On July 17th, the federal government announced new changes to the Canadian Emergency Wage Subsidy (CEWS) program. The CEWS was initially put in place from March 15th to June 6th, 2020, providing a 75% wage subsidy to employers who had observed eligible revenue reduction compared to its baseline revenue in the same period of the previous year.
Understanding new requirements
Under the new requirements, the CEWS program would extend the reference period until December 19th, 2020. The subsidy would also be divided into two parts: base subsidy for all eligible employers, and top-up subsidy for the most adversely affected employers. We have summarized the major changes below.
Effective starting July 5th, the base CEWS is a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on the remuneration of up to $1,129 per week. The rate of the base CEWS would vary depending on the level of revenue reduction. Its application applies to all eligible employers experiencing revenue reduction, instead of employers who observed 30% or more in reduction.
Effective starting July 5th, an additional top-up amount for CEWS would be available to employers that were the most adversely impacted by COVID-19, with an alternative approach to calculating baseline revenues. Employers that have experienced a 3-month average revenue reduction of more than 50% would be eligible to receive a top-up CEWS, with a rate equal to 1.25 times the average revenue reduction that exceeds 50%.
An alternative approach to determining revenue reduction
For Period 5 and all subsequent periods, when an eligible employer is determining its qualification for the base CEWS and its base CEWS rate, the employer would be able to use the greater of its percentage revenue reduction in the current period and that in the previous period.
The employer would also be able to take an alternative approach to determine the revenue reduction for each period. Whichever approach they choose would apply for Period 5 and onward and apply to the calculation of the base CEWS and the top-up CEWS.
Reference periods for the base CEWS
Reference periods for the top-up CEWS
Safe harbour rule
For Periods 5 and 6, an eligible employer would be entitled to a CEWS rate not lower than the rate that they would be entitled to if their entitlement were calculated under the CEWS rules that were in place for Periods 1 to 4.
This means that in Periods 5 and 6, an eligible employer with a revenue reduction of 30% or more in the reference period would receive a CEWS rate of at least 75% or potentially an even higher CEWS rate using the new rules outlined above for the most adversely affected employers (up to 85%).
Although these changes greatly loosened employers' eligibility requirements to benefit from CEWS, they have also made the calculations of CEWS rate more complex. If you have questions about calculating and claiming CEWS under the new requirement, it is highly recommended that you consult an accounting partner.
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