Federal Government Extends COVID-19 Wage Subsidy

February 1, 2021 is the last day to apply for the Canada Emergency Wage Subsidy for claim periods 1 to 5 (March 15, 2020 to August 1, 2020).

Update: On January 6, 2021, Parliament passed legislation formally extending the Canada Emergency Wage Subsidy to March 13, 2021. The blog post below has been updated to reflect the rules applicable up to March 13, 2021. With different rules now applying to the various benefit periods, MLT Aikins LLP would be pleased to assist you in determining whether you are eligible for this program and the amount of the subsidy that you qualify for. Eligible employers can apply here.

Canada Emergency Wage Subsidy: Eligible Employers with 2020-2021 Revenue Decreases

First enacted on April 11, 2020, section 125.7 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) sets out the rules applicable to the Canada Emergency Wage Subsidy (CEWS). Several legislative and regulatory amendments over the past several months have modified and extended the program.


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

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

Regulations 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”):

Period Claim Period Revenue Decrease Reference Period
1 March 15, 2020 to April 11, 2020 15% revenue decline in March 2020
2 April 12, 2020 to May 9, 2020 30% revenue decline in April 2020
3 May 10, 2020 to June 6, 2020 30% revenue decline in May 2020
4 June 7, 2020 to July 4, 2020 30% revenue decline in June 2020
5 July 5, 2020 to August 1, 2020 Any revenue decline in July 2020
6 August 2, 2020 to August 29, 2020 Any revenue decline in August 2020
7 August 30, 2020 to September 26, 2020 Any revenue decline in September 2020
8 September 27, 2020 to October 24, 2020 Any revenue decline in October 2020
9 October 25, 2020 to November 21, 2020 Any revenue decline in November 2020
10 November 22, 2020 to December 19, 2020 Any revenue decline in December 2020
11 December 20, 2020 to January 16, 2021 Any revenue decline in December 2020
12 January 17, 2021 to February 13, 2021 Any revenue decline in January 2021
13 February 14, 2021 to March 13, 2021 Any revenue decline in February 2021

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. Employers have some flexibility in choosing between these approaches, provided that the same method is used to calculate their reduction in revenues for Periods 1 to 4 (March 15, 2020 to July 4, 2020) and Periods 5 to 13 (July 5, 2020 to March 13, 2021). While employers will have to apply separately for each month, employers who qualify for one Qualifying Period will automatically receive at least some amount of the subsidy in the next Qualifying Period.

Note that both Periods 10 and 11 use December 2020 as the default revenue reference period. This adjustment addresses the timing mismatch that has resulted from the fact that 28-day claim periods  are shorter than the calendar months used for revenue calculation purposes (e.g. for Period 10, which ended on December 19, 2020, employers were required to know their December 2020 revenues before making a claim).

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.

Special rules apply if two corporations have amalgamated or if an employer has acquired the business assets of another person or partnership. In these cases, it may be possible to use the pre-transaction revenues of the other corporation or business to calculate eligibility for the CEWS.

Subsidy Amount and Limits

Original 75% Subsidy

For the period of March 15 to July 4, 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%. During this period, 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 75% subsidy as long as they deal at arm’s length with the employer (family members hired after March 15, 2020, who were not employed during 2019, would not be eligible).

Variable Subsidy Rate

For CEWS periods beginning after July 4, 2020, the CEWS consists of two parts: a base subsidy and a top-up subsidy. The base subsidy is available to all employers who have experienced any revenue reduction, with the subsidy amount varying based on the scale of revenue decline. The CEWS is available for both active employees as well as those on leave.

The amount of the base subsidy for an employer in a given period is tied to the changes in the employer’s monthly revenues, with the maximum subsidy being provided to employers with a revenue reduction of at least 50%. As set out in the following table, the base rate for a particular Qualifying Period varies, with the maximum base subsidy rate for periods 8 to 13 being set at 40%.

Qualifying Periods July 5 to August 29  August 30 to September 26 September 27 to December 19
Maximum base rate (requires at least 50% reduction in revenues) 60% 50% 40%
Maximum base benefit per employee $677.40 $564.50 $451.60
Base rate for employers with revenue reduction of 0 to 49% 1.2x revenue drop 1.0x revenue drop 0.8x revenue drop

The Qualifying Periods that run from July 5 to August 29 are considered transitionary periods. Employers with a revenue decline of at least 30% will receive a CEWS amount that is at least as generous as the original 75% subsidy (for these periods, qualifying employers will receive the greater of the subsidy amount calculated under both the new and the old rules).

For wages paid after July 4, an additional top-up subsidy of up to $282.25 per employee is available to employers who have experienced a revenue reduction of more than 50%.  For wages paid from July 5 to September 26, eligibility for the top-up subsidy is determined by looking at the employer’s average revenue drop over the three prior months. For Qualifying Periods beginning after September 26, employers may choose to use their revenue decrease in the current month to determine their eligibility for the top-up subsidy (e.g. using the same revenue reduction number as their base subsidy calculations).

For qualifying employers, the top-up subsidy rate equals 1.25 times their applicable revenue drop exceeding 50%, with a maximum top-up of 25% of remuneration paid (applies to remuneration of up to $1,129 per employee per week). For example, an employer with a revenue drop of 60% would qualify for a top-up of 12.5% of remuneration paid (1.25 x (60% – 50%) = 12.5%). If this employer paid its employee at least $1,129 per week, the employer would receive a top-up of $141.13 in addition to their base subsidy amount.

Special rules apply in calculating CEWS amounts payable in respect of employees who are on paid leave for a given week (they do not report for any duties that week) during a 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 claims the 10% subsidy (discussed here). Employers are required to include CEWS benefits received in their taxable income. For the period of March 5 to July 4, 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. For the Qualifying Periods beginning after July 4, the CEWS eligibility criteria no longer excludes employees who do not earn remuneration for 14 or more consecutive days.

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 qualify for, or increase the employer’s claim 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. The CRA’s goal is to process CEWS applications within seven to ten business days.

The CRA’s goal is to process CEWS applications within seven to ten business days. Employers are encouraged to ensure they are able to receive direct deposits from the CRA to speed up the delivery of payments. Employers have 180 days from the end of a Qualifying Period to apply for the CEWS (February 1, 2021 is the last day to apply for CEWS Qualifying Periods 1 to 5).

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, this emergency relief program.

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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