Tourism and Hospitality Recovery Program, the Hardest-Hit Business Recovery Program and Other COVID-19 Support Programs and Changes
On Friday, December 17, 2021, Bill C-2, An Act to provide further support in response to COVID-19 (“Bill C-2”) received Royal Assent and is now law. This legislation implements the new COVID-19 recovery programs and changes to certain existing programs that the Government of Canada (the “Government”) announced on October 21, 2021, as well as some additional changes. Notably, while the enacted version of Bill C-2 is substantially the same as the version first tabled on November 24, 2021, the enacted version also includes:
(i) provisions intended to prevent publicly traded companies and their subsidiaries from paying dividends while benefiting from wage subsidy support, and
(ii) a provision mandating that the Auditor General of Canada undertake a performance audit in respect of the Canada Emergency Response Benefit (“CERB”), the Canada Emergency Wage Subsidy (“CEWS”), the Canada Worker Lockdown Benefit and the Canada Recovery Benefit.
These additional provisions were introduced following First Reading pursuant to a report of the Standing Committee on Finance (linked here).
Subsequently, on December 22, 2021, the Government announced that it intends to further expand (on a temporary basis) the Local Lockdown Program and the Canada Worker Lockdown Benefit using the regulatory authority granted to it in Bill C-2. The Government’s news release and backgrounder relating to the December 22, 2021 announcement can be found here and here.
Our prior commentary on the October 21, 2021 announcement is available here. In that commentary:
- we provided an overview of the October 21, 2021 announcements and a high level summary of the employer support programs applicable to Period 22 (i.e., October 24, 2021 to November 20, 2021) and onwards; and
- noted that certain details of the new programs were still forthcoming (e.g., (i) what constitutes a “qualifying business” for purposes of the new Tourism and Hospitality Recovery Program, (ii) confirmation that the general lockdown support (now referred to as the “Local Lockdown Program”) would include a CEWS and CERS component, and specifics as to when the Local Lockdown Program would apply, and (iii) particulars of the Canada Worker Lockdown Benefit).
This commentary updates our prior commentary by:
(i) providing particulars of what constitutes a “qualifying business” for purposes of the new Tourism and Hospitality Recovery Program;
(ii) providing additional specifics in respect of the Local Lockdown Program and confirming that it contains a CEWS and CERS component;
(iii) summarizing certain additional measures included in Bill C-2 that did not form part of the October 21, 2021 announcement; and
(iv) addressing the proposed temporary expansion of the Local Lockdown Program and the Canada Worker Lockdown Benefit announced on December 22, 2021.
Readers should read this commentary in conjunction with our prior commentary on the October 21, 2021 announcement.
Tourism and Hospitality Recovery Program
According to the Government, the Tourism and Hospitality Recovery Program is intended to provide support to eligible organizations in the tourism and hospitality industry that have been deeply impacted since the outset of the pandemic and that are still struggling. While the Government provided a general description of the types of business that would constitute a “qualifying business”, specifics were not provided at the time of the October 21, 2021 announcement.
