COVID-19–Wage Subsidy Programs

April 30, 2020

As of April 27, 2020, businesses can now submit applications for the 75% CEWS.

A 75% emergency wage subsidy for qualifying businesses was passed into law on April 11, 2020, in a rare Saturday sitting of both the House of Commons and the Senate. Finance Minister Bill Morneau introduced the 75% Canada Emergency Wage Subsidy (CEWS) on April 1, 2020, with further details announced on April 8. The CEWS program opened for applications on April 27.

This subsidy is to help businesses of all sizes faced with a significant decline of revenue to either keep their workforce on payroll or re-hire them. Doing so will keep these workers off Employment Insurance (EI) Benefits and the $2,000 monthly payments under the recently announced Canada Emergency Response Benefit (CERB). The term of this wage subsidy is three months, retroactive to March 15, 2020.

The 75% CEWS is in addition to the 10% Small Business Wage Subsidy (SBWS), which was enacted into law on March 25.

The details of both available wage subsidy programs are outlined below.

The 75% CEWS

Eligibility for, and the amount that can be claimed under, the 75% CEWS are dependent on a number of factors. These are discussed below under general categories. This subsidy is a temporary measure. The program will be in place for a 12-week period, from March 15 to June 6, 2020. The Finance Minister indicated that the government will continue to monitor the need for support, given that it is unclear how long the COVID-19 crisis will last.

Eligible entity

  • An eligible entity includes individuals, taxable corporations, partnerships consisting of eligible entities, nonprofit organizations and registered charities as well as prescribed organizations. Public-sector institutions such as governments, schools, hospitals and public universities and colleges are excluded.
  • Eligible entities will be able to access the subsidy if they have suffered a drop in gross revenues of at least 15% in March 2020, 30% in April 2020, and/or 30% in May of 2020 as compared to the same timeframe in 2019 or to the average monthly revenue for January and February 2020.

Revenue eligibility requirements

  • Two benchmarks have been provided to measure the revenue decline. First, as a general year-over-year approach, the revenue decline can be measured by comparing the applicable month in 2020 to the same month in 2019 - for example, comparing March 2020 to March 2019. Alternatively, the revenue of the applicable month in 2020 can be compared to the average of January and February 2020 revenue. The employer can choose only one approach to use throughout the program period.
  • In addition, where an eligible entity qualifies under one of the revenue benchmarks in the first period (March), it will automatically qualify for the second period (April), but will need to perform the revenue decline test for May and re-apply for the wage subsidy in the third period. Similarly, if an eligible entity does not qualify for the first period (March), but does qualify for the second period (April), it will automatically qualify for the third period (May). This new rule was likely put in place to provide more certainty to eligible entities for decision-making in the first period, and for speed of access to subsequent-period funds.
  • For purposes of determining the revenue decline, an entity's qualifying revenue means the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity – generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entities – in Canada, subject to conditions. Qualifying revenue will exclude amounts earned from non-arm's-length sources, extraordinary items and amounts on account of capital. In addition, the amount of wage subsidy received by the employer in a given month will be ignored for measuring changes in monthly revenues. Special rules have been put in place to take into account non-arm's length sales within the revenue eligibility tests.
  • Revenue can be calculated using the accrual method of accounting or the cash method. Employers will need to select one method when first applying and must use that method for the duration of the program.
  • Registered charities and non-profit organizations will be allowed to choose whether to include revenue from government sources as part of the calculation provided the same approach is used throughout the program period. For registered charities, revenues from related businesses will be included in qualifying revenue.

Computation of revenue

Consolidated basis of reporting revenue

  • Qualifying revenue can be determined on an entity basis or on a consolidated basis. If a group of entities is affiliated and each member of the group of eligible entities jointly elect, the qualifying revenue of the consolidated group can be used by each member of the group to measure eligibility for the wage subsidy program.
  • In very simple terms, this means that where one entity in an affiliated group has seen a significant decline in arm's length revenues, but another has not, they can determine on a consolidated basis if there has been a sufficient drop in arm's length revenues for both entities to be able to claim the subsidy.
  • Very generally, affiliated persons include spouses, common-law partners and persons under common control. There are special rules for partnerships and trusts. It is important to note that the joint election to compute qualifying revenue on a consolidated basis is only available to groups that are affiliated.
  • In addition, a group of eligible entities that normally prepare consolidated financial statements can determine qualifying revenues separately, provided each member of the group determines qualifying revenue on that basis.

