20, An Act respecting further COVID-19 measures (“Bill C-20”), received Royal Assent on July 27, 2020, and are now law.

Bill C-20 can be found here, and the backgrounder and news release relating to the legislative proposals released on July 17, 2020 can be found here and here.

Our Firm’s past commentary on the CEWS can be found here, here, here, here and here.

Unless otherwise stated, all statutory references are to the provisions of the ITA.

Overview

As described more particularly below, Bill C-20 effects, inter alia, the following changes to the CEWS program:

  • extends the CEWS to December 19, 2020, bringing the total number of qualifying periods to ten (with the tenth period to be prescribed by regulation);

  • eliminates the 30% revenue decline threshold for Period 5 and onwards;

  • implements a two-part CEWS calculation in respect of “active” employees and a separate CEWS calculation for furloughed employees, again for Period 5 and onwards;

  • modifies the definition of “eligible employee”, in respect of Period 5 and onwards, to eliminate the requirement that an employee not be without remuneration by the employer for 14 or more consecutive days in the qualifying period;

  • provides an appeal process based on the existing procedure for notices of determination that allows for an appeal to the Tax Court of Canada;

  • adds a continuity rule for the calculation of an employer’s drop in revenues in certain circumstances where the employer purchased all or substantially all of the assets that were used in carrying on business by the seller, as well as a continuity rule in the context of certain amalgamations and wind-ups;

  • permits entities that use the cash method of accounting to elect to use accrual based accounting to compute their revenues for the purpose of the CEWS;

  • better aligns the tax treatment of trusts and corporations for CEWS purposes, with effect from Period 3 and onwards; and

  • extends eligibility to certain employers that use payroll service provides.

Extension of the CEWS

The CEWS program that was initially implemented by the Government in April 2020 provided for three four-week qualifying periods commencing March 15, 2020 and ending on June 6, 2020, subject to extension by regulation to no later than September 30, 2020. On May 15, 2020, the Government announced that the CEWS would be extended by regulation to August 29, 2020. On July 13, 2020, the Prime Minister announced that the CEWS would be further extended to December 2020.

Bill C-20 amends the definition of “qualifying period” in subsection 125.7(1) to formally add the three periods announced on May 15, 2020, as well as the periods announced on July 17, 2020. The three initial qualifying periods and the six additional periods provided for in Bill C-20 are as follows:

  • Period 1 - March 15, 2020 to April 11, 2020;

  • Period 2 - April 12, 2020 to May 9, 2020;

  • Period 3 - May 10, 2020 to June 6, 2020.

  • Period 4 – June 7, 2020 to July 4, 2020;

  • Period 5 – July 5, 2020 to August 1, 2020;

  • Period 6 – August 2, 2020 to August 29, 2020;

  • Period 7 – August 30, 2020 to September 26, 2020;

  • Period 8 – September 27, 2020 to October 24, 2020; and

  • Period 9 – October 25, 2020 to November 21, 2020.

While Bill C-20 also contemplates a tenth period (i.e., November 22, 2020 to December 19, 2020), details for this period are not specified and, instead, are to be prescribed by regulation.

Elimination of the 30% Revenue Decline Threshold

Stated very generally, in order to qualify for the CEWS in respect of Periods 1 through 4, an eligible employer (referred to in the legislation as a “qualifying entity”) must have demonstrated a 15% or greater revenue drop in Period 1 and a 30% or greater revenue drop in Periods 2, 3 and 4. The “cliff” nature of the test meant that an employer with a 29% revenue drop in, for example, Period 4, would not qualify, whereas an employer with a 31% revenue drop would qualify to the same extent as an employer with a significantly greater drop.

Bill C-20 eliminates the 30% revenue decline threshold for Period 5 and onwards, with the amount of the CEWS now being correlated to the employer’s decline in revenue, as described more particularly below.

