This blog comments on recent developments in respect of the calculation of the Canada Emergency Wage Subsidy ("CEWS") for furloughed employees, including the Canadian Government's September 25, 2020 announcement to extend the Period 7 (August 30, 2020 - September 26, 2020) treatment to apply to Period 8 (September 27, 2020 to October 24, 2020) as well.

By way of background, since its introduction in April 2020, the CEWS has undergone a series of modifications. One such modification brought about by the significant July 2020 amendments (the "Bill C-20 Amendments") is that for periods beginning July 5, 2020 (i.e., Period 5) and onwards, the CEWS is to be calculated differently depending on whether an eligible employee is: 

  • on leave with pay in respect of a week (a "furloughed employee"), or

  • not on leave with pay in respect of a week.

Generally, an eligible employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the eligible employer for that week but does not perform any work for the employer in that week. However, the Canada Revenue Agency does not consider an eligible employee to be on leave with pay for purposes of the CEWS if the employee is on a period of paid absence such as vacation leave, sick leave or a sabbatical.

Pursuant to the Bill C-20 Amendments, for Period 5 (July 5, 2020 to August 1, 2020) and Period 6 (August 2, 2020 to August 29, 2020), the amount to be included in the CEWS calculation in respect of furloughed employees is the same as for Periods 1 to 4, but with a relaxed revenue reduction test (i.e., employers only need to show some decline in qualifying revenue, rather than the stricter 30% reduction that was previously required) (the Period 5 and 6 treatment, "OriginalFurloughed Treatment").

For Period 7 and onwards, the Bill C-20 Amendments provide that the base CEWS in respect of arm's length furloughed employees of eligible employers who are able to demonstrate some revenue reduction is the least of: 

  • the amount of eligible remuneration paid to the employee by the employer in the week, and

  • an amount determined by regulation in respect of the employer for the period.

At the time that the Bill C-20 Amendments were released, no regulation existed for purposes of this calculation. However, the Government stated in its backgrounder that beginning in Period 7, the CEWS in respect of furloughed employees would be "adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI)". According to the backgrounder, this change was to "ensure equitable treatment of employees on furlough between both programs, provide greater clarity to workers as to their compensation as compared to a changing subsidy rate based on their employer's revenue in a given month and, when combined with draft legislative changes to the interaction with the CERB [.], make it easier to transition employees on to CEWS so that they are reconnected with their employer".

Subsequently, on August 21, 2020, the Government announced that it would extend the Original Furloughed Treatment for an additional four weeks to cover Period 7. Regulation 8901.2 to the Income Tax Act (Canada), which is deemed to have come into force on August 30, 2020, has now implemented this extension of the Original Furloughed Treatment in respect of furloughed employees.

On September 25, 2020, the Government announced that the Original Furloughed Treatment would be further extended to apply for Period 8 as well. The Government also stated that for the following periods (i.e., Period 9 and onwards), it would "review the wage subsidy program in light of ongoing progress in fighting COVID-19 as well as any adjustments needed to facilitate the extension of the wage subsidy into 2021 as committed in the Speech from the Throne".

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