Are you trying to navigate the wave of new information coming your way about COVID-19? Are you uncertain which of the new federal programs may apply to you and your business? Hopefully, you can take comfort in the fact that you are not alone.
As we are all coming to terms with our new reality and what it means in the long term for businesses, many companies are struggling to keep the lights on and wondering how they are going to reopen their doors or keep them open as we slowly re-open the economy.
One avenue for these companies might be the new Canada Emergency Wage Subsidy (CEWS).
This benefit, created under the Income Tax Act (ITA), is the largest wage subsidy or business support program since World War II. Applications for the program began on April 27, 2020 and nearly 30,000 claims were made on the first day with the total expected to reach over one million applications.
Wondering if you qualify?
Since the program has rolled out, updates have been made and answers to frequently asked questions can be found on the Government of Canada Website. Although the subsidy will only apply to compensation paid between March 15, 2020 to June 6, 2020, businesses will have until September 30, 2020 to submit their applications to participate in the subsidy program.
Whether you or another staff member are responsible for recordkeeping and accounting functions, you may wish to proceed with caution. Many questions need to be addressed prior to your application:
- How are you measuring your drop in revenues?
- Are you comparing the figures to last year or an average of January and February 2020 results?
- Will you be using accrual based accounting methods or cash flow?
- How did you arrive at the numbers?
- Can you exclude any types of revenue sources?
- Were they verified by a third party? (Keep in mind that if you are not already working with an accountant/auditor, they may be reluctant to give you an opinion on the accuracy of your calculations due to the liability of potential penalties.)
Why are these questions important?
There are measures incorporated in the Income Tax Act that enable penalties to be imposed on businesses that apply and are later found to have been ineligible. Although penalties are not entirely new and do not only apply to the CEWS program, one measure is specific to the program - CRA has indicated that they will be publishing a list of businesses that apply for the program. This measure is aimed at dissuading companies from making fraudulent claims. If you have the time and adequate cash flow to delay your application, you may wish to review your eligibility in more detail before applying.
What other consequences are there?
If it is determined that your business was not eligible or that you claimed too much, you will need to repay the subsidy that you were not entitled to receive. This would also include interest and potentially, penalties. Additionally, if CRA determines false statements were made or that there was material misrepresentation, the individual that is primarily response for the financial activities could personally be fined or convicted of indictment and subject to potential imprisonment.
After careful consideration and review, you have decided to apply for the subsidy – what’s next?
See the CEWS application guide.
NOTE: When submitting a claim for the CEWS, the owner of the business or the person responsible for your finances (CFO or controller) will be required to sign an attestation. If your accountant or authorized representative is filing for the benefit on your behalf, they will also need a copy of this form.
WHAT TO DO IN ADVANCE:
- Review your revenue and calculate the change (make sure you document and save your calculations - 100% of large taxpayers and all claims over a specified dollar amount will be audited).
- Calculate your subsidy amounts and your eligibility for the 10% temporary wage subsidy (you may wish to download the excel spreadsheet to gather the information). If you are using accounting software, you may be able to export the information or ask your payroll provider if you are working with one.
- Watch your pay periods – they may not line up with the relevant dates in the CEWS program (the starting date for the first period is March 15, 2020) and may need to be adjusted.
- Remember bi-weekly and semi-monthly are not the same.
- Don’t forget to include taxable benefits in your remuneration calculations.
- The date for the 10% temporary wage subsidy is slightly offset (starts March 18). Don’t forget that this benefit provides a maximum of $1,375 per employee and $25,000 overall per eligible business. It has been brought to our attention that some software is not capturing when employees are hitting the maximum.
Determine if you are eligible to receive a refund of employer contributions for EI & CPP premiums (you can only claim this for employees that are on leave WITH pay and they must not have performed any work for a full week).
- The application will be subtracting the 10% temporary wage subsidy regardless of whether or not you actually reduced payroll remittances by the amount. Under new rules , employers who did not reduce payroll remittances will be considered to have sent too much money to CRA for source deductions. In the coming months, there will be a process for reconciling this and applying for the credits.
- You will also need to calculate any amounts that need to be subtracted as a result of participating in a Work Share Program.
Once you have submitted your application, you can expect to be contacted by CRA to verify the information. Once everything is order, payment should follow within 10 business days and if you have registered your banking information, funds will be directly deposited into your account. You will need to apply separately for each of the three periods.
Robertson, David Douglas (April 24, 2020). So you’re planning to apply for the Canada Emergency Wage Subsidy: A Tax Litigator’s Perspective https://www.linkedin.com/pulse/so-youre-planning-apply-canada-emergency-wage-subsidy-robertson/
Nijawan, Anu & Kutsenko, Hennadiy (April 28, 2020) Applying for the Canada Emergency Wage Subsidy: What are my risks? https://www.bennettjones.com/Blogs-Section/Applying-for-the-Canada-Emergency-Wage-Subsidy-What-Are-My-Risks