Canada: COVID-19 Federal Economic Relief Measures

This article has been updated as of June 12, 2020.

Over the last few months, the Federal Government has announced and implemented several measures to support Canadians and Canadian businesses through the economic turmoil associated with the COVID-19 pandemic. These measures are primarily intended to help with business liquidity in the short term so they can survive through the pandemic and to encourage job retention of employees.

Below is a list of the measures announced by the Government that we believe will be most relevant to our clients.

Filing Deferrals offered by the CRA:

Filing deadlines for personal and corporate returns and administrative actions were deferred until June 1.  However, no late-filing penalties will apply so long as the return is filed by September 1, 2020. Any balances owing related to these returns are also due September 1, 2020. The deadline for certain Objections is June 30.

• For charities with a Form T3010, the deadline for any information return due between March 18, 2020 to December 31, 2020 is now extended to December 31, 2020.
• Objections related to benefits and credits entitlements will continue to be processed. However, the deadline for filing an objection that was due March 18, 2020 or later is extended until June 30, 2020.
• The CRA has now announced that it will resume audit work with altered procedures in place to ensure safe distances (e.g. taxpayers may send information via email).
• For a summary of the deadlines, click here.

The newly tabled Bill C-17 proposes to suspend certain time limits and periods for tax assessments and court proceedings. We will update this article as the Bill progresses through the House.

Payment Deferrals offered by the CRA:

• Income tax amounts owed by individuals and businesses are deferred to September 1, 2020. The amounts eligible for deferral are those owing between March 18 to September 2020. This relief applies to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period. This will apply to income taxes only – being income tax installments and any income tax amounts due.
• GST/HST remittances are deferred to June 30, 2020. On June 30, 2020:
  • Monthly filers must remit February, March and April amounts;
  • Quarterly filers must remit January 1 to March 31 amounts; and
  • Annual filers whose GST/HST returns or instalments are due in March, April or May 2020 must remit amounts for prior year.
  • The Federal government has not explicitly provided an extension on the filing deadlines for GST/HST returns. However, there is no late-filing penalty when no amount is required to be remitted.

• Customs duties and GST payable on imports for March, April and May are deferred to June 30, 2020.
• However, there are currently no deferrals for payroll remittances (though see comments below regarding the wage subsidy) or remittances of other tax withholdings such as non-resident withholdings under section 116 of the Income Tax Act which must still be remitted to the CRA  . Unless the Government has specifically stated an amount payable to the CRA may be deferred, it should be assumed it is still payable.
• For a summary of the deadlines, click here.

Administrative relief for residency by the CRA

The CRA has published administrative relief for international persons or transactions. Generally, for persons who cannot travel into or out of Canada due to COVID-19 travel restrictions, the days spent in Canada and transactions effected during those days will not "count" towards residency considerations.

This gives relief to persons who may inadvertently spend 183 days or more in Canada, even though it was not their intention, who would otherwise be deemed a Canadian tax resident. Also, where a director must meet in Canada when they usually would not, this will not imply Canadian residency for the corporation simply for that reason. Relief is also extended to non-resident companies that have employees in Canada who, due to the travel restrictions, are performing their duties in Canada – this will not create a permanent establishment simply for this reason.

For more information, see here.

Wage subsidies

Canada Emergency Wage Subsidy ("CEWS") – 75%

On April 11, 2020, the Government passed legislation to enact the CEWS. There is also a new Bill C-17 that is currently undergoing its first reading. A few proposed changes are discussed at the end of the CEWS section.

The CEWS will pay qualifying employers the greater of:

1. 75% of an arm's length employee's "eligible remuneration" up to a weekly maximum of $847; or
2. whichever is less:
   1. 75% of any employee's (including non-arm's length) "baseline remuneration"; or
   2. 100% of "eligible remuneration" up to a weekly maximum of $847.

The two "tests" in this CEWS calculation mean that arm's length employees can be hired or be given increased remuneration after March 15, 2020 provided their employer pays the final 25% of their remuneration. However, any employees hired before March 15, 2020, including non-arm's length employees, can be paid 75% of their baseline remuneration meaning employers would not need to necessarily pay that final 25%.

Previous communications have stated that employers will need to attest that they are doing "everything they can" to pay the remaining 25% of the baseline remuneration but there is no legislated requirement that this final 25% be paid for an employer to receive the CEWS.

Note, non-arm's length employees hired after March 15, 2020 will not be eligible for the CEWS (because their "baseline remuneration" would be $0.00).

