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COVID-19 Impact: Canada Emergency Wage Subsidy Enacted – Coronavirus (COVID-19) – Canada – Mondaq News Alerts

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During an emergency sitting of Parliament on Saturday night, the
federal government’s wage subsidy legislation (entitled A
Second Act Respecting Certain Measures in Response to
) was passed by both the House of Commons and the
Senate and received Royal Assent. The new Canada Emergency Wage
Subsidy (CEWS) provides a 75% wage subsidy to eligible employers
for up to 12 weeks, retroactive to March 15, 2020.

Eligible Employers

Eligible employers can include the following entities:

  • individuals
  • taxable corporations
  • registered charities, other than public institutions such as
    school boards, colleges or hospitals
  • partnerships, all members of which are eligible employers

All of the above-noted entities must demonstrate that they have
experienced a qualifying drop in revenue during the eligible period
in accordance with the chart below. Notably, the lost revenue
threshold for eligibility for the CEWS in March of 2020 has been
lowered from 30% to 15% to reflect the fact that the most
significant consequences of the pandemic began in mid-March.
Employers will be required to re-apply for the CEWS each month.

The legislation provides that an employer’s revenue will be
defined as its revenue in Canada earned from arm’s-length
sources. Employers are allowed to calculate their revenues under
the accrual method or the cash method, but not a combination of
both. Employers must select an accounting method when first
applying for the CEWS and then continue to use that same method for
the entire duration of the program. We therefore recommend
consulting with your company’s financial advisors before
preparing and submitting your application for the CEWS to ensure
that you select the most appropriate accounting method to be used
for your CEWS application.

Eligible Periods

Claiming Period Required Reduction in Revenue Reference Period for Eligibility
Period 1 March 15 – April 11 15% March 2020 over:

  • March 2019 or
  • Average of January and February 2020
Period 2 April 12 – May 9 30% Eligible for Period 1

April 2020 over:

  • April 2019 or
  • Average of January and February 2020
Period 3 May 10 – June 6 30% Eligible for Period 2

May 2020 over:

  • May 2019 or
  • Average of January and February 2020

Eligible Employees

The government had previously announced that an employer would
not be eligible to claim the CEWS for remuneration paid to an
employee that falls within any four week period in which the
employee is eligible to receive the Canadian Emergency Response
Benefit (the CERB). However, that rule has now been adjusted
somewhat to define an eligible employee as an individual who is
employed in Canada other than those who have been without
remuneration for 14 or more consecutive days in the eligibility
period, i.e., from March 15 to April 11, from April 12 to May 9, or
from May 10 to June 6. The government has announced that it is
considering implementing a program to avoid duplication of benefits
under the CERB and CEWS, which could involve requiring individuals
rehired by their employers during a CERB eligibility period to
cancel their CERB claim and repay the benefits. However, we do not
have any further details on that at this time.

Calculating the Subsidy

The subsidy amount for any particular employee for the period
between March 15 and June 6, 2020 is the greater of:

  • 75% of the amount of remuneration paid, up to a maximum benefit
    of $847 per week; and
  • the amount of remuneration paid, up to a maximum benefit of
    $847 per week or 75% of the employee’s pre-crisis weekly
    remuneration, whichever is less.

Pre-crisis remuneration is calculated on the basis of the
employee’s average weekly earnings paid between January 1 and
March 15 inclusively, excluding any seven-day periods during which
the employee received no pay. Employers are also eligible to
receive the subsidy for new employees and, importantly, there is no
overall limit on the subsidy amount that an eligible employer may
claim. It would appear that this is intended to incentivize
employers to not only retain existing employees using the CEWS but
also to use it to continue to hire new employees wherever

As previously announced, the federal government has indicated
that employers are expected to make “best efforts” to
top-up employees’ salaries to bring them to pre-crisis levels.
However, the legislation does not contemplate any reduction in CEWS
subsidy payments or penalties in the event that participating
employers do not meet this standard, although there are penalties
for employers who provide false information regarding their
eligibility and receive overpayments under the CEWS. Such penalties
include potentially significant fines and even imprisonment.

New Relief for Employers

The legislation also introduces payroll tax relief for employers
who have placed employees on paid leave. The CEWS now includes a
refund for certain employer-paid contributions to Employment
Insurance (EI), the Canada Pension Plan, the Quebec Pension Plan
and the Quebec Parental Insurance Plan. This refund covers 100% of
employer-paid contributions for eligible employees for each week
throughout which those employees are on leave with pay and for
which the employer is eligible to claim for the CEWS for those
employees. An employee will be considered to be on leave with pay
throughout a week if that employee is paid by the employer but does
not perform any work for the employer in that week. This refund
will not be available in respect of eligible employees that are on
leave with pay for only a portion of a week.

This refund is not subject to the weekly maximum benefit per
employee of $847 that an eligible employer may claim in respect of
the CEWS, meaning that the refund also applies to contributions
that would normally be made for earnings above the weekly maximum
benefit. There is no overall limit on the refund amount that an
eligible employer may claim.

It should be noted that this is a refund and not a moratorium on
collection and remittance. Employers are still required to collect
and remit employer and employee contributions to each program as
usual. Eligible employers can then apply for a refund at the same
time that they apply for the CEWS.

Interaction with Other Relief Programs

On March 25, 2020, the COVID-19 Emergency Response Act,
which included the implementation of a temporary 10% subsidy,
received Royal Assent. For employers that are eligible for both the
CEWS and the 10% wage subsidy for a period, any benefit from the
10% wage subsidy for remuneration paid in a specific period
generally reduces the amount available to be claimed under the CEWS
in that same period.

For employers and employees that are participating in a
Work-Sharing program, EI benefits received by employees through the
Work-Sharing program reduce the benefit that their employer is
entitled to receive under the CEWS.


Eligible employers will be able to apply for the CEWS through
the Canada Revenue Agency’s My Business Account
portal. Employers will need to keep records demonstrating their
reduction in arm’s-length revenues and remuneration paid to
employees. The federal government has advised that more details
about the application process will be made available shortly and we
will continue to provide updates as such information becomes
available. As of April 12, 2020, the Finance Minister advised that
he expects the subsidy payments to begin within “two to five

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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