Canada: Bill C-20: An Act Respecting Further COVID-19 Measures

You can find our previous blog post on the Canada Emergency Wage Subsidy here and the first extension details here.

On July 27, 2020, Bill C-20, “An Act respecting further COVID-19 measures” (the “Bill”) received Royal Assent. The substantial changes introduced by the Bill include an extension of the CEWS and revisions to the calculation of the subsidy that eligible employers may receive going forward. All of the changes identified below are deemed to have come into force on April 11, 2020.

Extension of the CEWS

When CEWS was originally introduced, it was set to expire on June 6, 2020. This date was later extended to August 29, 2020. Bill C-20 offers a further extension of the program until November 21, 2020 and leaves open the possibility for additional extensions until December 31, 2020.

Revisions to the Calculation of the Wage Subsidy

Rather than maintaining the fixed requirement of a 30% revenue decline to qualify for a 75% wage subsidy, the Bill introduces more flexibility going forward as the wage subsidy is now based on a sliding scale. Eligible Entities with any level of revenue decline can apply to receive a subsidy proportional to their revenue decline. Specifically, after July 5, 2020, the subsidy amount will be calculated by computing the total of the employer's base wage subsidy and the top-up subsidy. However, the calculation includes a “safe-harbour” rule which provides for an alternative calculation for periods 5 and 6 (July 5 to August 1 and August 2 to August 29). During these two periods, Eligible Entities with a revenue decline of at least 30% can use the original CEWS calculation if this would result in a larger per-employee subsidy.

Base Wage Subsidy

The base wage subsidy will generally be calculated by multiplying the “base percentage” by an employee's weekly eligible remuneration (up to a maximum of $1,129) for a particular qualifying period. The “base percentage” will vary depending on the qualifying period and the employer's "revenue reduction percentage". An employer's “revenue reduction percentage” is calculated by dividing an employer's qualifying revenue for the current reference period by the employer's qualifying revenue for the prior reference period and subtracting the quotient from one. Eligible Entities experiencing a revenue reduction percentage of 50% or more will be eligible for the maximum base percentage. For Eligible Entities whose revenue reduction percentage is less than 50%, the base percentage will be calculated by multiplying the employer's revenue reduction percentage with a set multiplier. The table below outlines the various rates as they relate to each qualifying period.  

Example calculation: For an Eligible Entity with a revenue reduction of 30% that filed an application for period 7, the base percentage they may apply to an employee's eligible remuneration will be: 1.0 x 30% = 30%

Top-Up Subsidy

The top-up subsidy is only available to Eligible Entities that experience a three-month average revenue reduction of more than 50%. The top-up subsidy will generally be calculated by multiplying the “top-up percentage” by an employee's weekly eligible remuneration (up to a maximum of $1,129) for a particular qualifying period. The top-up percentage for a qualifying period is calculated as the lesser of 25% and the amount calculated in the formula below:

Top-up percentage = 1.25 x (the top-up revenue reduction percentage - 50%)

The “top-up revenue reduction percentage” referenced in the formula above is generally calculated by comparing the employer's average monthly revenue for the three calendar months prior to the current reference period (e.g. the average of July, August and September 2020 in respect of Period 8, for which the current reference period is October 2020), to the average monthly revenue earned in the same three calendar months in 2019 (in certain limited circumstances, the average revenue for January and February 2020 will be used in lieu of the three calendar months in 2019).

Eligible entities who experience a revenue decline of 70% or more will receive the maximum top-up percentage.

Maximum Amounts

The maximum per-employee subsidy available to eligible entities for each of the qualifying periods is as follows:

Calculations for Employees On Leave

Note that the subsidy calculations for Eligible Employees that are on leave with pay (i.e. furloughed employees) will differ under the new rules. For subsidies claimed for such individuals in periods 5 and 6, the wage subsidy will be calculated under the original rules, provided that the either the employer's "revenue reduction percentage" or the "top-up percentage" for the qualifying period is greater than 0%. In other words, for periods 5 and 6, employers are not required to meet the 30% revenue decline threshold, but are instead only required to have a nominal revenue reduction that is greater than 0%.

For periods 7 and beyond, the wage subsidy is limited by the lesser of the eligible remuneration paid to the Eligible Employee, an amount determined by regulation (this regulation has not yet been released), and nil if the Eligible Employee is not dealing at arm's length.

Other amendments:

• Application Deadline Extension: The deadline to file an application for the CEWS has been extended to January 31, 2021.
• Flexibility with Revenue Computation: Entities are now given the option to make an election to compute revenue declines on either a cash or accrual basis. Previously, an employer whose normal accounting practices were based on the cash method could not elect to use the accrual method for the purposes of the wage subsidy.
• New Notice of Determination: The Minister will issue a notice of determination to the taxpayer after an assessment of the wage subsidy amount paid under the CEWS. If the taxpayer disagrees with the notice, the taxpayer can file an objection or appeal as per the existing procedures in the Income Tax Act.
• Loosening of Payroll Remittance Requirement: Originally, to be considered a qualifying entity, the entity was required to have an existing business number and payroll program account with the Canada Revenue Agency (the “CRA”). The Bill loosens this requirement and allows entities to qualify even if they use a payroll service provider, as long as the payroll service provider had an existing business number and payroll program account with the CRA on March 15, 2020 and the payroll service provider used its business number to make remittances on behalf of the entity.
• Amendments to Eligibility Criteria
  • Amalgamations: For amalgamated corporations, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation so long as the purpose of the amalgamation was not to qualify for the wage subsidy or to increase the amount of the wage subsidy.
  • Asset sales: For asset sales, the Bill introduced a continuity rule for the calculation of revenue where an employer purchases "all or substantially all" (generally 90% or more) of the assets used by the seller in the course of carrying on a business in Canada. The original CEWS rules made it difficult for entities that have acquired assets, during the qualifying period or any time before that period, to qualify for CEWS as revenues would have increased because of the asset purchase. The new rules address this issue by allowing employers to elect to include the qualifying revenue of the seller that can be reasonably attributable to the acquired assets (the “Assigned Revenue” in the employer's (i.e. the buyer's) qualifying revenue for the prior reference period or the current reference period. The Assigned Revenue must then be subtracted from the qualifying revenue of the seller for its prior reference period or its current reference period. The eligible entity and the seller, if the seller is in existence during the qualifying period, must file a prescribed election form for each qualifying period it seeks to file on this basis.
  • Seasonal employees: For qualifying periods after period 5, or July 5, 2020, an Eligible Employee now means any individual employed in Canada by an Eligible Entity in a qualifying period. Employees without remuneration for 14 or more consecutive days in a qualifying period were originally excluded from the definition of Eligible Employee but the Bill removes this exclusion.
  • Baseline remuneration: Entities may make an election to use a different prescribed time period, other than the period of January 1, 2020 to March 15, 2020, to calculate an employee's “baseline remuneration”. This broadens the eligibility of employees to include those that may have been on leave during the January to March period.
  • Certain trusts are disqualified: Under the original rules, all trusts met the definition of an “eligible entity”. However, pursuant to the Bill, for qualifying period 3, or May 10, 2020, and onwards, the meaning of “eligible entities” has been narrowed to exclude trusts that are exempt from Part I tax or are public institutions.

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.