The government has provided a "calculator" to assist with calculating the eligible CEWS here. You will need Excel or access to Excel (like Google Docs) to use this calculator.

The CEWS will also be reduced by amounts "received" under the Temporary Wage Subsidy (see below) and certain Employment Insurance payments, including any benefit received through a work-sharing benefit program.

Definitions

• "Eligible employees" are those who are employed in Canada and have not been without eligible remuneration for 14 days or more during the qualifying period in which the CEWS is claimed.
• "Eligible entities" mean employers that are:
  • Individuals;
  • Taxable corporations;
  • Partnerships consisting of eligible employers;
  • Not-for-profit organizations, chambers of commerce, labour organizations and societies, and benevolent or fraternal societies or orders;
  • Registered charities; and
  • "Prescribed organizations". Regulations extend eligibility for the CEWS to the following groups:
    • Partnerships that are up to 50-per-cent owned by non-eligible members;
    • Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers; 
    • Registered Canadian Amateur Athletic Associations;
    • Registered Journalism Organizations; and
    • Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.

Public institutions will not be eligible for the subsidy. These include municipalities and local governments, Crown corporations, public universities, colleges, schools, school boards, hospitals, and health authorities.

Note, the CRA indicated in a recent technical interpretation that corporations that have treaty-exempt Canadian source income are not precluded from being an eligible entity.

• "Eligible remuneration" means any employment earnings that would be subject to remittances and withholdings, such as salary, wages, etc. It excludes employee stocks options, retirement allowances, severance pay, etc.
• "Baseline remuneration" is the average weekly eligible remuneration paid to the employee between January 1, 2020 and March 15, 2020. Any periods of 7 or more consecutive days without remuneration is excluded. Therefore, any arm's length new employees hired after March 15, 2020 have a baseline remuneration of $0.00, which does not exclude them from CEWS but impacts the CEWS calculation.
• "Qualifying revenue" is discussed in below under "Revenue Test" since it ties directly into the revenue test.

Qualification Criteria

In order to qualify for the CEWS for a specific period, an employer must:

1. be an "eligible employer";
2. have a CRA payroll account as of March 15, 2020; and
3. be able to show its revenue has dropped below:
   1. 85% of March 2019 revenue in March 2020 to be eligible for CEWS for the period between March 15, 2020 and April 11, 2020;
   2. 70% of April 2019 revenue in April 2020 to be eligible for CEWS for the period between April 12, 2020 and May 19, 2020;
   3. 70% of May 2019 revenue in May 2020 to be eligible for CEWS for the period between May 10, 2020 and June 6, 2020.

The government also left it open in the legislation to extend the CEWS into periods up to September 30, 2020.  On May 15th they announced they would be extending it until at least August 29, 2020, with further details, including whether there will be adjustments to the 30% revenue test, to be announced in the future.

Note, not-for profits that share a business number and payroll account with a public institution currently are not eligible for the CEWS (e.g. Some hospital foundations share payroll accounts with AHS). The proposed Bill C-17 may grant relief (see end of CEWS section).

Revenue Test

Employers can elect to compare the above 2020 qualifying periods against the average qualifying revenue of January and February instead. But if they make this election, they must use this January and February average as the comparative period for all qualifying periods.

For clarity, the employer can compare the current qualifying period to the same month in prior year (e.g. March 2020 compared to March 2019) or they may compare the current qualifying period to the average revenue of January and February 2020 (e.g. March 2020 compared to average of January and February 2020).

To calculate revenue, the employer can use their normal accounting method (which in most cases will be the accrual account method) or may elect to calculate revenue using the cash accounting method. Whichever method is selected will need to be applied to all qualifying CEWS periods and all comparison periods. For example, if you use the cash accounting method to determine revenue for March 2020 and are comparing it to March 2019's revenue, March 2019's revenue and all the other reference periods will also need to be calculated using the cash accounting method. Since in many cases the accrual method is the normal accounting method, this may mean the comparison periods' revenue will need to be recalculated using the new chosen method.

As a quick explanation, accrual accounting would treat an issued invoice as revenue upon it being issued (and work performed) whereas cash accounting would only consider an invoice as revenue once cash has been received to pay for it. This means if a drop in revenue is going to affect billings but all your billings will be paid in a timely manner, the accrual method will likely be better. On the other hand, if invoices are not being paid in a timely manner, or at all, the cash method will likely be the more appropriate method of calculating revenue.

Extraordinary items and non-arm's lengths revenues are excluded from the calculations of revenue.

