(Updated)

Peter McLellan, QC and Katharine Mack

In a display of bi-partisanship, on Saturday, April 11 Parliament unanimously passed the COVID-19 Emergency Response Act, No. 2 and it received Royal Assent. In addition to other measures, the Canadian Emergency Wage Subsidy (“CEWS”) is now law. The legislation provides significant assistance to eligible Canadian employers during the COVID-19 crisis. Key provisions are outlined below.

Wage subsidy

For eligible employers (see below) who have suffered the requisite revenue decline (also see below):

• The employer will be entitled to receive a subsidy of up to 75% of wages for every employee on the first $58,700 that an employee earns, up to a maximum of $847 a week;
• In addition, the employer will be entitled to receive an additional amount to cover the employer’s cost of contributions for EI and CPP for employees on leave with pay due to COVID-19 and;
• The program will cover up to a 12 week period, from March 15 to June 6, 2020.

Eligible employers

CEWS will be available to employers of all sizes and across all sectors of the economy, excluding “public bodies”, i.e.

• Universities and colleges:
• Municipalities and municipal corporations;
• Schools and hospitals.

There is no limit to the number of employees or the amount an employer may receive.

Revenue decline

The key eligibility criteria is that an eligible employer must have seen a drop in revenue of at least:

• 15% in March, 2020; and
• 30% for the following months of the program.

In calculating revenue declines, the legislation provides flexibility for all employers to compare their revenue of March, April and May, 2020 to that of the same month of 2019 or to an average of their revenue earned in January and February, 2020. Special rules will be applicable to registered charities and non-profit organizations.

Revenue/accounting

Employers will have the option of measuring revenues either on the basis of:

• Accrual accounting (i.e. revenues as they are earned); or
• Cash accounting (i.e. cash as received).

Once an employer has selected its method, it must be used for the duration of the program. Again, special rules will apply to registered charities and non-profit organizations.

Non-arms length revenue

For most businesses revenue calculations will be quite straightforward – i.e. restaurants that receive revenues from their patrons. However, for many larger organizations there will be special rules to take into account certain non-arm’s length transactions, such as where the employer sells all of its output to a related company that in turn earns arm’s length revenue. These rules are a complicated calculation which will most likely require assistance from your tax counsel or accountants.

How to apply

Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency’s “My Business Account” portal. More details about the application process will be made available shortly.

Other key provisions

The Act also includes the following provisions:

• Affiliated groups will be able to compute revenue on a consolidated basis.
• There are special rules for employees that do not deal at arm’s length with their employer.  In those cases, the subsidy is limited to eligible remuneration paid between March 15 and June 6, and is a maximum benefit of the lesser of $847/week and 75% of the employee’s pre-crisis remuneration. Employees must have been employed prior to March 15, 2020 to qualify.
• To provide certainty to employers, once an employer is found eligible for a certain period, the employer automatically qualifies for the next period.
• Eligibility for the CEWS is not available for employees who have been without remuneration for 14 or more days in one of the eligibility periods (e.g. laid off without a SUB Plan).
• The three eligibility periods are:
  • March 15 – April 11
  • April 12 – May 9
  • May 10 – June 6
• Where employees on lay off are recalled to take advantage of the CEWS, an employer is to make best efforts to top up the wages up to 100%.
• There are significant penalties for employers who knowingly make false claims to take advantage of the CEWS.

What does the CEWS mean for your business?

If you are an eligible employer who has incurred the requisite revenue declines, the CEWS may provide a significant benefit for your business to:

• Recall employees who have been laid off and provide a “top-up” of up to 100% of their wages; and/or
• Avoid laying off any or any more employees.

Remember, recalling employees does not mean they have to report for work – they would be considered on paid leave and in most instances eligible for all employer benefits (subject to the terms and conditions of the plans).

This article is provided for general information only. If you have any questions about the above, please contact a member of our Labour and Employment group.

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