Bill C-2 introduces the new definition “qualifying tourism or hospitality entity” in subsection 125.7(1) of the Income Tax Act (Canada) (the “Tax Act”), and provides that this term has the meaning assigned by regulation. New Regulation 8901.1(2), in turn, provides that a qualifying tourism or hospitality entity for a qualifying period means an eligible entity that meets the following conditions:
- stated generally, more than 50% of the organization’s pre-pandemic revenue was earned from carrying on one more of the following activities:
(i) operating or managing a facility providing short-term lodging, such as a hotel, a motel, a cottage, a bed and breakfast or a youth hostel,
(ii) preparing and serving meals, snacks and beverages made to order for immediate consumption on or off the premises,
(A) such as a restaurant, a food truck, a cafeteria, a caterer, a coffee shop, a food concession, a bar, a pub or a nightclub, and
(B) for greater certainty, not including the operation of a facility primarily engaged in retailing food or beverage products, such as a supermarket or a convenience store,
(iii) operating a travel agency or as a tour operator, including:
(A) acting as an agent for tour operators, transportation companies and short-term lodging establishments in selling travel, tour and accommodation services, or
(B) arranging, assembling and marketing tours,
(iv) organizing, promoting, hosting, supporting or participating in events that meet the artistic or cultural interests of their patrons, including live performances or exhibits intended for public viewing,
(v) preserving and exhibiting objects, sites and natural wonders of historical, cultural or educational value, such as the operation of a museum, a historic and heritage site, a zoo, a botanical garden or a nature park,
(vi) organizing, promoting or supporting scenic and sightseeing tours, such as sightseeing or dinner cruises, steam train excursions, horse-drawn sightseeing rides, air-boat rides, hot-air balloon rides or charter fishing services,
(vii) providing charter bus services, if
(A) the buses do not operate on fixed routes and schedules, and
(B) the entire vehicle is rented, rather than individual seats,
(viii) operating or managing an amusement or theme park, which includes
(A) operating a variety of attractions, such as mechanical rides, water rides, games, shows or theme exhibits, and
(B) leasing space on a concession basis for these operations,
(ix) operating or managing a facility or providing a service that enables patrons to participate in recreational activities,
(I) fitness and recreational sports centres,
(II) downhill and cross-country ski/snowboard areas, and equipment such as ski lifts and tows (including revenues from equipment rental services and ski/snowboard instruction services provided at the area),
(III) the operation of docking and storage facilities for pleasure-craft owners, with or without related activities, such as retailing fuel and marine supplies, boat repair and maintenance and rental services,
(IV) the operation of recreation and amusement facilities and services including establishments primarily engaged in maintaining non-gambling coin-operated amusement devices, in businesses operated by others, and
(V) other amusement activities, such as amateur sports clubs, teams or leagues, archery or shooting, ballroom dancing, river rafting, curling clubs, mini golf and bowling, and
(I) golf, golf instruction and the ownership or operation of a facility that is a golf course, a golf driving range, or a golf clubhouse,
(II) country clubs, and
(III) professional sports clubs, teams or leagues or facilities used primarily by such organizations,
(x) operating or managing serviced or unserviced sites to accommodate campers and their equipment for tents, tent trailers, travel trailers and recreational vehicles, excluding mobile home sites,
(xi) operating or managing an overnight recreational camp, such as a children’s camp, a family vacation camp or an outdoor adventure retreat,
(xii) operating or managing a hunting camp or a fishing camp,
(xiii) operating or managing a duty-free retail store at a land border crossing where the only exit route is to the United States,
(xiv) operating or managing a facility that is primarily engaged in exhibiting motion pictures, such as a cinema or a drive-in theatre,
(xv) operating or managing an amusement arcade, such as a family fun centre, an indoor play area, a pinball arcade or a video game arcade,
(xvi) operating a facility allowing passengers to board and leave a cruise ship,
(xvii) operating or managing an airport, including renting hangar space and providing baggage handling, cargo handling and aircraft parking services,
(xviii) operating or managing a casino,
(xix) promoting a destination or region in Canada for the purpose of attracting tourism,
(xx) organizing, planning, promoting, hosting or supporting:
(A) conventions, trade shows or festivals, or
(B) weddings, parties or similar events, and
(xxi) promoting the interests of the members of an industry organization or association, if the members are primarily engaged in activities described in any of subparagraphs (i) to (xx); and
- it has a “prior year revenue decline” greater than or equal to 40%.
The term “prior year revenue decline” is added to subsection 125.7(1) of the Tax Act, and defined to mean the average of all revenue decline percentages (calculated using the CEWS rules) for eligible organizations from Periods 1 through 13 (i.e., March 2020 to February 2021), excluding: (i) Period 10 or 11, and (ii) periods in which an organization was not carrying on its ordinary operations for reasons other than a public health restriction (e.g., a seasonal shutdown).