Generally, "qualifying revenue" only includes the arm's length revenue received in the course ordinary activities in Canada. This excludes extraordinary items, the CEWS and deemed remittances under the TWS program. However, there are a number of exceptions to this general rule.

• Registered charities may include revenue from related businesses, gifts and other amounts received in the course of ordinary activities. They may exclude government funding amounts.
• Not-for-profits, chambers of commerce, labour organizations and benevolent or fraternal societies may include membership fees and any other amounts received in the course of ordinary activities. They may exclude government funding amounts.
• Organizations that normally present consolidated financial statements can have each member determine their respective qualifying revenue separately, provided that all members do so.
• Members in an affiliated group can jointly elect that qualifying revenue of the group be determined on a consolidated basis.
• If all of the interests in an employer is owned by participants in a joint venture and 90% or more of the employer's qualifying revenue is from the joint venture, then the qualifying revenues of the joint venture (determined as if the joint venture were an eligible entity) may be used for the revenue test.
• If at least 90% of the qualifying revenue (other than the fact that it is non-arm's length) comes from non-arm's length persons or partnerships, then the employer and the non-arm's length persons or partnerships may all jointly elect to account for non-arm's length revenue in the revenue test. There is a complicated weighted average formula to account for calculating the qualifying revenue in this case and we recommend contacting a tax practitioner to assist you in this regard.

Finally, an eligible employer that qualifies for the CEWS for one qualifying period will automatically be deemed to qualify for the next qualifying period. This change eliminates the retrospective uncertainty of the subsidy. For clarity, if the employer qualifies for the first period, then they are deemed to qualify for the second period. The "deeming" does not extend to the third period because the deeming rule can only apply to the next immediate period. In other words, the employer qualifies for the first period, they are deemed to qualify for the second period, even if there has not actually been a 30% revenue reduction for the second period. If there has not been a 30% revenue reduction in the second period, then it cannot "deem" the third period to qualify. If there has actually been a 30% revenue reduction in the second period, then this qualification will deem the employer eligible for the third period. See here, under #5, Table 2, for a table that breaks this down.

These special circumstances may not catch all corporate structures. If you are unsure whether your corporate structure falls within these categories, please contact our office and we would be happy to discuss with you.

How to get the CEWS

• Applications are now live and can be done through My Business Account, Represent a Client or a web form. These can be found here. Employers will need to apply for each period.
• Employers will need to keep records supporting their revenue calculations, remuneration paid to specific employees, and number of employees.
• The CEWS is paid by the CRA treating the amount of the CEWS as an overpayment of income taxes. The CRA may refund that "overpayment", but no interest will apply. Note, if an employer currently has outstanding amount payable to the CRA, the CRA could potentially use the CEWS to pay off that liability. This should not apply to deferred amounts but could apply to other amounts owed by the CRA.
• Employers are encouraged to set up for direct deposits from the CRA. Otherwise, the payments will be by cheque.

Other important considerations of the CEWS

• The CEWS is included in taxable income but will be offset by the associated deductible employment expenses.
• Employers that engage in "artificial transactions" to reduce revenue for the purpose of claiming the CEWS may be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.
• Employers will also be able to apply for a 100% refund on the employer-portion of CPP and EI remittances for any furloughed employees (i.e. employees receiving their remuneration but not working) and for any eligible employees under CEWS program in periods where the CEWS may be claimed. Employers will still need to collect and remit the CPP and EI amounts but then can apply for a refund for the employer-portion when they apply for CEWS each period.
• The government may publish the name of anyone who applies for the CEWS.

On June 10, 2020, the government introduced a new Bill C-17, which is currently undergoing first reading. It will introduce several changes to the CEWS program, including:

• Changes so that amalgamated corporations and trusts will be included as eligible employers, where appropriate;
• Flexibility for employers who hire seasonal workers;
• Relief for eligible employers who use payroll service providers instead of holding their own CRA Business Number.

Also on June 20, 2020, the government announced that it had completed consultations with businesses and will consider changes to the CEWS program, including the 30% revenue decrease threshold. Any changes that they decide to implement will be for the period July 5 to August 1, at the earliest.

We will update this articles as the Bill C-17 progresses through the House and with any other proposed amendments regarding changes to the CEWS program.

For the Government website for CEWS, click here and for Frequently Asked Questions, click here.