The CEWS Computation

Pursuant to subsection 125.7(2), the amount of the CEWS is calculated on a week-by-week, employee-by-employee basis (but aggregated in respect of the qualifying period), pursuant to the formula “A-B-C+D”, where, simplified:

  • A is the total of the base CEWS subsidy amounts (i.e., the CEWS subsidy prior to the adjustments as provided pursuant to variables B, C and D) in respect of a particular eligible employee for each week in the qualifying period;

  • B is the amount received by the employer under the 10% Temporary Wage Subsidy (further described here) in respect of the qualifying period;

  • C is the total of all amounts, if any, received by the eligible employee for each week in the qualifying period as a work-sharing benefit under the Employment Insurance Act; and

  • D is an amount equal to the total of all employer premiums or contributions, as applicable, under the Employment Insurance Act, the Canada Pension Plan, certain provincial pension plans and the Quebec Parental Insurance Plan payable by the employer in respect of the eligible employee for a week in the qualifying period during which the employee is on leave with pay for the entirety of the week.

Bill C-20 amends variable A in the above formula to preserve the Period 1 through 4 computations, while providing new rules for Period 5 and onwards.

Prior to the Bill C-20 amendments, variable A was equal to the greater of:

  • 75% of “eligible remuneration” (as described below) paid to the employee in respect of the week (provided that the eligible employee dealt at arm’s length for purposes of the ITA with the employer in the qualifying period), up to a maximum of $847; and

  • the least of (i) the eligible remuneration paid to the employee in respect of that week, (ii) 75% of the employee’s “baseline remuneration” (as described below) for that week, and (iii) $847.

Bill C-20 replaces the description of variable A in subsection 125.7(2) as follows:

  • New paragraph (a) of the description of variable A, which applies to Periods 1 to 4, retains the prior CEWS calculation (as described above), with a slight amendment to clarify that eligible remuneration paid to an eligible employee must have been paid by the particular employer.

  • New paragraph (b) of the description of variable A, which applies to Period 5 and onwards, implements a new two-part CEWS calculation in respect of “active” employees (i.e., employees who are not on leave with pay for the particular week) and a separate CEWS calculation in respect of furloughed employees (i.e., employees who are on leave with pay for the particular week). As described more particularly below, the paragraph is broken down into four subparagraphs, which apply as follows:

    • Paragraph (b)(i) – active employees – Periods 5 and 6

    • Paragraph (b)(ii) – active employees – Periods 7 and onwards (and Periods 5 & 6 by reference)

    • Paragraph (b)(iii) – furloughed employees – Periods 5 and 6

    • Paragraph (b)(iv) – furloughed employees – Periods 7 and onwards

CEWS for Active Employees

Periods 7 and Onwards (and Periods 5 and 6 by reference)

New subparagraph (b)(ii) of the description of variable A applies to Period 7 and onwards in respect of active employees. Subject to a safe harbour, described more particularly below, it also applies in respect of active employees for Periods 5 and 6.

Pursuant to new subparagraph (b)(ii), variable A is determined by the formula “(E + F) x G”, where, simplified:

  • E is the employer’s “base percentage” for the qualifying period (as described more particularly below, the “Base CEWS Rate”);

  • F is the employer’s “top-up percentage” for the qualifying period (as described more particularly below, the “Top-Up CEWS Rate”); and

  • G is the least of:

  • the amount of eligible remuneration paid to the eligible employee by the employer in respect of that week;

  • $1,129; and

  • if the eligible employee does not deal at arm’s length with the employer in the qualifying period, the “baseline remuneration” in respect of the eligible employee determined for that week.

Bill C-20 amends the definition of “baseline remuneration” in subsection 125.7(1). As amended, “baseline remuneration” means the average weekly eligible remuneration, excluding any period of seven or more consecutive days for which the employee was not remunerated, paid to the eligible employee by the employer during the period that:

  • begins on January 1, 2020 and ends on March 15, 2020; or

  • if the employer elects:

    • in respect of Period 5, begins on March 1, 2019 and ends on June 30, 2019, unless the employer elects to use the period that begins on March 1, 2019 and ends on May 31, 2019; or

    • in respect of Period 6 and onwards, begins on July 1, 2019 and ends on December 31, 2019.