While only the 12-month “prior year revenue decline” test is included in the definition of “qualifying tourism or hospitality entity”, an organization must also have a current month revenue decline (the “current month revenue decline threshold”) of at least 40% to qualify for support in any particular period under this program. For additional particulars of the rate structure, please see our prior commentary.
Local Lockdown Program
Organizations that do not otherwise qualify for the Tourism and Hospitality Recovery Program may be eligible for CEWS and CERS support at rates equal to the subsidy rates calculated under that program if they are subject to a “qualifying public health restriction” (or, in the case of Periods 24 and 25, if they meet the expanded eligibility conditions announced by the Government on December 22, 2021).
Bill C-2 adds the term “qualifying public health restriction” to subsection 125.7(1) of the Tax Act. It means that:
- one or more qualifying properties of the eligible entity – or one or more specified tenants (within the meaning of the definition “public health restriction”) of the eligible entity – is subject to a public health restriction for at least seven days in the qualifying period; and
- it is reasonable to conclude that at least approximately 25% of the qualifying revenue of the eligible entity – together with the qualifying revenue of any specified tenants of the eligible entity – for the prior reference period were derived from restricted activities.
No change has been made to the definition of “public health restriction” in subsection 125.7(1). As such, the term continues to mean a governmental order made in response to the COVID-19 pandemic that requires, among other things, some or all of the activities of the eligible entity (or specified tenant) at a particular location to cease for a period of at least one week.
On December 22, 2021, the Government announced that it intends to introduce new regulations that would expand the Local Lockdown Program as follows for qualifying periods from December 19, 2021 to February 2021 (Periods 24 and 25):
- by providing that, as an alternative to meeting the “qualifying public health restriction” requirement, an organization may qualify if:
- one or more of its locations is subject to a public health order that has the effect of reducing the organization’s capacity at the location by 50% or more; and
- activities restricted by the public health order account for at least 50% of the organization’s total qualifying revenue during the prior reference period; and
- by lowering the current-month revenue loss threshold from 40 percent to 25 percent.
The following table provided by the Government in its backgrounder to the December 22, 2021 announcement details the wage and rent subsidy rate structure for the Local Lockdown Program after giving effect to these proposed expansions:
Current-month revenue decline
December 19, 2021 – February 12, 2021
75% and over
e.g., 50% revenue decline = 50% subsidy rate
Publicly Traded Companies – Executive Compensation and Dividends
Bill C-2 adds two provisions intended to prevent publicly traded companies and their subsidiaries from paying dividends while benefiting from the wage subsidy.
The first provision provides that a publicly traded company (or a subsidiary of such a company) will not qualify for the wage subsidy in any particular qualifying period if, during that qualifying period, the publicly traded company or subsidiary paid taxable dividends to an individual who is a holder of common shares of the company or the subsidiary. More specifically, new subsection 125.7(2.01) provides as follows:
Despite subsection (2) [i.e., the operative provision for purposes of the CEWS which is carried forward under each of the Tourism and Hospitality Recovery Program, the Hardest-Hit Business Recovery Program and the Local Lockdown Program], no overpayment on account of a qualifying entity’s liability under this Part for the taxation year in which the qualifying period ends is deemed to have arisen with respect to a qualifying entity that is a publicly traded company or a subsidiary of such a company if, in the qualifying period, it paid taxable dividends to an individual who is a holder of common shares of the company or of the subsidiary of the company.
The second provision (i.e., new subsection 125.7(14.1)) looks to the 2022 calendar year and, in simplified terms, provides that certain qualifying entities may be required to repay wage subsidy amounts in respect of qualifying periods beginning after December 18, 2021 (i.e., Period 24 and subsequent periods) if: (i) they pay taxable dividends to individuals holding common shares or (ii) their aggregate remuneration for specified executives in either 2021 or 2022 exceeds their aggregate remuneration for specified executives in 2019.