Temporary Wage Subsidy ("TWS") – 10%

Further, the previously announced Temporary Wage Subsidy will remain in place. This provides for a 10% TWS for eligible employers from March 18, 2020 to June 19, 2020 (eligible period), up to a maximum of $1,375 per employee with an aggregate maximum of $25,000 per eligible employer. Any benefit received from the TWS will reduce the CEWS. Employers who do not qualify for the CEWS can apply for this TWS instead or, if they qualify for both, may apply for the TWS while waiting for the CEWS to come into effect. Any TWS received will simply reduce the CEWS receivable.

• Eligible employers for the 10% wage subsidy are:
  • Individuals (other than trusts)
  • Non-profit organizations;
  • Registered charities;
  • Canadian-controlled private corporations eligible to claim any small business deduction; and
  • Partnerships, if the members of the partnership are comprised of individuals, registered charities, partnerships, or Canadian-controlled private corporations as described above.
• Eligible employers must have an existing business number and payroll program account with the CRA on March 18, 2020 and must pay salary, wages, bonuses, or other remuneration to an eligible employee. Note, not-for-profits that share their business number and payroll account with a non-eligible employer (i.e. public institution) may not qualify. It is unclear if the government will provide relief for these situations.
• The TWS is "paid" to employers by decreasing the amount that such employer needs to be remit in income tax withholdings. Employers cannot reduce their CPP and EI remittances (see CEWS – Other important considerations)
  • For example, if you have 3 employees and their total payroll (their remuneration) for the three-month period is $120,000 ($40,000 per month). The TWS maximum would be the lesser of $12,000 (10% x $120,000), $4,125 ($1,375 x 3 employees), and $25,000. The TWS maximum is therefore $4,125. To claim this you can reduce your income tax remittance by up to $4,000 (10% x $40,000) in the first month but then you would only be able to reduce the remittance by $125 in the second month and nothing in the third month (because your total limit for the three months is $4,125).
  • If your TWS exceeds the income tax remittance for that period (note EI and CPP remittances may not be reduced), then the excess can be carried over to periods after June 19, 2020.

As noted in the CEWS section, the stated goal of the government for these subsidies was to get funds out as quickly as possible – so they rely on businesses self-assessing whether they qualify. However, the government has indicated there will be harsh penalties for businesses that try to game the system and take advantage of the subsidies when they don't qualify or use it for anything other than paying employees. At minimum, amounts claimed when an employer did not qualify will need to be repaid. In addition to the penalties described for CEWS, there would likely also be penalties applied in other circumstances where the CRA believes there was any abuse, especially where funds were never paid to the employees.

Therefore, it is critically important that employers maintain records showing revenue, the remuneration paid during the eligible periods, the income tax that was deducted from this remuneration, and the number of employees for which either subsidies applied. This will likely be crucial to protecting yourself from future audit grief.

The CRA will provide further details on how to report the subsidies and we will update this article once that information is available.

Information on the 10% Temporary Wage Subsidy can be found on the CRA website here.

Canada Summer Jobs Subsidy ("CSJ")

Additionally, the Canada Summer Jobs (CSJ) wage subsidy will be expanded to subsidize up to 100% of the minimum wage (set by each province) for eligible jobs. Eligible employers include not-for-profits, the public-sector, and private sector organizations with 50 or fewer full-time employees. Eligible participants are youth (not limited to students, as of 2019) aged 15 to 30 years. The deadline to apply for this subsidy has been extended to February 28, 2021.

This is intended to help students who are not currently employed but had initially hoped to be employed for summer positions. They would not be eligible for the Canada Emergency Relief Benefit because they did not "lose income" due to COVID-19. More information on the CSJ program can be found here.

Canada Emergency Response Benefit

The Federal government is offering the Canada Emergency Response Benefit (CERB) of $2,000 per month to those who have lost income due to the COVID-19 pandemic. On April 15, 2020, the Government has stated that they will be expanding the CERB to those who:

• have recently run out of EI benefits;
• are seasonal workers; and
• earn $1,000 per month of income or less due to reduced hours. (Previously, only those who lost all income could apply for the CERB.)

In order to be eligible, the "worker" must demonstrate that they:

1. are over 15 years old;
2. have stopped working due to COVID-19, are eligible for EI, or they have exhausted their EI benefits between December 29, 2019 to October 3, 2020;
3. had in 2019 (or the twelve months prior the date of their application) employment or self-employment income of at least $5,000 (the CRA has indicated that non-eligible dividends are considered to be self-employment income);
4. did not leave their job voluntarily; and
5. are earning $1,000 or less per month of employment or self-employment income during the period in which they claim the CERB.