Exceptions to excluding non-arm's length revenue

  • The legislation provides that qualifying revenue does not include amounts from non-arm's length persons or partnerships. However, in the situation where one person receives all or substantially all of their revenue from one or more non-arm's length entities, then a special rule applies.

Eligible employees

  • An eligible employee is an individual employed in Canada by the eligible employer in the claim period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6. However, it does not include an employee who has been without remuneration from the eligible employer in respect of a period of 14 or more consecutive days in the claim period.
  • However, where an employee does not meet this test in one claim period, for example because they were hired toward the end of the claim period, they could still be eligible in the next claim period.

Quantification of the subsidy

  • The subsidy will be available to eligible employers at a rate of 75% of weekly remuneration paid to a maximum of $847 per employee. This is equivalent to 75% of an annual salary of $58,700. However, determining the amount of the subsidy will take into account pre-crisis weekly remuneration. More specifically, the following will apply with respect to each eligible employee in respect of each week in the claim period:
    • The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020, is be the greater of:
      • 75% of the amount of eligible remuneration paid in respect of that week, up to a maximum benefit of $847 per week; and
      • The amount of eligible remuneration paid to the employee in respect of that week, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less.
  • The pre-crisis remuneration, also referred to as baseline remuneration, for a given employee is based on the average weekly remuneration paid between January 1 and March 15 inclusive, excluding any seven-day periods in respect of which the employee did not receive remuneration.
  • Eligible remuneration may include salary, wages, and other remuneration for which income tax withholdings are generally required. However, it does not include severance pay, or items such as stock-option benefits.
  • Keeping in mind the per-employee limits (above), there will be no overall limit on the subsidy amount that an eligible employer may claim.
  • All employers will be expected to make best efforts to top up salaries to pre-crisis levels but there is no requirement to do so or to hire back all employees who were previously laid off.

Owner-Manager and related party remuneration

  • Special rules have been put in place to prevent manipulation of related party remuneration. For purposes of the wage subsidy, a related person is an eligible employee who does not deal at arm's length with the qualifying entity in the qualifying period. These rules include:
    • Ensuring that the wage subsidy only applies if there was a wage paid prior to the start of the program (referred to as baseline remuneration)
    • Limiting the subsidy to 75% of baseline remuneration where this is less than the current period wages, and $847. This ensures that remuneration cannot be increased in the qualifying period to maximize the benefit.

There is nothing in the legislation to indicate that dividends could be considered remuneration for purposes of the subsidy.

Refund for certain payroll contributions

  • As a further incentive for employers to re-hire employees for whom they currently do not have work, or to retain such employees to save the cost of re-hiring them at a later date, the legislation provides an addition to the wage subsidy. A 100% refund will be available for certain employer contributions to EI, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. Where the employer is eligible to claim the 75% CEWS for an eligible employee, this refund will cover the full amount of employer contributions to these plans for the employee for each week throughout which the employee is on leave with pay.
  • In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week, but does not perform any work for the employer that week. Employees who are on leave with pay for only a portion of a week will not qualify.
  • This refund will not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the 75% CEWS. Eligible employers will not be subject to an overall limit on the refund amount.
  • Employers will continue to be required to collect and remit employer and employee contributions. Eligible employers will then apply for a refund at the same time that they apply for the 75% CEWS. The refund of employer contributions to these plans is only available in respect of employees on leave with pay.

Application for the 75% CEWS

  • Applications through the CRA website opened on April 27. There are three ways to apply:
    • Using My Business Account;
    • Business representatives may apply using Represent a Client; or
    • Web Forms application with your web access code.
  • Further details are provided on the CRA website.
  • Eligible entities must apply before October 2020, attest that the application is complete and accurate, and have a business number for purposes of payroll withholding remittances on March 15, 2020 to qualify.
  • Entitlement to the subsidy will be based entirely on the salary or wages actually paid to employees. Therefore, employers will need to pay the salary or wages to their employees and, if eligible, will be repaid for those salaries or wages by the government through this subsidy program.
  • For those employers not currently signed up for direct deposit, it will be beneficial to sign up for quicker access to funds through this program.

The 10% SBWS

The government's 10% SBWS passed into law on March 25, 2020. On April 1, the government indicated that organizations that do not qualify for the CEWS may continue to qualify for the 10% SBWS.

For eligible employers, key details of the 10% SBWS program are as follows:

  • The subsidy will be equal to 10% of remuneration paid during the eligible period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
  • The eligible period is March 18, 2020 to June 19, 2020, inclusive.
  • This measure allows eligible employers to reduce the amount of payroll deductions required to be remitted to the CRA.
  • This SBWS can be accessed as soon as April 15, for quarterly and regular (monthly) payroll remitters.

