Federal Government Announces COVID-19 Wage Subsidy

This blog was originally published on March 27, 2020.

Update: On May 15, 2010, the Finance Minister and the Department of Finance provided further details about the expansion of the Canada Emergency Wage Subsidy (full version available here. Notable items include:

  • The CEWS will be extended by 12 weeks, to August 29, 2020, and further adjustments may be made to the eligibility criteria in the coming weeks.
  • Certain entities, such as businesses owned by Indigenous governments, journalism organizations, and private colleges and schools, will be retroactively eligible for the subsidy for wages paid since March 15, 2020.
  • Proposed legislative amendments to the rules applicable to: (i) non-arm’s length employees who are seasonal employees or returning from extended leaves (e.g. parental, disability or unpaid leave); (ii) corporations who have recently amalgamated; and (iii) tax-exempt trusts.

We will continue to update the blog post below as the regulations and legislation implementing these changes are released. Eligible employers can apply here.

Employers may qualify for one of two federal COVID-19 wage subsidy programs. A 10% subsidy is generally available to smaller employers while all employers who have experienced sufficient declines in revenue in March to May of 2020 will receive a 75% wage subsidy.

Canadian Emergency Wage Subsidy: Eligible Employers with 2020 Revenue Decreases

On April 11, 2020, Bill C-14, A second Act respecting certain measures in response to COVID-19, was passed by Parliament. This legislation amends the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) to set out the rules for the new Canada Emergency Wage Subsidy (“CEWS”).

Eligibility (Updated May 15)

The Canada Emergency Wage Subsidy is available to a wide range of employers, including:

  • taxable corporations;
  • individuals;
  • registered charities;
  • non-profit organizations; and
  • partnerships, provided that at least 50% of the fair market value of all interests in the partnership are held by partners that would otherwise be eligible for the subsidy.

Regulations released on May 15, 2020 expand the definition of “eligible entity” to include certain businesses owned by Indigenous governing bodies, private schools or colleges, registered Canadian amateur athletic associations and registered journalism organizations.

The CEWS is not available to public institutions, which include public schools and school boards, public universities and colleges, hospitals, health authorities, municipalities, First Nations bands or entities owned by the Crown or a municipality.

To qualify, an employer will need to demonstrate a revenue decrease for the relevant qualifying period (each a “Qualifying Period”):

  • for wages paid from March 15 to April 11, a 15% revenue decline in March 2020;
  • for wages paid from April 12 to May 9, a 30% revenue decline in April 2020; and
  • for wages paid from May 10 to June 6, a 30% revenue decline in May 2020.

Employers can choose to demonstrate their revenue decline in one of two ways, either by comparing the applicable month to the previous year (e.g. March 2020 to March 2019) or with reference to their average revenue in January and February of 2020.  While employers will have to apply separately for each month, if the employer qualifies for one period, they automatically qualify for the next period (e.g. employers who qualify for the March 15 to April 11 period automatically qualify for the April 12 to May 9 period).

Calculating Revenue

As a general rule, revenue for the purposes of the CEWS is calculated according to the employer’s ordinary accounting practices. Qualifying revenue includes inflows received in the ordinary course of the entity’s business and excludes extraordinary items and amounts received from non-arm’s length entities. Registered charities and non-profits can elect to exclude government funding from their calculation of revenue.

Most employers will calculate revenue on an accrual basis, that is, by treating revenue as earned when goods are delivered or services are performed, not when they are actually paid for. However, employers can also elect to calculate revenue on a cash basis, as earned only when payment is actually received. An employer will have to use the same calculation method for all Qualifying Periods.

For employers who are part of a larger corporate group, revenues can be calculated on a consolidated group-wide basis or for each individual entity, if every member of the group agrees to use the same method.  Where an entity’s revenues come from non-arm’s length payments (e.g. the sales division pays a transfer price to the manufacturing division), the revenue decline may be calculated group-wide (to prevent inter-group payments from being used to manipulate the amount of the revenue decline) in applicable circumstances.

Subsidy Amount and Limits

For most employees, the weekly subsidy will equal 75% of the employee’s pre-crisis remuneration (average weekly earnings from January 1, 2020 to March 25, 2020), up to a maximum of $847 per week. Eligible remuneration includes salary, wages, fees, commissions and certain taxable benefits to employees. As previously announced by the Finance Minister, the subsidy is intended to cover 75% of an employee’s wages, with the employer making its best efforts to pay the other 25%.

If an employee’s wages have been cut by more than 25% since March 15, 2020, the subsidy will equal the amount of remuneration paid, up to the weekly maximum of $847. Employees hired after March 15, 2020 are eligible for the subsidy as long as they deal at arm’s length with the employer (family members hired after March 15, 2020 would not be eligible).