Therefore, corporate business owners (shareholders) who earned all their income from their corporation may claim the CERB if they:

1. worked for their corporation;
2. were paid at least $5,000 of non-eligible dividends or salary by their corporation in 2019 or the last twelve months; and
3. have had to significantly reduce the amount of work they are doing for their corporation because of covid-19.

It is not clear how the ability to earn $1,000 per month will work for shareholders who are working through their corporation.  Based on the wording of the legislation, it appears that only the income of the individual matters (based on the definition of "worker").  If  this is the case, it could allow for some gaming of the system by simply not paying the shareholders salary and dividends.  That being said, the legislation has not been tested through CRA audits or the Courts, therefore it is unclear whether the CRA may consider this inappropriate and attack this behaviour.  

 The CRA may demand the amount be repaid potentially with interest and penalties (see below for proposed changes).

The CERB has been extended to October 2, 2020 but applicants may only receive CERB benefits for up to 16 weeks total.

The Bill C-17 has also proposed changes to the CERB program:

• Those who refuse to return to work will be ineligible for CERB;
• Penalties. fines and imprisonment for those who applied and received CERB when they knew they were not eligible or based on misrepresentations or omissions that the applicant knew were false.

Applications for the CERB are now open. More information on the CERB can be found here.

Canada Emergency Student Benefit

On April 22, 2020, the Federal government announced a grant that will be available to students who are not eligible for the CERB or EI but are also unable to find full-time work (or are unable to work) due to the COVID-19 pandemic. This grant pays $1,250 to students from May to August 2020 (with an additional $750 if the student has dependents or has a permanent disability).

Availability of credit for Canadian businesses:

• An increase to the credit available to small, medium, and large Canadian businesses through the Business Credit Availability Program (BCAP), which will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, largely targeted to small and medium-sized businesses.

   For information from BDC click here.
   For information from EDC click here.

• The EDC will be guaranteeing new operating credit and cash flow term loans that financial institutions extend to small and medium enterprises. The guarantee is limited to $6.25 million.
• The BDC will be co-lending term loans with financial institutions for small and medium enterprises. These are intended to assist with operational cash flow. The BDC's portion of the loan will be up to $6.25 million per loan. Interest rates will be normal commercial interest rates.
• To further encourage banks to make loans, the Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately. This will allow Canada's large banks to inject $300 billion of additional lending into the economy.
• The Bank of Canada has cut its interest rate to 0.25%.
• The Canada Emergency Business Account is available through eligible financial institutions (with cooperation of EDC).
  • This account provides for a loan up to $40,000, interest-free, to qualifying businesses and not-for-profits. Most major banks have stated that the loan will convert to an interest-bearing term loan after December 31, 2022.
  • If the borrower repays the balance on or before December 31, 2022, 25% of the loan will be forgiven (up to $10,000).
  • To qualify, the small business or not-for-profit must demonstrate that they have paid between $20,000 to $1.5 million in total payroll in 2019.
  • The loan may only be used for operating costs. See here for more details on eligible and ineligible uses of funds.
• All of these loans are now accessed through your own financial institutions. You will therefore need to contact your normal bank to see if you qualify. Note, however, as each bank is administering these programs to their own customers, how the programs will work, including specific terms and especially practical questions regarding how to apply may vary between banks.

For more information See for example: 

  BMO
  CIBC
  National Bank of Canada
  RBC
  Scotiabank
  TD

Loan reliefs offered by financial institutions:

• The Department of Finance Canada indicated Canada's large banks have confirmed that this support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products.

• Information provided by the banks has been changing rapidly as the banks decide how to proceed. Information has been slowly made its way down to front line bank employees, so their message to clients has not been consistent over the last several weeks. This means if you were told last week that you do not qualify for a deferral, that may no longer be the case today.
• However, the latest news suggests that while payment deferrals will be available, the banks will continue to charge interest which will compound if no payments are made. As a result, likely not only will individuals and businesses who take advantage of this option still owe all the deferred payments they will likely owe more.
• If you are in a cash crunch, you may still need to take advantage of these options, but you likely want to do it as little as possible.

You will need to contact the individual financial institutions.  

Lease relief

Rent provisions fall within the jurisdiction of the provinces. For residential lease relief, see here. For commercial rent relief, see here.

Other relief

The Federal government has also provided funding to various industries and sectors, such as the media industry, the cultural, heritage and sports industries, agriculture, and women entrepreneurs. To review support for all the various sectors, see here.

There is also additional funding for large employers via the Large Employer Emergency Funding. See here.