An eligible employer can be an eligible Canadian-Controlled Private Corporation (CCPC) (details below), an individual (other than a trust), a partnership (all of the members of which are individuals, eligible CCPCs, registered charities, or other eligible partnerships), a not-for-profit, or a registered charity. However, businesses must have had an existing business number and payroll account with the CRA on March 18, 2020. It will not be possible for a new corporation to be established, or an existing corporation to apply for a payroll account after March 18, 2020 to take advantage of this subsidy.

The eligibility of a CCPC to claim the 10% SBWS is directly linked to the company's business limit for small business deduction purposes. A CCPC must have a business limit of more than nil for the last taxation year ended before March 18, 2020. If the CCPC does not have a taxation year that ended before March 18, 2020, this condition is to be applied as though its taxation year ended immediately before March 18, 2020. The eligibility of a CCPC will also depend on whether the taxable capital of an associated group of which it is a member is less than $15 million. Associated CCPCs will not be required to share the maximum 10% SBWS of $25,000 per employer.

Strict compliance rules for CEWS eligibility

The federal government has implemented strong penalties if a business is found not to have met the CEWS eligibility requirements after receiving the subsidy. Audits will be conducted by the Canada Revenue Agency to verify the amounts related to the subsidy including revenue and salary calculations. If a business is not compliant with the rules, the consequences can include:

  • Repayment of amounts received.
  • Significant fines of up to 25% of the CEWS received (and up to an additional 200% in the case of fraudulent claims).
  • Penalties for up to five years in prison for individuals who submitted fraudulent claims.

Furthermore, the individuals who have the principal responsibility for the financial activities must attest that the application is complete and accurate. As such, the individual(s) that make the attestation can be held personally responsible for the application that is filed and will also be subject to penalties for incorrect and/or fraudulent claims.

The CRA intends to publish the name of any eligible employer that makes an application for the wage subsidy and share information with government officials for the purposes of administration and enforcement of the Canada Emergency Benefit Act.

Interaction of the Wage Subsidy programs

If an organization or business is eligible for both the 75% CEWS and the 10% SBWS, eligible entities must first apply for the 10% SBWS, as the 75% CEWS application must be reduced by the 10% SBWS entitlement of the claim period.

Interaction with the Work-Sharing program

The Work-Sharing program provides income support to employees eligible for EI who agree to reduce their normal working hours because of developments beyond the control of their employers.

For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the 75% CEWS.

Final Comments

The assistance received under either wage-subsidy program will be taxable to the recipient employer. Assistance received will also reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration, such as Scientific Research & Experimental Development (SR&ED) investment tax credits.

The government has stressed that there will be serious consequences for employers that file fraudulent claims or inappropriately obtain benefits under either program.

BDO can help

BDO is here to help you navigate the CEWS application process, avoiding potentially costly errors. Among the many steps of the application process that we can assist with are:

  • Analyzing legislation and determining whether you are an eligible business to apply for the CEWS.
  • Analyzing the choices you have to make in determining whether you have a sufficient revenue reduction to qualify for the CEWS and the amount of CEWS you will receive.
  • Analyzing revenue using a cash-basis versus accrual basis.
  • Determining employees for which you are able to claim a CEWS and eligible remuneration.
  • Maintaining up-to-date books and records.
  • Analyzing remuneration paid and eligible costs.

After your application is complete, we can provide ongoing guidance and review of your entity’s claim. We can also prepare special reports to provide some comfort to management on the amounts included in the CEWS calculation.

If you have any questions as to how either wage subsidy program applies to your organization, contact your BDO advisor.

Dave Walsh, Partner, Tax Service Line Leader

Anthony Marinelli, Partner, Assurance and Accounting Leader, East

Brion Hendry, Partner, Assurance and Accounting Leader, GTA

Craig Mulcahy, Partner, SR&ED and Government Incentives

Ken Carmichael, Partner, Assurance and Accounting Leader, West

John Wonfor, Partner, National Tax Office Leader

Mike Cowan, Partner, Assurance and Accounting Leader, Southwestern Ontario


The information in this publication is current as of April 30, 2020.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

Previous Article
Unlocking the COVID-19 financing programs
Unlocking the COVID-19 financing programs

New government programs could help your business find financial relief. This joint BDO, BDC, and EDC webina...

Next Article
Access to capital through the COVID-19 crisis
Access to capital through the COVID-19 crisis

The COVID-19 pandemic has caused some serious issues for organizations of all sizes across the Canadian...