The 2021 Federal Budget outlines the extension of various relief programs as well as updates to eligibility requirements. The COVID-19 pandemic continues to cause significant hardship to Canadians and businesses and we guide you through what the Budget states for both business and individual support programs.
Business Support Programs
Canada Emergency Wage Subsidy (CEWS)
The federal government has introduced a number of programs to provide financial support for businesses and other entities negatively affected by the COVID-19 pandemic. The largest of these programs is the Canada Emergency Wage Subsidy (CEWS) with an estimated cost of $84.6 billion in fiscal year 2020-2021, and a further $26 billion in the fiscal year 2021-2022 including the extension of the program announced in the Budget. There have been significant recipients of this subsidy and there has been concern that the program is too generous. The Budget proposes to extend the CEWS program to September 25, 2021. New rates under the program were announced for the four periods that run from June 6, 2021 to September 25, 2021 (qualifying periods 17 – 20). Any extension of the program after September 25, 2021 will be determined by rates set by regulation.
The Budget proposes a gradual reduction in subsidy rates beginning on July 4, 2021. The maximum CEWS subsidy amount in qualifying periods 17 – 20 will range from 75% (the current maximum) in Period 17 to 20% in Period 20. This maximum amount is reached when the comparative revenue decline is at least 70%. For revenue declines of at least 50%, but less than 70%, there is a base rate plus a variable rate based on the revenue decline over 50%. The base rate declines from 40% to 10% over the four periods 17 -20, and the maximum variable rate drops from 35% to 10% over this same time frame.
Where entities have a revenue decline of less than 50%, but more than 10%, their CEWS rate is a variable rate depending on the amount of revenue decline. The variable rate will decline with each of the three periods 18-20. After period 17, an entity with a revenue decline of 10% or less will not be entitled to a wage subsidy.
In addition, the Budget proposes a requirement for publicly traded companies to repay the wage subsidy received for qualifying periods that start after June 5, 2021, where the aggregate compensation for certain specified executives in the 2021 calendar year exceeds the aggregate compensation for such executives paid during the 2019 calendar year. For the purposed of this proposed rule, a publicly listed company's specified executives will include its Named Executive Officers—whose compensation is disclosed in its annual information circular—including its chief executive officer and chief financial officer, along with three other most highly compensated executives. The maximum repayment will be the amount of subsidy received for qualifying periods that start after July 5, 2021 to the extent of the increase in compensation of its specified executives.
The proposed changes to the wage subsidy also include continued support for furloughed employees.
Canada Emergency Rent Subsidy (CERS)
The Canada Emergency Rent Subsidy (CERS) was introduced in October 2020 to provide support to tenants and property owners through a subsidy for their rent or property ownership costs. It uses the same methodology as the CEWS program to determine comparative revenue declines. The CERS program has an estimated cost of $4.1 billion in fiscal year 2020-2021 and with the extension announced in this budget, it is projected to cost a further $4.3 billion in fiscal year 2021-2022.
The Budget proposes to extend the CERS program by the same additional four month period from June 6, 2021 to September 25, 2021. The proposals gradually phase out the base subsidy rate, beginning on July 4, 2021. Currently,the maximum base rate subsidy for the CERS is set at 65% of qualifying expenses. With these proposals, the maximum base rate subsidy will gradually decline each period from 65% (effective until July 3, 2021) to 20% (effective beginning August 29 and up to September 25, 2021). The current 25% rate for the Lockdown Support will remain in effect from June 6, 2021 to September 25, 2021.
The Budget also proposes to limit eligibility for both the base rate subsidy and the Lockdown Support to organizations that demonstrate a decline in revenues of more than 10%, beginning July 4, 2021. The Budget proposes to provide legislative authority to the Federal Government to extend the base rate subsidy and Lockdown Support beyond September 25, 2021 should it be determined that an extension of the CERS is warranted.
Canada Recovery Hiring Program (CRHP)
The Budget proposes to introduce the new Canada Recovery Hiring Program (CRHP), which will provide eligible employers with a subsidy of up to 50% of the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021. This new program is intended to offset a portion of the extra costs that employers take on as they reopen, either by increasing wages, hours worked or by hiring more staff.
Eligible employers will be able to claim the higher of the CEWS or the new proposed subsidy in respect of a qualifying period, but not both. Generally, employers that are eligible for the CEWS will also be eligible for the CRHP; however, only corporations that are Canadian controlled private corporations will be eligible for the CRHP.
To qualify for the CRHP, an eligible employer will need to have experienced a decline in revenues sufficient to qualify for the CEWS. For greater certainty, as with the CEWS, the proposed measures require that for periods ending after July 4, 2021, an eligible employer will have to experience a decline in revenues of more than 10% in order to qualify.
The amount of the CRHP that can be claimed in respect of each qualifying period will be equal to the employer's incremental remuneration times the applicable recovery wage subsidy rate (the hiring subsidy rate) for the period. The maximum recovery wage subsidy rate is 50% for the period beginning June 6 and ending on August 28, 2021 and declines gradually to a maximum of 20% (for the period beginning October 24 and ending on November 20, 2021).
Incremental remuneration for a qualifying period is determined on a weekly basis by calculating the difference between an employer's total current period remuneration, in respect of a week in the qualifying period, and its total base period remuneration, in respect of a week in the baseline period of March 14 to April 10, 2021.
Eligible remuneration for CRHP is the same as eligible remuneration for CEWS. The wage recovery subsidy rate will apply to the lower of eligible remuneration paid in respect of a given week and $1,129.
Individual Support Programs
Additional Weeks of Recovery Benefits and EI Regular Benefits
To continue to support workers through a transition away from emergency income supports such as the Canada Emergency Response Benefit (CERB), which ended in September 2020, and the Canada Recovery Benefit (CRB) which replaced CERB, the Budget proposes to provide up to 12 additional weeks of the CRB to a maximum of 50 weeks. The first four of these additional 12 weeks will be paid at $500 per week. As the economy re-opens over the coming months, the government intends that the last 8 weeks of this extension will be paid at a lower amount of $300 per week claimed. All new CRB claimants after July 17, 2021 would also receive the $300 per week benefit, available up until September 25, 2021.
The government also proposes to extend the Canada Recovery Caregiving Benefit by an additional 4 weeks, to a maximum of 42 weeks, at $500 per week, in the event that caregiving options, particularly for those supporting children, are not sufficiently available in the interim as the economy begins to safely re-open.
The Budget also proposes legislative amendments to provide authority for additional potential extensions of the CRB and its associated suite of sickness and caregiving benefits, as well as regular EI benefits until no later than November 20, 2021, if necessary.
For details of the updates to the EI program, along with descriptions of the Recovery Benefits, read our Tax Alert, FEDERAL GOVERNMENT ANNOUNCES MEASURES TO SUPPORT CANADIANS TRANSITIONING FROM THE CANADA EMERGENCY RESPONSE BENEFIT.
Dave Walsh, Managing Partner, Tax Service Line
Rachel Gervais, Partner, GTA Tax Service Line Leader
Greg London, Partner, Eastern Canada Tax Service Leader, Canadian Tax
Bruce Sprague, Partner, Western Canada Tax Service Leader
The information in this publication is current as of April 19, 2021.
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.