More particularly, new subsection 125.7(14.1) provides that:
The amount of a refund made by the Minister to an eligible entity in respect of a deemed overpayment under subsection (2) on a particular date under subsection 164(1.6), in respect of any of the twenty-fourth qualifying period and any subsequent qualifying period, is deemed to be an amount that has been refunded to the eligible entity on that particular date (for the taxation year in which the refund was made) in excess of the amount to which the eligible entity was entitled as a refund under this Act to the extent of the lesser of the amount of the refund and the amount determined by the formula
A − B
A is the greater of
(a) the executive compensation repayment amount of the eligible entity, and
(b) with respect to a qualifying entity that is a publicly traded company or a subsidiary of such a company, the amount of taxable dividends paid by the company or its subsidiary to an individual who is a holder of common shares of the company or of the subsidiary of the company; and
B is the total of all amounts deemed to be an excess refund to the eligible entity under this subsection in respect of refunds made after the particular date.
The new provision is similar to existing subsection 125.7(14), which Bill C-2 amends to apply only in respect of Periods 17 through 23, except that for purposes of new subsection 125.7(14.1), variable “A” includes taxable dividends.
Consequential amendments are made to the definition of “executive compensation repayment amount” in subsection 125.7(1) to permit the definition to apply for each of subsection 125.7(14), as amended, and new subsection 125.7(14.1).
Notably, while each of subsection 125.7(14) and new subsections 125.7(2.01) and (14.1) are targeted to publicly traded corporations, the provisions relating to taxable dividends refer to “a publicly traded company or a subsidiary of such a company” whereas the “executive compensation repayment amount” definition (both pre-existing and as amended) uses the defined term “public parent corporation” and extends to entities controlled by such an entity. For this purpose, “public parent corporation” is defined to be “an eligible entity, shares of the capital stock of which are listed or traded on a stock exchange or other public market”. No definition is set out for “subsidiary”.
Bill C-2 mandates that the Auditor General of Canada carry out a performance order in relation to COVID-19 support programs. Specifically, subsection 19.1(1) of Bill C-2 states that the Auditor General must, during the first year after the coming into force of section 19.1 (which occurred on December 17, 2021), complete a performance audit of:
(a) the benefits paid under the Canada Worker Lockdown Benefit Act and the Canada Recovery Benefits Act;
(b) the benefits paid under the CERB and the CEWS programs;
(c) the efficiency of the benefits referred to in paragraphs (a) and (b) and the means to measure the effectiveness of those benefits; and
(d) any payments made under the CERB, the CEWS, the Canada Worker Lockdown Benefit Act and the Canada Recovery Benefits Act to ineligible recipients and the response of the Canada Revenue Agency with respect to those payments.
Subsection 19.1(2) mandates that a report on the performance audit be submitted to the Speaker of the House of Commons. The Speaker must table the report before the House as soon as is feasible after receiving it, or if the House is not then sitting, on the first day of the next sitting of the House.
Canada Worker Lockdown Benefit
On December 22, 2021, the Government announced that it proposes to temporarily expand the Canada Worker Lockdown Benefit by: (i) including workers in regions where provincial or territorial governments have introduced capacity-limiting restrictions of 50% or more; and (ii) reducing the minimum number of days a lockdown order needs to be in place to seven consecutive days (down from 14 consecutive days). As with the temporary expansion of the Local Lockdown Program, this expansion is proposed to apply from December 19, 2021 to February 12, 2022. For additional details, readers are referred to the Government’s backgrounder available here.
For assistance, please contact any member of our National Tax, Labour & Employment or Real Property & Planning teams.
 More specifically, Regulation 8901.1(2)(b) requires that “the total of all amounts, each of which is the eligible entity’s qualifying revenue for the prior reference period for any of the first qualifying period to the thirteenth qualifying period (but including only one of the tenth qualifying period or the eleventh qualifying period)” have been earned primarily (i.e., generally understood to mean more than 50%) from carrying on one or more of the listed activities.