On July 27, 2020, Bill C-20, An Act respecting further COVID-19 measures, received royal assent. This legislation amends the Income Tax Act (Canada) to extend and expand the Canada Emergency Wage Subsidy (CEWS) amid COVID-19.
The changes are detailed and quite complex.
Extension to December 19, 2020
This legislation extends the CEWS until December 19, 2020, with November 21, 2020 – December 19, 2020 being the ninth and final qualifying period. Announcements regarding this last period are to be made at a future date.
Eliminating 30% Revenue Decline
For qualifying periods beginning on and after July 5, 2020 (periods 5 and following), Bill C-20 eliminates the 30% revenue decline that was previously required to qualify for the CEWS. Under the changes, all eligible employers that experience a revenue decline will qualify, as long as the other qualifying conditions are met.
Active Employees vs. Employees on Paid Leave
The changes include, for qualifying periods beginning on and after July 5, 2020, new calculations with different subsidy levels depending on whether the employee is active or is on paid leave. The backgrounder states that beginning on or around August 30, 2020, the CEWS for employees on paid leave will be adjusted to align with the Canada Emergency Response Benefit (CERB).
Two Subsidies: Base & Top-Up
Bill C-20 contains two subsidies: a base subsidy and a top-up subsidy. The amount of the subsidy varies based on the revenue decline and the particular qualifying period. The general idea is that amounts will decline in later periods as it is gradually phased out.
Under these changes, the subsidy is proportional to the employer’s revenue drop. This means organizations must calculate their qualifying revenue carefully. Overestimating a decline in revenue could result in claiming an excess subsidy, and later having to repay it along with interest and penalties.
Extending Employee Eligibility
An employer can claim the CEWS only for eligible remuneration paid to eligible employees.
For qualifying periods beginning on and after July 5, 2020, Bill C-20 changes the definition of “eligible employee” to no longer disqualify employees that are without remuneration for 14 or more consecutive days in an eligibility period.
This means that employees who might work only one week per month will continue to qualify as eligible employees. This change is part of transitioning workers from the CERB to the CEWS.
For qualifying periods up to July 4, 2020 (periods 1-4), an eligible employee is defined as an individual who is employed in Canada and who was paid for at least 14 or more consecutive days in the relevant qualifying period.
Previously, employers became disqualified to receive the CEWS if action was taken to reduce qualifying revenue for the purpose of qualifying for the wage subsidy. Bill C-20 extends this disqualification to employers who not only take action to qualify for the wage subsidy, but who take action to increase the amount of the subsidy received.
Applications for the CEWS may be made online and filed with Canada Revenue Agency for each qualifying period. Bill C-20 extends the application deadline to January 31, 2021 from October, 2020.
The individual with whom “principal responsibility” for financial affairs resides must attest that the application is “complete and accurate in all material respects.”
There is no cap on the number of employees for which an employer can claim a subsidy, nor is there a limit on the total amount of the subsidy that an eligible entity may claim.
CEWS “determinations” may be challenged by filing a notice of objection under the Income Tax Act’s usual dispute resolution process.
For further information on the amendments, readers ought to consult a tax lawyer or other tax advisor.
The content of this article is intended to provide very general thoughts and general information, not to provide legal advice. Specialist advice from a qualified legal professional should be sought about your specific circumstances.
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