In summary, for an active employee that deals at arm’s length with the employer, the CEWS for Period 7 and onwards (as well as for Periods 5 and 6, subject to the safe harbour described below) will be equal to the sum of the Base CEWS Rate and the Top-Up CEWS Rate multiplied by the eligible remuneration (up to a maximum of $1,129) paid to the eligible employee for that week. For an active employee that does not deal at arm’s length with the employer, the aggregate CEWS rate is applied to the least of: (i) the eligible remuneration (up to a maximum of $1,129) paid to the employee and (ii) the baseline remuneration of such employee for that particular week.

Periods 5 and 6


New subparagraph (b)(i) of the description of variable A applies to Periods 5 and 6 in respect of active employees. Pursuant to new subparagraph (b)(i), variable A is the greater of:

  • the amount determined for variable A under the prior (i.e., Period 1 through 4) CEWS rules (or, nil, if the “revenue reduction percentage” of the employer for the qualifying period is less than 30%); and

  • the amount determined by the new subparagraph (b)(ii) formula described above that is otherwise applicable to Period 7 and onwards.

The effect of the foregoing is that an employer with a “revenue reduction percentage” of 30% or more will be no worse off in Periods 5 and 6 under the redesigned CEWS than that employer would have been had the prior rules simply been extended, and may be better off under the new rules depending on the extent of the employer’s revenue reduction.

The Base CEWS Rate

The Base CEWS Rate, or “base percentage” (a new defined term in subsection 125.7(1)), will vary depending on the particular qualifying period and whether the employer’s “revenue reduction percentage” for the qualifying period is: (i) greater than or equal to 50% or (ii) less than 50%. If the employer’s “revenue reduction percentage” is greater than or equal to 50%, then the “base percentage” will be the maximum percentage specified for the particular qualifying period. If the employer’s “revenue reduction percentage” is less than 50%, then the “base percentage” will be a lower percentage. 

The definition of “revenue reduction percentage”, which is also added by Bill C-20 to subsection 125.7(1), is calculated using the formula “1 – A/B” where:

  • A is the employer’s qualifying revenue for the current reference period; and

  • B is the employer’s qualifying revenue for the prior reference period (or, if the prior reference period is January and February 2020, the amount determined by the formula in subparagraph (c)(ii) of the definition of “qualifying entity”) or a period prescribed by regulation in respect of the employer for the qualifying period.

New paragraph 125.7(9)(b) provides that, in respect of Period 5 and onwards, if a lower “revenue reduction percentage” is determined for a particular qualifying period as compared to the “revenue reduction percentage” in the immediately preceding qualifying period, then the “revenue reduction percentage” for the particular qualifying period will be deemed to be equal to that of the prior period. By way of example, if an employer’s revenue reduction percentage in respect of Period 7 (without regard to the deeming rule in respect of Period 7) is 15% and, but for the deeming rule, the employer’s revenue reduction percentage in respect of Period 8 would be 10%, the effect of the deeming rule is that the employer’s revenue reduction percentage for Period 8 will be deemed to be 15% (i.e., the greater of the two percentages). Notably, the deeming rule does not apply in an iterative manner. This means that in the foregoing example, had the employer’s revenue reduction percentage in respect of Period 6 been 20%, such that the deeming rule would have applied in respect of Period 7 to deem the Period 7 revenue reduction percentage to be 20%, the Period 8 revenue reduction percentage would still be deemed to be 15% (i.e., the greater of 15% (being the Period 7 percentage before the application of the deeming rule) and 10% (being the Period 8 percentage before the application of the deeming rule)). The new paragraph 125.7(9)(b) deeming rule is similar in concept to the rule in paragraph 125.7(9)(a) which provides that if an employer meets the revenue reduction test in Period 1, 2 or 3, it is deemed to meet the revenue reduction test in the immediately following qualifying period.

