Canada Emergency Wage Subsidy (CEWS)

Alternatively, you may still qualify if:

1. Your business uses a third-party payroll provider; or
2. you acquired assets (such as a business) during the qualifying period (or before that) that were:
   
   1. Of fair market value,
   2. Used by the seller in the course of a business in Canada, and
   3. Not purchased to increase your CEWS

You are an eligible employer if you are listed in any of the columns below:

Not exempt from income tax      An individual A corporation A trust

Exempt from income tax: a registered charity a partnership of eligible employers a non-profit organization an agricultural organization a board of trade a chamber of commerce a non-profit corporation for scientific research and experimental development a labour organization or society a benevolent fraternal benefit society or order

Prescribed organizations: an indigenous government-owned corporation that carry on a business a partnership of eligible employers and an indigenous government a registered Canadian amateur athletic association a private school or a private college a partnership of eligible employers where at least 50% of the interest in the partnership are held by eligible employers

To calculate your revenue drop, you must:

1. Determine your revenues for the applicable period(s) (see CEWS calculation)

2. Calculate your revenue reduction by choosing one of the following options:

• General approach: compare your business eligible revenue for the claim period month in 2020 you are applying for with your eligible business revenue for the same month in 2019; OR
• Alternative approach: compare your business eligible revenue for the claim period month in 2020 you are applying for with your average eligible business revenue for the months of January and February 2020.

Note: if you choose the Alternative Approach, you will need to file an election. Please see the FAQ for more information.

Revenue Drop calculation for Periods 1-4	GENERAL APPROACH Claim month Same month from 2019	ALTERNATIVE APPROACH Claim month Avg of Jan and Feb 2020*
Revenue Drop calculation for Base % for Periods 5-9	GENERAL APPROACH Claim month or Prior month Same month 2019	ALTERNATIVE APPROACH Claim month or Prior month Avg of Jan and Feb 2020*
Periods 5-10
Revenue reduction for Top-up % for periods 5 to 7	Avg of 3 prior months to the current period 2020 Avg of the same 3 months in 2019	Avg of 3 prior months to the current period 2020 Avg of Jan and Feb 2020*
Revenue reduction for Top-up % for periods 8 -10	Avg of 3 prior months to the current period 2020 Avg of the same 3 months in 2019 Or The revenue drop you used to calculate your base rate	Avg of 3 prior months to the current period 2020 Avg of Jan and Feb 2020* Or The revenue drop you used to calculate your base rate
After period 10, only the revenue reduction for the base % will be used for the top up calculation.
*Average of Jan and Feb 2020 can reflect operational days by equating to = 0.5 (Jan and Feb 2020 Revenues) X (60 / # days operational in Jan and Feb 2020)

Important: You must use the same approach for periods 1 to 4; however, in period 5 you may choose to switch the approach you use. The approach you use for period 5 must then be used from periods 5-10. Should you decide to change your approach at any other time, you will need to amend previous applications to reflect the change. Once your revenue reduction is calculated for each period, use the table below to determine if you meet the required monthly revenue loss.

When?	Period 1: March 15-April 11	Periods 2 - 4: April 12-July 4	Periods 5 - 10: July 5 – December 19	Periods 11 - 16: December 20-June 2021
What monthly revenue loss is required?	15%	30%	Any revenue reduction	TBD

An eligible employee must:

• Be employed in Canada; and
• For periods 1-4, have not gone 14 or more consecutive days without pay. This rule does not apply for Claim Period 5 and onwards.

The eligible employees described below can be included in your subsidy if they are/were:

• Laid off: eligible if you pay them retroactively in order to include them in the application for the CEWS claim period for which their pay was earned. Please note payroll penalties and interest may apply and that this may affect the eligibility of an employee’s participation in any income support programs such as CERB/CRB/EI.
• Hired after March 15th:
  • Arm’s-length: eligible if they are being paid within the CEWS claim period.
  • Non-arm’s-length: not eligible to be included in the CEWS.
• On a work-sharing agreement during the CEWS claim period: eligible after asking each participating employee what they are receiving from EI-workshare and subtracting this amount from your CEWS claim.
• On an EI leave from July 1, 2019 to March 15, 2020:
  • For claim periods 5 and onwards, if an employee was on EI from July 1, 2019 to March 15, 2020, they can be included in your subsidy claim by averaging their wage from the 90 days prior to their leave date and using this as their Pre-crisis pay period/Baseline Remuneration period.
• Non-arm’s-length: eligible to be included in your subsidy claim if they have an average weekly wage (also known as Pre-crisis pay or Baseline Remuneration) within any of the Baseline Remuneration periods below:

Baseline remuneration periods	Periods 1-3	Period 4	Periods 5-10
	Jan 1 - Mar 15, 2020, or Mar 1 - May 31, 2019	Jan 1 - Mar 15, 2020,  Mar 1 - May 31, 2019 or Mar 1 - Jun 30, 2019	Jan 1 - Mar 15, 2020, or Jul 1 - Dec 31, 2019

If the employee meets the above eligibility requirements you will have to determine whether your employee is at arm’s length, and whether they are on leave with pay, as the subsidy is calculated differently for each situation. Please see the below FAQ for more details.

