Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On May 15, 2020, the Canadian federal government announced several actions relating to the Canada Emergency Wage Subsidy (CEWS) program. As previously discussed, CEWS is a 75% wage subsidy program to encourage employers to retain their employees during the COVID-19 crisis.
Extension to August 29, 2020
The duration of the CEWS will be extended by an additional 12 weeks to August 29, 2020. This is a welcome extension of the CEWS for many employers in Canada that originally planned on the CEWS ending on June 6, 2020, as originally announced.
Regulations have been approved to extend eligibility for the CEWS to several groups that may now begin applying for the CEWS, provided they meet all other eligibility criteria.
The groups that may begin to apply to the CEWS include:
Partnerships with one or more non-eligible member
Partnerships that are up to 50% owned by non-eligible members will be eligible for the CEWS. In order to qualify, at all times in the qualifying period the fair market value (FMV) of interests in the partnership held by non-eligible entities must not exceed 50% of the FMV of all interests in the partnership.
Indigenous government-owned businesses
Indigenous governments include First Nation bands, self-governing Indigenous governments, and other comparable Indigenous governing bodies.
Indigenous government-owned corporations
Eligibility for the CEWS is extended to Indigenous government-owned corporations that are carrying on a business and are tax-exempt under paragraph 149(1)(d.5) of the Income Tax Act, and their wholly-owned subsidiaries that are carrying on a business and are tax-exempt under paragraph 149(1)(d.6) of the Income Tax Act.
Partnerships where each partner is either an Indigenous government or an eligible employer
Partnerships where each partner of the partnership is either an Indigenous government or an eligible employer will be eligible for the CEWS. This is in addition to the rule for partnerships outlined above.
Registered Canadian Amateur Athletic Associations
Provincial and local members of a Registered Canadian Athletic Association (RCAAAs) were always eligible for the CEWS because they are considered not-for-profit organizations. However, national-level RCAAAs were initially excluded because they fall under a tax-exempt entity that is not explicitly included in the list of eligible entities for the CEWS. The government is addressing this by now extending eligibility for the CEWS to national-level RCAAAs that are tax-exempt under paragraph 149(1)(g) of the Income Tax Act.
Registered journalism organizations
Canadian journalism organizations were always eligible for the CEWS. However, a new category of tax-exempt, non-profit Canadian journalism organizations that register as qualified donees under the new “registered journalism organization” category was ineligible. The government is now addressing this by now extending eligibility for the CEWS to registered journalism organizations that are tax-exempt under paragraph 149(1)(h) of the Income Tax Act.
Non-public educational and training institutions
Private colleges and private schools are now eligible for the CEWS. This includes for-profit and not-for-profit educational and training institutions (e.g., arts schools, language schools, driving schools, flight schools, and culinary schools).
Application of regulatory changes
All of the regulatory changes listed above are retroactive to April 11, 2020, and apply to the first qualifying period commencing March 15, 2020, and to all subsequent qualifying periods.
Proposed Legislative Amendments
The government announced that it intends to propose the following legislative amendments to ensure that the CEWS continues to meet its objectives:
Support for seasonal workers and employees returning from extended leave
To deal with unintended outcomes in situations when individuals are employed on a seasonal basis, or when employees were on parental, disability, or unpaid leave from January 1 to March 15 of 2020, the government proposes to amend the CEWS to allow employers to choose one of the following two periods when calculating the baseline remuneration of their employees, on an employee-by-employee basis:
- The average weekly remuneration paid to the employee from January 1 to March 15, 2020; or
- The average weekly remuneration paid to the employee from March 1 to May 31, 2019.
In both cases, any period of seven or more consecutive days without remuneration is excluded.
Amalgamations and wind-ups
The government proposes to amend the CEWS so that corporations formed on the amalgamation of two or more predecessor corporations (or where one corporation is wound up into another), will be permitted to calculate benchmark revenue for the CEWS revenue decline test by using their combined revenues, 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 treatment of trusts
The government proposes to amend the CEWS to better align the tax treatment of trusts and corporations for the purpose of determining eligibility for the CEWS. Trusts with employees would continue to be eligible for the CEWS, subject to these additional exceptions:
- Where the trust is a tax-exempt entity (other than a public institution), it would qualify only if it is a registered charity or another type of eligible tax-exempt entity.
- Where the trust is a public institution, it would qualify only if it is a prescribed organization.
Application of proposed legislative amendments
With one exception, the proposed legislative amendments listed above would be retroactive to April 11, 2020, and apply to the first qualifying period commencing March 15, 2020, and to all subsequent qualifying periods. The exception is the proposed legislative amendment relating to trusts, which would apply to the third qualifying period (May 10 to June 16) and any subsequent qualifying period.
Consultation Regarding Possible Additional Adjustments to the CEWS
In its May 15 announcement, the government indicated that over the next month, to maximize employment, growth, and business recovery, it will consult with key business and labour representatives about possible adjustments to the CEWS program, including the 30% revenue decline threshold.