Under the CEWS rules applicable to Periods 1 through 4, as well as the new rules applicable to Periods 5 through 9, if the employer was not carrying on business or otherwise carrying on its ordinary activities on March 1, 2019, the employer’s qualifying revenues for the prior reference period in respect of each qualifying period is determined by reference to its January and February 2020 revenues. More specifically, its qualifying revenues for the prior reference period is determined by the formula “0.5A(B/C)”, where A equals the employer’s qualifying revenue for January and February 2020; B equals the number of days in January and February 2020, (i.e., 60); and C equals the number of days in January and February 2020 that the eligible entity was carrying on business. In all other cases, the employer may choose to use the corresponding month in 2019 (i.e., March, April, May, June, July, August, September, October, November, 2019, as applicable) as the prior reference period or to compare its revenue by reference to January/February 2020 revenue, as set out above. The method used by the employer for Periods 1 through 4 need not be the same as the method used by the employer for Periods 5 through 9; however, the method used for each of Period 1 through 4 must be consistent, as must the method for each of Period 5 through 9. By way of example, if an employer used the calendar year reference for Periods 1 through 4, the employer may choose to use January/February 2020 for Period 5, but if it does, it will be required to use January/February for Periods 6 through 9 as well.

The following chart summarizes the current reference period and prior reference period for each of Periods 5 through 9:

Qualifying Period

Current Reference Period

Prior Reference Period

Alternative Reference Period

Period 5: July 5, 2020 to August 1, 2020

July 2020

July 2019

January and February 2020 Average

Period 6: August 2, 2020 to August 29, 2020

August 2020

August 2019

January and February 2020 Average

Period 7: August 30, 2020 to September 26, 2020

September 2020

September 2019

January and February 2020 Average

Period 8: September 27, 2020 to October 24, 2020

October 2020

October 2019

January and February 2020 Average

Period 9: October 25, 2020 to November 21, 2020

November 2020

November 2019

January and February 2020 Average

The Base CEWS Rates and maximum weekly benefits per active employee in respect of Periods 5 to 9 are set out below.

Qualifying Period

Period 5*

Period 6*

Period 7

Period 8

Period 9

Maximum weekly benefit per employee

Up to $677

Up to $677

Up to $565

Up to $452

Up to $226

Revenue reduction percentage

Base CEWS Rate

50% and over

60%

60%

50%

40%

20%

0% to 49%

1.2 x revenue reduction percentage

1.2 x revenue reduction percentage

1.0 x revenue reduction percentage

0.8 x revenue reduction percentage

0.4 x revenue reduction percentage

*The CEWS for Periods 5 and 6 is subject to the safe harbour rule described above; the maximum pursuant to the safe harbour is $847.

The Top-Up CEWS Rate

The Top-Up CEWS Rate only applies to an employer who experiences a three-month average revenue reduction of more than 50%. The Top-Up CEWS Rate is provided for in the definition of “top-up percentage”, which is added by Bill C-20 to subsection 125.7(1). The “top-up percentage” for a qualifying period is calculated pursuant to the formula “1.25 x (A – 50%)”, where A is the “top-up revenue reduction percentage”.

The definition of “top-up revenue reduction percentage”, which is added by Bill C-20 to subsection 125.7(1), is calculated using the formula “1 – A/B”, where:

  • A is the average monthly qualifying revenue for the last three calendar months prior to the current reference period for the qualifying period (e.g., the average of June, July and August 2020 in respect of Period 7, for which the current reference period is September 2020); and
  • B is the average monthly qualifying revenue for the last three calendar months prior to the prior reference period for the qualifying period (e.g., the average of June, July and August 2019 in respect of Period 7, for which the prior reference period is generally September 2019), or, if the prior reference period for the qualifying period is the average of January and February 2020, then the average of January and February 2020.

