Further to our recent article on Bill C-20, and its proposed amendments to the Canada Emergency Wage Subsidy (“CEWS”), the Federal Government is introducing substantive amendments to the CEWS that will have a significant impact on many employers. As a general overview, Bill C-20 proposes to:
- extend the CEWS from August 30, 2020 until at least November 21, 2020, and as late as December 31, 2020;
- make the wage subsidy accessible to a broader range of employers by including employers with a revenue decline of less than 30%;
- provide a gradually decreasing base subsidy to all qualifying employers by utilizing a revised calculation of the wage subsidy for the fifth and subsequent qualifying periods; and
- introduce a top-up subsidy of up to an additional 25% for employers that have been most adversely affected by the pandemic.
Bill C-20’s proposed amendments to the Income Tax Act are quite detailed and will affect employers differently based on their financial circumstances. In this article, we summarize the implications of Bill C-20 for employers.
Removal of 30% revenue decline requirement
Prior to Bill C-20’s proposed changes, employers experiencing less than a 30% decline in revenue were ineligible for the CEWS. The proposed amendments forego this 30% requirement. Instead, employers who have experienced any decline in their revenue during the qualifying periods are eligible for relief. However, the relief will be proportionate to their revenue decline.
Calculation of wage subsidy for active employees
For the purposes of calculating the available wage subsidy after August 29, 2020, Bill C-20 distinguishes between employees “not on leave with pay” (i.e., active employees) and employees “on leave with pay.”
For active employees, the wage subsidy will be calculated as a combination of a base wage subsidy amount and a top-up wage subsidy amount (for eligible employers), against a maximum eligible remuneration amount of $1,129. More specifically:
Base Wage Subsidy
- Employers experiencing a decline in revenue of 50% or more will be eligible for the maximum base wage subsidy percentage. Employers with less than a 50% decline in revenue will be eligible for a base wage subsidy, but the amount will depend on employer’s actual revenue reduction.
- Decline in revenue for purposes of the base wage subsidy will generally be calculated by comparing an employer’s revenue in the current month to the same month in 2019 (except in limited circumstances where it will be compared to revenue earned in January and February 2020).
- The base wage subsidy amount will gradually decrease over time.
Top-Up Wage Subsidy
- Employers experiencing a decline in average monthly revenue of more than 50% in the prior three month period will be eligible for the top-up wage subsidy amount;
- Decline in revenue for purposes of the top-up wage subsidy will generally be calculated by comparing the employer’s average monthly revenue in the three calendar month period in 2020 prior to the qualifying period for which they are seeking the wage subsidy, to the revenue earned in the same three calendar month period in 2019 (except in limited circumstances where it will be compared to the average monthly revenue earned in January and February 2020)
- The top-up wage subsidy amount is calculated as 1.25 X the decline in revenue over 50% in the prior three month period;
- Employers experiencing a 70% or more decline in average monthly revenue over the prior three month period will be eligible for the maximum top-up wage subsidy of 25%, for a maximum top-up amount of $282.
The following table outlines the maximum wage subsidies available to employers in periods 5 to 9:
|Period||Maximum Base Wage Subsidy Percentage (For Employers with 50% or Greater Decline in Revenue)||Maximum Base Wage Subsidy Amount (against maximum eligible remuneration of $1,129)||Base Wage Subsidy Multiplier (For Employers with less than 50% decline in revenue, to be applied against actual % decline in revenue)||Maximum Total Wage Subsidy Amount (Base and Top-Up Combined, for Employers with 70% or more decline in Revenue)|
Jul 5 – Aug 1, 2020
Aug 2 – 29, 2020
Aug 30 – Sep 26, 2020
Sep 27 – Oct 24, 2020
Oct 25 – Nov 21, 2020
Alternative Calculation for Periods 5 and 6
For employers experiencing a decline in revenue of 30% or more in periods 5 and 6, Bill C-20 permits such employers to utilize the prior CEWS formula if doing so would result in a greater wage subsidy amount. Under the prior CEWS formula, for employers experiencing a decline in revenue of 30% within the qualifying period, as compared to the same period in 2019, the maximum wage subsidy payable would be calculated under (i) or (ii) below, whichever is greater:
(i) 75% of the eligible remuneration paid to an eligible employee, up to $847 per week; or,
(ii) the lesser of:
a) 100% of eligible remuneration paid to an eligible employee, up to $847 per week
b) 75% of an eligible employee’s pre-crisis remuneration, up to $847 per week.
For purposes of this formula, an employee’s pre-crisis remuneration is based upon the average weekly remuneration paid (excluding any 7-day period during which the employee did not receive remuneration) during the following periods:
Between January 1, 2020 and March 15, 2020, or
At the employer’s election:
Between March 1, 2019 and May 31, 2019, for purposes of qualifying periods 1-3;
Between March 1, 2019 and June 30, 2019, for purposes of qualifying period 4; and
Between July 1, 2019 and December 31, 2019, for purposes of qualifying periods 5-9.
The maximum wage subsidy of $847 under the old CEWS formula is greater than the maximum base wage subsidy of $677 for periods 5 and 6 under the new CEWS formula. Thus, employers who have been eligible for the maximum wage subsidy under the current CEWS formula, and are continuing to experience at least a 30% decline in revenue but less than 50% (i.e., are not eligible for the top-up subsidy), are likely to benefit from utilizing the old CEWS formula for periods 5 and 6.
Calculation of wage subsidy for non-active employees
For periods 5 and 6, the calculation of the wage subsidy for non-active employees (i.e., employees on leave with pay) will be the same as that calculated for periods 1-4 under the prior CEWS formula. That is, employers will receive:
(a) 75% of the eligible remuneration paid to an eligible employee, up to $847 per week; or
(b) 100% of eligible remuneration paid to an eligible employee, up to $847 per week, if the employee’s remuneration has decreased by 25% or more from pre-crisis levels.
For periods 7 and onwards, the calculation of the wage subsidy for non-active employees will depend on the maximum eligible remuneration amount to be passed by government by regulation. According to the explanatory note accompanying Bill C-20, the intention is that the wage subsidy for these employees be calculated to align with amounts provided as CERB or EI.
Beginning in period 5 (July 5 – August 1), employees who were without remuneration for 14 days during the qualifying periods will no longer be excluded from the definition of “eligible employees”. Employees will simply need to be employed in Canada by the eligible entity in the qualifying period to meet the definition of an “eligible employee” for the fifth and subsequent periods.
Progress of the Bill
Bill C-20 passed third reading on July 21, 2020, and we will continue to monitor any potential changes to its contents as it progresses through the Senate, before it comes into force.
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