Once you have determined that you meet the eligibility criteria, you can start calculating each period’s subsidy. Each claim period you apply for will have its own calculation. To maximize your CEWS, you must determine:

1. Which of your revenues are eligible for the CEWS
2. Your preferred accounting method (to be used for all periods) to reflect your impacted revenues:
   • Cash method- You can choose to show your revenue number by recording income as it is received and expenses as they are paid
   • Accrual method - recording income and expenses when they are billed earned
3. Your preferred approach to reflect your impacted revenues:
   • General approach – Compare the claim month’s revenues from 2020 over the revenues from the same month last year (2019)
   • Alternative approach – Compare the claim month’s revenues over the average revenues from Jan and Feb 2020
4. Which periods will you deem eligible. This will be based on the wages paid to eligible employees.

There is no maximum on the total amount of subsidy you receive, however, there is a limit on the amount of subsidy per employee. The maximum wages you can claim per employee is $1129/week.

Before using the calculator, you should prepare and have on hand the following:

• A direct deposit set up with CRA.
• Updated financial accounts for the last year and the current year. Determine what indicators prove that you deserve the subsidy. We strongly recommend that you consult your accountant for this step.
• Updated gross payroll information for each of your subsidy eligible employees.
• The amount of EI premiums and CPP contributions that you have paid on behalf of those employees.
• The amount you have deducted by using the 10% Temporary Wage Subsidy for employees (if applicable).
• The amount that you have received from ESDC's Work-Sharing program to pay your employees (if applicable).
• Calculate your subsidy amount using the CEWS calculator.

A revenue drop is the percentage of gross revenues lost in a month in comparison to a pre-COVID-19 reference period (known as a prior reference period).

Accounting

To calculate your gross revenues, you can choose between two accounting methods. You can choose to record your income as it is received and expenses as they are paid (Cash method) or you can choose to record income and expenses when they are billed (Accrual method). Once you have chosen your preferred accounting method, you will have to continue to use that same accounting method for all periods from 1 to 10. You can change from one accounting method to the other, but you will then have to change the accounting methods for all previous applications as well so you are best to choose one method and stick with it for all your CEWS applications.

Approach

To calculate your amount of revenue drop you will need to choose between the General approach (compares revenue of current month to same month in 2019) or the Alternative approach (compares revenue of current month to average revenue in January and February of 2020). See below for more details.

Whatever approach you use, you will have to continue to use that same approach for Periods 1 to 4. The only time you will be allowed to switch your approach from one to the other will be in Period 5, after which you will have to use that same approach for the rest of the CEWS periods.

As you can see, there are more calculations to make in the new periods. This is because the New CEWS percentage consists of a base CEWS percentage and a top-up CEWS percentage (if applicable).

Any revenue drop will make you eligible for the new base CEWS percentage and is based on a 1-month revenue comparison. A revenue drop of 50% or more will make you eligible for the Top-up CEWS percentage.

For periods 5-7: the top-up is based on a 3-month average revenue comparison.

For period 8 onwards: the top-up is calculated based on the revenue reduction of the claim month.

Both the Base CEWS percentage and the Top-up CEWS percentage are comprised of a revenue drop calculation that is multiplied by a specific amount set by the government called a multiplier. See Table 1.

Base %=(Base multiplier) X (Base revenue drop)

Top-up%=(Top-up multiplier) X (Top-up revenue drop - 50%)

Table 1: Subsidy multipliers by claim period

Base subsidy multiplier by period
Period	5 and 6	7	8	9	10	11
Dates	July 5 - Aug 29	Aug 30 - Sept 26	Sept 27 - Oct 24	Oct 25 - Nov 21	Nov 22 - Dec 19	Dec 20 – Jan 17
Base subsidy multiplier	1.2	1.0	0.8	0.8	0.8	0.8
Top-up subsidy multiplier	1.25					1.75

When determining the amount of subsidy for which you are eligible, start with calculating the top-up CEWS rate for each period.