The maximum Top-Up CEWS Rate of 25% is attained where the employer experiences a “top-up revenue reduction percentage” of 70% or more.

Illustrative Top-Up CEWS Rates for selected top-up revenue reduction percentages are set out below.

Revenue reduction percentage

Top-Up CEWS Rate

Top-up calculation = 1.25 x (revenue reduction percentage – 50%)

70% and over

25%

1.25 x (70%-50%) = 25%

65%

18.75%

1.25 x (65%-50%) = 18.75%

60%

12.5%

1.25 x (60%-50%) = 12.5%

55%

6.25%

1.25 x (55%-50%) = 6.25%

50% and under

0.0%

1.25 x (50%-50%) = 0.0%

The combined base CEWS and top-up CEWS amounts

The maximum combined aggregate CEWS amounts (i.e., variable A in subsection 125.7(2)) and combined CEWS rates for Periods 5 to 9 are set out below:

Qualifying Period

Period 5

Period 6

Period 7

Period 8

Period 9

Maximum weekly benefit per employee*

Up to $960

Up to $960

Up to $847

Up to $734

Up to $508

Combined Maximum CEWS rate

85%

(60% base + 25% top-up)

85%

(60% base + 25% top-up)

75%

(50% base + 25% top-up)

65%

(40% base + 25% top-up)

45%

(20% base + 25% top-up)

*Maximum weekly amount is attained where: (i) revenue reduction percentage (used for purposes of determining the Base CEWS Rate) is 50% or greater and top-up revenue reduction percentage (used for purposes of determining the Top-Up CEWS Rate) is 70% or greater; and (ii) the amount of eligible remuneration paid to the employee is $1,129 or greater.

CEWS for Furloughed Employees

 

New subparagraph (b)(iii) of the description of variable A applies to Periods 5 and 6 in respect of furloughed employees. Pursuant to new subparagraph (b)(iii), variable A is equal to the amount determined under the prior CEWS rules, provided that either the “revenue reduction percentage” or the “top-up percentage” for the qualifying period is greater than 0% (i.e., the employer has, for the qualifying period, at least some revenue decline). Phrased differently, the CEWS computation in respect of furloughed employees in Periods 5 and 6 is the same as in respect of prior periods; however, the revenue reduction test is relaxed for these periods (i.e., employers need only demonstrate some decline rather than the 30% reduction that was required previously).

New subparagraph (b)(iv) of the description of variable A applies to Period 7 and onwards in respect of furloughed employees. Pursuant to new subparagraph (b)(iv), provided that either the “revenue reduction percentage” or the “top-up percentage” for the qualifying period is greater than 0% (i.e., the employer has, for the qualifying period, at least some revenue decline), variable A is equal the least of:

  • the eligible remuneration paid to the eligible employee by the employer in respect of that week; and
  • an amount to be determined by regulation in respect of the employer for the qualifying period.

At the time of writing, the Government has not prescribed any regulations with respect to the foregoing. However, the Government’s backgrounder provides that beginning in Period 7, the CEWS in respect of furloughed employees will be “adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI)”. According to the backgrounder, this change is being made to “ensure equitable treatment of employees on furlough between both programs, provide greater clarity to workers as to their compensation as compared to a changing subsidy rate based on their employer’s revenue in a given month and, when combined with draft legislative changes to the interaction with the CERB […], make it easier to transition employees on to CEWS so that they are reconnected with their employer”.

Under the redesigned CEWS program, the employer portion of contributions for the Canada Pension Plan, Employment Insurance, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees continues to be refunded to eligible employers.

Changes to employee eligibility

Bill C-20 amends the definition of “eligible employee”, in respect of Period 5 and onwards, to remove the requirement that the employee not be without remuneration by the employer in respect of 14 or more consecutive days in the qualifying period.

