Federal Wage Subsidy Backgrounder
May 12, 2020
Union locals, pension funds, and employee benefit funds may be eligible for the Temporary Wage Subsidy and the Canada Emergency Wage Subsidy in their capacity as employers.
Employers will generally be eligible for the Temporary Wage Subsidy (TWS) if they have one or more employees and had a business number for the purpose of making income tax remittances as of March 18, 2020. This is a 10% subsidy available from March 18, 2020 to June 19, 2020 up to a maximum of $1,375 per employee and a maximum of $25,000. Unfortunately, trusteed funds are not eligible for the TWS.
Eligible employers do not need to apply. Instead, employers may calculate the value of the subsidy and reduce their payroll remittance of federal, provincial, and territorial income tax by the relevant amount. Employers are required to deduct and remit CPP and EI as normal.
Employers may reduce remittances in the first pay period including remuneration paid from March 18, 2020 to June 19, 2020. If the income tax deducted is not sufficient to offset the value of the subsidy in a given period, the employer may reduce future payroll remittances including after June 19, 2020. Alternatively, the employer may calculate the value of the subsidy at the end of 2020 and the CRA will pay the amount to the employer or transfer the amount to their account for the following year.
Employers will be eligible for the Canada Emergency Wage Subsidy (CEWS) provided that the employer experiences the requisite decline in revenue. The specific calculations are complex, but generally an employer will be eligible if their March 2020 revenue is at least 15% lower than their March 2019 revenue and if their revenue in April or May 2020 are at least 30% lower than their April or May 2019 revenue. In the case of union locals and employee benefit plans, no guidance has been issued specifying what counts as “revenue”. Absent clear guidance, in our view, a union local’s revenue will be comprised of union members’ dues as well as employer contributions to benefit plans that are made in accordance with a collective agreement and are held by the local and not in a trust fund. We expect that a benefit fund’s “revenue” will be comprised of employer contributions.
For the purpose of calculating revenue, employers are permitted to use the “cash method” or the “accrual method”. For most organizations, the accrual method is the default. With this method, revenue is counted during the period when the entitlement to the revenue arose. For example, if a corporation sends an invoice to a client in 2019 that amount is counted as revenue in 2019 even if the corporation does not receive payment until 2020. Under the cash method, revenue is counted during the period when it is received regardless of when the entitlement arose. The cash method may be beneficial in the context of the CEWS if an employer continues to accrue entitlement to revenue buy payments are delayed, as may be the case with union locals who are permitted members to defer payment of dues. We recommend discussing the pros and cons of the two methods with your accounting team.
The CEWS provides a 75% wage subsidy up to a maximum of $847 per employee per week, with no employer maximum. The subsidy is available for up to 12 weeks between March 15, 2020 and October 3, 2020. Employers must continue to deduct and remit CPP and EI contributions, but are eligible for a refund of employer deductions in respect of employees who are being pay while on leave.
Applications for the CEWS opened on April 27, 2020.
Employers who draw on both the CEWS and the TWS will generally have the value of their CEWS reduced by the amount they received through the TWS. However, for employers who qualify for both, there may still be a benefit to drawing on the TWS as it is effectively available automatically when payroll is processed.
If you have questions or would like assistance with filing your application, please feel free to contact us.