For periods 5-7: if you have a revenue drop of less than 50% on average over the 3 previous months, you do not qualify for the top-up CEWS.

For period 8 onwards: the top-up will be based on the revenue reduction amount of the claim month.

Once you determine which approach works best for your business you can add both your base CEWS revenue drop percentage and top-up CEWS revenue drop percentage (which will be zero if your revenue drop is less than 50%) to determine your new CEWS percentage.

If you are in Period 5 or 6 you can use the Safe Harbour Rule to use the greater of the old or new revenue reduction percentage in your CEWS. To decide which is likely more beneficial for your business, compare your new CEWS percentage with the old CEWS percentage. If your revenue reduction is greater or equal to 30 % using the old calculations AND your new CEWS percentage (the sum of Base% + Top-up%) is less or equal to 75% for the claim period, then use the old CEWS calculations. This table shows the CEWS periods and the months with which you are comparing your revenues.

Deeming rule

Within the old CEWS rules, there is an option called the Deeming rule which allows businesses to apply for CEWS without needing to show CRA proof of having met a revenue drop in the current claim period if they qualified in the previous claim period. This rule can only be applied for the first 4 CEWS periods. It is important to note that even if you are deemed eligible for a period, you must apply for every period in order to receive funding.

This Deeming rule evolves in Period 5 and onwards as it was integrated into the revenue drop test. Instead of automatically qualifying for a future period, a business can elect to use their current OR prior month’s revenue to compare with the previous year to determine which would provide them with the highest amount of subsidy.

Eligible employees must be employed in Canada to be eligible for the wage subsidy. In addition, for periods 1 to 4 only, they cannot be without pay for 14 or more consecutive days within a CEWS period. This rule no longer applies from period 5 onwards.

You will then have to determine whether the employee is arm’s length or non-arm’s length (usually family members/owners), and if they are on a paid leave of absence or not. This chart may be helpful in navigating the complexities of which types of wage subsidy calculations apply in each circumstance.

Note: for period 7 onwards, the baseline remuneration (pre-crisis) pay is only required for employees who are on leave with pay, and employees who are non-arm's length.

The baseline remuneration is the average wage paid from a selected period prior to COVID-19. As shown below.

	Periods 1-3	Period 4	Periods 5-10
Baseline Remuneration Periods	Jan 1-Mar 15, 2020, or Mar 1-May 31, 2019	Jan 1-Mar 15, 2020, Mar 1-May 31, 2019, or Mar1-June 30, 2019	Jan 1- Mar 15, 2020, or Jul 1-Dec 31, 2019

To maximize your employee’s Baseline Remuneration, you will need to determine which baseline period gives your employee the greatest average wage. Although it adds work to your calculations, we do recommend that you use the best baseline remuneration period for each employee depending on their CEWS period. To do this:

1. Total all the remuneration paid to the employee during the selected Baseline Remuneration period.
2. Divide the total pay by the number of days in the selected baseline period, subtracting all days within any period of 7 or more consecutive days the employee was not paid for
3. Multiply the result by 7 to get the average weekly Baseline Remuneration.

These steps can be expressed using this equation.

The safe harbour rule allows businesses who would have been eligible for the 75% wage subsidy under the old CEWS rules, to still get a minimum of 75% under the new rules for periods 5 and 6 only.

So, an eligible employer with a revenue reduction of 30% or more in periods 5 and 6 will receive at least a 75% subsidy, or possibly more under the new rules if their revenue reduction is very high.

No, unfortunately this was not changed in the new rules. Eligible remuneration still needs to be recorded on a T4.

The CEWS is being processed at the payroll program (RP) account level, but an exception is being made for certain affiliated businesses or entities. Some affiliated and/or amalgamated businesses or entities will be able to consolidate or unconsolidate their revenues.

The CRA says businesses can choose to use the 10% TWSE or not. If they do choose to receive the TWSE, then they must declare it on their CEWS application.

If they do not choose to take advantage of it or are not eligible to the TWSE, then they can elect to input "0" in the area where it needs to be declared in the CEWS application.

All businesses eligible for the TWSE will have to fill out a PD27 form for their T4Summaries to be processed.

No, unfortunately there are no alternative prior referencing periods alternative to Jan/Feb.

In the new rules a business is allowed to elect to amalgamate with a predecessor as long as the main purpose of the amalgamation was not to cause the new corporation to qualify for the CEWS or increase their amount of the CEWS. These new rules will backdate to April 11, 2020 and allow a business to use their amalgamated corporation to calculate a benchmark revenue for the revenue decline test.

