The Federal government has announced several COVID-19 relief packages for individuals and businesses which include enhancements to Employment Insurance (EI), an extension of certain income tax return deadlines, a postponement of final income tax and GST/HST payments and instalments, and a temporary wage subsidy for employers. Very few details initially accompanied this last measure, and it quickly became a source for much speculation as people were interested in knowing whether they qualified.
Since that time legislation concerning the Temporary Wage Subsidy for Employers ("TWSFE") has been released, passed by the House of Commons and now appears to need some revisions to account for the increase in the rate from 10 per cent to 75 per cent. Here's how the TWSFE and the updates break down:
The TWSFE will permit eligible employers to reduce the amount of payroll income tax remittances made to the Canada Revenue Agency ("CRA") between March 15, 2020 and June 20, 2020, a period of three months. An eligible employer will include a non-profit organization, a registered charity, a Canadian controlled private corporation ("CCPC"), an individual or a partnership who pays salary, wages, bonuses or other remuneration to an employee. In addition, a CCPC will only be considered an eligible employer if its taxable capital for the preceding year, calculated on an associated group basis, was less than $15,000,000. Self-employed businesses, businesses carried on in partnership form and individuals who employ caregivers and nannies should be eligible for the TWSFE.
The TWSFE will be limited to 75 per cent of the remuneration paid by an eligible employer between March 15, 2020 and June 20, 2020. There is also a per employee cap of $1,375 and a maximum total subsidy of $25,000 per employer (note: these limits may be updated when further details are released on Monday). CCPCs that are associated with each other will each have their own $25,000 limit and will not be required to share or allocate this limit among them, unlike other income tax limits.
There will be no prescribed form to assist eligible employers in calculating and claiming the TWSFE. All calculations will be done manually, and a copy should be kept by the employer in the event that the CRA asks to see it at a later date. For employers who use a payroll service, it may be prudent to contact them directly as they may have the software to automatically calculate the TWSFE on your behalf. For employers who do not use a payroll service, Crowe Soberman can assist with the calculations.
Eligible employers can start reducing the income tax portion of their payroll remittances (the subsidy cannot be used to reduce EI premium or CPP contribution remittances) when they make their first remittance for remuneration paid after March 14, 2020. Alternatively, eligible employers can choose not to reduce their payroll remittances now but rather calculate the total TWSFE they were eligible for and request that the subsidy be paid to them at the end of the taxation year or be transferred to their 2021 payroll remittance account.
It is important to keep in mind that a subsidy received from a government is considered taxable income. Eligible employers who receive this benefit will have to include the amount as income in the year it is received. Presumably, non-profit organizations and charities will not have to pay tax on the benefit received because they are generally exempt from income tax.
XYZ Corporation is a CCPC and an eligible employer. It employs six people. In its first payroll period ending after March 14, 2020, it paid each employee gross wages of $4,000 as remuneration for work performed on March 15, 2020 and later. XYZ Corporation would be entitled to reduce the income tax portion of its payroll remittance by $8,250 (i.e. the lesser of: (i) $4,000 x 75% x 6 employees, and (ii) $1,375 x 6 employees).
ABC Corporation and DEF Corporation are associated corporations because they are both controlled by the same person. Both corporations are CCPCs and eligible employers. ABC Corporation has 20 employees and has gross payroll for its first pay period ending after March 17, 2020 of $100,000 for work performed on March 15, 2020 and later. During this current pay period, none of its employees had gross salary of more than $13,750 for work performed on March 15, 2020 and later. DEF Corporation has one employee and it paid a bonus to him of $150,000 on March 20, 2020. ABC Corporation can reduce its payroll remittance for the current payroll period by $25,000 (i.e. the lesser of: (i) $100,000 x 75%, and (ii) $25,000). and DEF can reduce its payroll remittance for the current period by $1,375 (i.e. the maximum limit per employee). ABC Corporation will have reached its maximum limit and will not have the ability to claim any more future TWSFE. DEF Corporation will also not be eligible to claim any more TWSFE unless it employs additional employees and pays remuneration to them before June 20, 2020.
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.