Select Other Changes

Bill C-20 also effects the following amendments that apply to both the prior CEWS program and the redesigned program, and are mostly relieving in nature. Unless otherwise noted, the amendments are retroactive to Period 1.

Application Deadline

Bill C-20 extends the CEWS application deadline in respect of all periods to January 31, 2021. Previously, applications needed to be made prior to October 2020.

Appeal Process

Pursuant to Bill C-20, employers have access to an appeal process. New subsection 152(3.4) provides that the Minister of National Revenue (i.e., the CRA) may determine the amount of the CEWS in respect of an employer at any time and the Minister may send a corresponding notice of the determination to the taxpayer (i.e., the employer). The provisions of the ITA dealing with objections and appeals will then apply to the determination. An employer can object from a notice of determination to the CRA and, if necessary, appeal from the notice of determination to the Tax Court of Canada within the normal deadlines applicable to objections and appeals under the ITA.

Amalgamations and Winding-Ups

New paragraph 87(2)(g.6) provides that for the purposes of the CEWS, corporations formed on an amalgamation pursuant to subsection 87(1) are deemed to be the same corporation as, and a continuation of, each predecessor corporation. Paragraph 87(2)(g.6) does not apply where it is reasonable to consider that one of the main purposes of the amalgamation is to cause the new corporation to qualify for the CEWS or to increase the amount received under the program. By virtue of paragraph 88(1)(e.2) (which incorporates by reference several provisions in subsection 87(1), including new paragraph 87(2)(g.6), into the winding-up rules in subsection 88(1)), this continuity rule also applies in respect of a winding-up of a subsidiary into its parent under subsection 88(1).

The effect of this provision is to allow a corporation formed on the amalgamation of two or more predecessor corporations under subsection 87(1) (or a parent corporation on a winding-up of a subsidiary into the parent under subsection 88(1)), 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 tests.

Asset Sales

Bill C-20 introduces a continuity rule in new subsection 125.7(4.2) for the calculation of revenue in circumstances where the employer purchases “all or substantially all” (generally interpreted by the CRA to mean 90% or more) of the assets used by the seller in the course of carrying on a business in Canada.

In order to benefit from this rule, the following conditions set out in new subsection 125.7(4.1) must be met:

  • the assets acquired by the employer must have been acquired during or before the qualifying period;
  • immediately prior to the acquisition, the assets must have consisted of all or substantially all of the fair market value of the seller’s property used in the course of carrying on business, and they must have been used by the seller in the course of business it carried on in Canada;
  • none of the main purposes of the acquisition may have been to increase the amount to be received under the CEWS;
  • an election must be filed with the CRA by either: (i) the purchasing entity and seller jointly, if the seller is in existence during the particular qualifying period; or (ii) the purchasing entity, if the seller is not in existence during the particular qualifying period.

If the conditions in subsection 125.7(4.1) are met, subsection 125.7(4.2) provides that in respect of a particular qualifying period:

  • the amount of the qualifying revenue of the seller for the prior reference period, or the current reference period, that is reasonably attributable to the acquired assets (the “Assigned Revenue”) is to be included in determining the qualifying revenue of the purchaser for its prior reference period or current reference period, as the case may be;
  • the Assigned Revenue is to be subtracted from the qualifying revenue of the seller for its prior reference period or current reference period; and
  • if a portion of the Assigned Revenue is from a person or partnership with whom the seller did not deal at arm’s length but who deals at arm’s length with the purchaser throughout the current reference period, that portion of the Assigned Revenue is deemed to not be derived from persons or partnerships not dealing at arm’s length for purposes of paragraph (d) of the definition of “qualifying revenue”. 