For Periods 1-10, all employers would be expected to at least make and provide proof of their best efforts to top up salaries to 100%. While topping up an employee’s salary is not a requirement for the CEWS, the business should take Provincial Employment Standards and common law practices into consideration before reducing their employees’ wages. Your province may see a reduction of wage as a constructive dismissal if not managed properly.

1. Use the 10% wage subsidy. Using the 10% wage subsidy will reduce the amount you will be able to receive from the wage subsidy.
2. Try applying for the wage subsidy anyways. This is no promise that you will receive the wage, but exceptions may be made if proper evidence is demonstrated. When the portal is available, be ready by having:
   1. Your financial books/ledgers/journals up to date
   2. Proof based on your finances to show that your business did have a decrease in cashflow/revenue/gross revenue
   3. Determine your payroll (i.e. this could be by requesting your T4Sum from CRA)
3. Appeal the decision by filing an objection after having received your notice of determination

The definition for arm's length can be found on CRA's website.

Simply put, a person at arm's length does not have a blood, trust or controlling relationship with the business entity. Persons not at arm's length can be more simply viewed as family, significant others, partnerships, or businesses where one partner has controlling interest/voting shares.

For example, an owner's daughter works for a business. She would be a "related person" not at arm's length. Whether the daughter's salary could be subsidized would depend on how her pay and decision making is structured within the business.

• Arm's length - Should the daughter be paid a salary reflected on a T4 and T4Sum, the business entity could subsidize her wage like other employees
• Not arm's length - Should the daughter not be considered an employee under CRA employer/employee rules, the business entity would not be able to subsidize her wage
• Should the daughter be hired after March 15th and given a salary that can be reflected on a T4 and T4Sum her wage would not be eligible for the subsidy. This would seem like the controlling partnership/family is creating a wage to subsidize.

 

These elections are CRA’s way of confirming if you are calculating your CEWS revenues differently from the revenues that you regularly submit to CRA.

If in your CEWS application, you chose to change your revenues in one (or more) of the below ways please ensure to check “Yes.” correctly in your CEWS elections. If you have not made any changes to your revenue, then please select no in your CEWS elections.

Elections	Simplified Election
a joint election, along with each other member of the group that prepares consolidated financial statements, under paragraph 125.7(4)(a) of the Income Tax Act (revenue determined on a non-consolidated basis for members of the employer's group)	Did you combine/separate your financial statements with other entities?
a joint election, along with each other member of the affiliated group, under paragraph 125.7(4)(b) of the Income Tax Act (revenue determined on a consolidated basis for the employer's group)
an election under paragraph 125.7(4)(c) of the Income Tax Act (joint venture election)	Is the entity a joint venture (by 2+ parties) and has its own revenues that are being used separately from the other parties?
a joint election, along with each person or partnership with which the employer does not deal at arm's length and from whom the employer earns all or substantially all of its qualifying revenue under paragraph 125.7(4)(d) of the Income Tax Act (non-arm's length revenue)	Is the revenue received in majority (CRA says 90%), from a non-arm’s length source?
an election under paragraph 125.7(4)(e) (i) of the Income Tax Act (cash method) an election under paragraph 125.7(4)(e) (ii) of the Income Tax Act (accrual method) NEW	Did you switch your accounting method? Cash method (recording income as it is received and expenses as they are paid) Accrual method (recording income and expenses when they are billed)
an election under subparagraph (b)(ii) of the definition "prior reference period" in subsection 125.7(1) of the Income Tax Act (prior reference period election)	Did you use the alternative approach (avg of Jan/Feb)?
an election under subparagraph (a)(ii) or (b)(ii) of the definition "qualifying revenue" in subsection 125.7(1) of the Income Tax Act (election by registered charity or not-for-profit to exclude government funding)	Are you a registered charity or non-for profit who decided to exclude government funding?
an election under paragraph 125.7 (1)(b) of the definition “baseline remuneration” of the Income Tax Act (baseline remuneration period election) NEW	Did you use a new baseline remuneration periods? March 1, 2019-May 31, 2019 March 1, 2019 – June 30, 2019 July 1, 2019 – December 31, 2019
A joint election between eligible entity and the seller of an asset, an election under paragraph 125.7 (4.1) (e) of the Income Tax Act (Asset sales). NEW - accountant recommended.	If you acquired a business or part of a business during the qualifying period (or before that) and it was: used by the seller in the course of a business in Canada, and Was not bought to increase your CEWS, If only part of the sellers business was acquired, then it was acquired from an arm’s length person You can use the sellers revenue attributable to the purchased assets in calculating your CERS revenue Drop.