The Government of Canada recently released a series of economic measures to help Canadians mitigate the financial impact of the COVID-19 outbreak. One of the noteworthy items, initially announced on March 18th 2020, is a new wage subsidy targeting small businesses with employees on payroll, which could help each employer save up to $25,000, or $1,375 per employee.
The new wage subsidy is effective between March 18th, 2020, and June 20th, 2020, which allows eligible employers to reduce the amount of payroll income tax deductions required to be remitted.
Is my business eligible?
According to the CRA, employers are eligible for the wage subsidy if they meet the following criteria:
- are a non-profit organization, registered charity, or a Canadian-controlled private corporation (CCPC);
- have an existing business number and payroll program account with the CRA on March 18th, 2020; and
- pay salary, wages, bonuses, or other remuneration to an employee.
For a CCPC, an additional requirement is its Taxable Capital Employed in Canada in 2019 cannot exceed $15 million. Normally, the amount is the total of shareholder's equity, surpluses and reserves, as well as loans and advances, minus investment allowance for the year.
Additionally, you can use CRA's T2 Schedule 33 form to help determine the amount of Taxable Capital Employed in Canada.
In general, if your business was eligible for Small Business Deductions in 2019, it is likely also eligible for the wage subsidy. However, we strongly suggest that you consult your accountant regarding eligibility status.
How will I receive the subsidy?
The subsidy does not actually take the form of a direct payment from the CRA to your business. This is an important mechanism that may not be clear to most employers right away and may result in confusion around realizing the subsidy.
When you process a payroll, normally there is an amount known as income tax deduction that is withheld from the employees' pay either manually or through your payroll provider, that would later be remitted to the CRA. The subsidy is a portion of the income tax deduction that you are now allowed to keep.
How do I calculate the subsidy?
The subsidy is equal to 10% of the total remuneration you pay to employees in the three months between March 18th, 2020 and June 20th, 2020, up to a maximum of $1,375 per employee or $25,000 per employer.
Calculating the maximum subsidy amount for the entire three month period
If you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
Calculating applicable subsidy amount for a pay period
If you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the total subsidy for the period would be 10% of $20,500, or $2,050.
- The subsidy has no effect on the employees’ pay or deductions.
- Only the federal, provincial, or territorial income tax deductions are applicable for calculation of remittance reduction. Canada Pension Plan (CPP) contributions or Employment Insurance (EI) premiums are not applicable.
- The unclaimed wage subsidy can be deducted in future periods, as well as past the end date of the application period (June 20th, 2020).
How soon (or late) should I start adjusting my remittances to account for the subsidy?
There are multiple factors at play when it comes to deciding when to start reducing your payroll remittance, such as your business' cash flow, availability of instructions from the CRA, as well as potential for additional policies to be introduced. In general there is no government mandated deadline for you to start reducing your first remittance.
If you’re a current Humi Payroll client and qualify for the subsidy, we’ve got you covered! Humi fully supports the remittance adjustments. Email your Client Experience Manager or email@example.com, and we’ll get you started on the subsidy application.