This rule will generally be advantageous to purchasers, but may be disadvantageous to vendors. Since an election must be filed jointly by the seller and the purchaser in order for the rule to apply in respect of a qualifying period in which the seller is in existence, the status of the seller (i.e., whether the seller continues as a separate legal entity, is wound-up or amalgamated as part of an amalgamation or wind-up to which the new continuity rule in paragraph 87(2)(g.6) applies, or otherwise ceases to exist) may be relevant to the purchaser for some months following the completion of the transaction. Purchasers entering into asset sale transactions should consider adding a provision in the purchase and sale agreement in respect of any elections required under new subsection 125.7(4.1).

Accounting Elections

Subsection 125.7(4) provides that qualifying revenue is to be determined in accordance with the employer’s normal accounting practices, subject to certain exceptions.

Pursuant to Bill C-20, paragraph 125.7(4)(e) is amended to allow an employer to make an election (which must apply to all qualifying periods) to determine its qualifying revenues for purposes of the CEWS based on: (i) the cash method, within the meaning assigned by subsection 28(1) with such modifications that the circumstances may require or (ii) the accrual method, in accordance with generally accepted accounting principles.

Previously, an employer that used accrual based accounting could elect to use the cash method for CEWS purposes; however, an employer whose normal accounting practices were based on the cash method could not elect to use the accrual method for CEWS purposes.

Payroll Service Providers

To be eligible for the CEWS, an employer must be a “qualifying entity” under subsection 125.7(1). As originally defined in subsection 125.7(1), a “qualifying entity” was an “eligible entity” that: (i) meets the applicable revenue reduction test for the relevant period; (ii) files an application with the Minister of National Revenue (which the individual who has principal responsibility for the financial activities of the eligible entity must attest is complete and accurate in all material respects) in the prescribed form and manner; and (iii) had, on March 15, 2020, a business number and payroll program account with the CRA.

Following the release of the original CEWS rules, it was observed that various employers who used payroll providers did not qualify for the subsidy because they did not have their own business number/payroll program account with the CRA. In keeping with a previously announced relieving change, Bill C-20 expands the definition of qualifying entity to include an employer who would qualify but for the business number/payroll program account requirement, provided that: (i) the employer employed one or more individuals in Canada on March 15, 2020, and the payroll for its employees was administered by another person or partnership (i.e., the payroll service provider); (iii) on March 15, 2020, the payroll service provider had a business number and payroll program account with the CRA; (iv) the payroll service provider used its business number to make remittances under section 153 in respect of the employer’s employees; and (v) the CRA is satisfied that the foregoing conditions are met.

Disqualification of Certain Trusts

Under the original CEWS rules, all trusts met the definition of “eligible entity” in subsection 125.7(1), whereas corporations were subject to certain exceptions. On May 15, 2020, the Government announced its intention to change the definition to better align the tax treatment of trusts and corporations for CEWS purposes. Consistent with this announcement, Bill C-20 amends the definition of “eligible entity” to include the following additional eligibility requirements for trusts that are “public institutions” (as defined in subsection 125.7(1)) and/or exempt from tax under Part I:

  • if the trust is a public institution, it must be a prescribed organization; and
  • if the trust is exempt from tax pursuant to Part I but not a public institution, it must either (i) be a prescribed organization, or (ii) be a registered charity or one of several other types of specifically enumerated tax-exempt entities.

This change is effective for Period 3 onwards.

Seasonal Employees and Employees Returning From Extended Leave

As described above, Bill C-20 amends the definition of “baseline remuneration” in subsection 125.7(1) to allow employers to choose, on an employee-by-employee basis, the relevant pre-crisis period for which to calculate the baseline remuneration of the particular employee. As amended, “baseline remuneration” is based on the average weekly remuneration paid to the employee in one of the following periods (excluding any period of seven or more consecutive days without remuneration):

  • from January 1 to March 15, 2020; or
  • if the employer elects:
    • in respect of Periods 1 to 3, from March 1 to May 31, 2019;
    • in respect of Period 5, from March 1 to June 30, 2019; and
    • in respect of Period 6 and onwards, from July 1 to December 31, 2019.

For additional assistance, please contact any member of our National Tax or Labour & Employment teams.

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