Where employees are on paid leave for a given week (they do not report for any duties that week), employers who qualify for the CEWS will also receive a refund of the employer’s contributions for Employment Insurance and the Canada Pension Plan in respect of these employees during each Qualifying Period.

While there is no limit on the total benefit that an employer may receive from the CEWS, the CEWS benefit will be reduced if the employer is eligible for the 10% subsidy (discussed below). Employers are required to include CEWS benefits received in their taxable income. If an employee is eligible for the Canada Emergency Response Benefit (a $2,000 payment for those who do not earn remuneration for 14 or more consecutive days during a Qualifying Period), the employer cannot claim the CEWS in respect of that employee for that period.

Delivery Mechanism

The amount of the CEWS that an employer qualifies for will be paid directly to the employer by the Canada Revenue Agency (the “CRA”). Once an employer applies for the CEWS and provides the CRA with proof that the qualifying remuneration has been paid to eligible employees, the CRA will pay the subsidy amount to the employer.

The legislation also sets out a series of rules that will apply to employers who take steps to reduce their qualifying revenue if one of the main purposes of the transaction or event is to cause the employer to qualify for the CEWS. Such employers will be required to repay any amount of the subsidy received and will be subject to an additional 25% penalty.

Next Steps

Employers can apply for the CEWS via their CRA My Business Account or through an online portal on the CRA’s website. CRA officials have indicated that it plans to process initial CEWS applications within one week, allowing the first subsidy amounts to be paid during the first week of May. Employers are encouraged to ensure they are able to receive direct deposits from the CRA to speed up the delivery of payments. Employers have until September 30, 2020 to apply for the CEWS.

10% Wage Subsidy for All Eligible Employers

On March 25, 2020, Parliament passed Bill C-13, An Act respecting certain measures in response to COVID-19. One of the measures set out in the legislation is a wage subsidy for certain Canadian employers. In substance, the subsidy will give eligible employers a 10% credit on any salaries, wages or other remuneration paid to employees during a three-month period, from March 18, 2020 to June 19, 2020. Employers should take steps to confirm whether they are eligible for this subsidy.


For the subsidy to be available, the employer must meet three requirements. First, the employer must employ one or more individuals in Canada. Second, as of March 18, 2020, the employer must have had a business number registered with the CRA to remit payroll deductions. Finally, the employer must be:

  • an individual (other than a trust);
  • a Canadian-controlled private corporation that had a business limit (for small business deduction purposes) greater than zero for its most recently concluded taxation year;
  • a registered charity or certain non-profit organizations; or
  • a partnership, if all of the partners would otherwise be an eligible employer.

Limits and Delivery Mechanism

The 10% wage subsidy is capped at $1,375 per employee, up to a total of $25,000 per employer, and only applies to remuneration paid during the period of March 18, 2020 to June 19, 2020. In practical terms, an employer who pays at least $13,750 to each of 19 employees during this period would receive the maximum benefit from the subsidy.

Bill C-13 adds a new subsection to section 153 of the Income Tax Act, which requires employers to withhold and remit income tax from salary, wages and other remuneration paid to employees.  An employer’s withholding obligations remain unchanged (e.g. the employer must still deduct the same amounts from the employee’s paycheque). However, the new rules give the employer a credit towards the amount it would otherwise be required to remit for income tax purposes, equal to 10% of the amount of remuneration paid. The CRA has indicated that employers can elect either to reduce their income tax remittances by the amount of the subsidy or request that the subsidy be paid to them at the end of the year. The CRA is also developing record-keeping and reporting requirements for employers who claim the subsidy.

To illustrate, consider an employer who pays an employee $1,000 and would normally be required to withhold and remit income tax equal to 30%, or $300. Under the temporary rules, the employer is given credit for 10% of the remuneration, or $100, meaning that the employer need only remit $200 of income tax to the federal government on behalf of the employee. The credit results in an economic benefit of $100 to the employer, easing some of cash flow constraints resulting from business disruptions related to COVID-19. Please note that the value of the subsidy must be included in the taxable income of the employer.

Next Steps

The 10% subsidy may be available to a broad range of employers, including corporations who offer professional services such as medical, dentistry, accounting and legal services, provided that certain conditions are met.

As you evaluate your employee compensation policies during this difficult time, you should consider the subsidies that may be available to your organization.  In making these decisions, MLT Aikins LLP would be pleased to assist with determining whether your business structure is eligible for, and how to optimize your benefit from, either of these emergency relief programs.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

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