75% Canada Emergency Wage Subsidy (CEWS): Does Your Business Qualify?

A $73 billion Canada Emergency Wage Subsidy (CEWS) program has been green-lit by Canadian lawmakers in early April of 2020. 

There has never been a sweeping wage subsidy offered before in Canada’s history, so it’s important to understand how it works.

What is the CEWS? Who qualifies for the CEWS? How much CEWS payments can you receive? Get the answer to these questions and more below. 

1 out of 4 workers – over 5 million Canadians – have applied for emergency income support as of April 11, 2020

What is the Canada Emergency Wage Subsidy (CEWS)?

The CEWS provides a wage subsidy to employers that qualify for it. Here are some quick facts about the program:

• Amount of subsidy: Up to 75% wage subsidy
• Length of time: 12-week subsidy
• Date implemented: Retroactive to March 15, 2020

Why the CEWS was passed: 

• To help to keep employers afloat during the COVID-19 crisis. 
• To Help prevent job losses
• Encourage employers to re-hire workers previously laid off as a result of the coronavirus
• Help position Canadian employers to resume normal operations after the crisis eases. 

Note that the CEWS is for Employers to apply for. If you’re an employee who lost their job and needs help, read about the Canada Emergency Response Benefit (CERB) here.

Who qualifies for the CEWS?

Employers must see a drop of at least 15% of revenues in March 2020, and 30% for the following months.

Employers that Qualify for CEWS

• Individuals
• Taxable corporations
• Eligible employers
• Non-profit organizations
• Registered charities

Employers Not Qualified for CEWS:

Public bodies such as:

• Municipalities
• Local governments
• Crown corporations
• Wholly-owned municipal corporations
• Public universities
• Colleges
• Schools
• Hospitals

Employees that Qualify under CEWS for Eligible Employers to Claim

• Individual who is employed in Canada
• Must be without income for 14 or more consecutive days in the eligibility periods: 
  • CEWS Period 1: March 15 – April 11
  • CEWS Period 2: April 12 – May 9
  • CEWS Period 3: May 10 – June 6

How Much CEWS Payment Can You Get?

• 75% of the amount of wage paid up to a maximum benefit of $847 per week
• Employers expected where possible to maintain existing employees’ pre-crisis employment earnings
• The pre-crisis wage for a given employee. This wage is calculated based on the average weekly wage paid between January 1 and March 15 of the employee and excludes a 7 day period where the employee did not receive any wage.

Eligible payments include:

• Salary
• Wages
• Taxable benefits

Non-eligible payments are:

• Severance pay
• Stock option benefits
• Use of a corporate vehicle 

Important notes

• No overall limit on subsidy amount that eligible employer can claim
• Employers expected to make their best efforts to top-up employees salaries to normal pre-COVID-19 crisis levels

Refund for Payroll Contributions

100% refund for employer-paid contributions to:

• Employment insurance (EI)
• Canada Pension Plan (CPP)
• Quebec Pension Plan (QPP)
• Quebec Parental Insurance Plan (QPIP)

These payroll refunds are not limited to the $847 max benefit CEWS described above. It’s an added bonus to the program, and the refunds can be quite significant (See example section below)

Calculating If You’re Eligible For CEWS Payments

The calculations can get a bit complex:

Revenue Calculations

• Must be revenue earned from arm’s length sources
• Revenue calculated using the employer’s normal account methods
• Excludes revenues from extraordinary items and amounts on account of capital
• Allowed to calculate revenues under the accrual method or the cash method, but not a combination of the two methods.
• For registered charities and non-profits, the calculation includes most forms of revenue and also excludes non-arm’s length persons. Can choose whether or not to include revenue from government sources as part of calculations. 

Are You Eligible? 

The government has taken a more flexible approach and have provided employers with either two or three different ways they can be eligible for the CEWS in regards to their revenue decrease:

1. If your business revenue is less than 15% for CEWS Period 1 in 2020 compared to  2019, or 30% for CEWS Period 2 and CEWS Period 3 in 2020 compared to 2019, you are eligible
2. If your business revenue is less than the average of January and February 2020 revenue, you are eligible
3. If you are eligible for period 1, you’re eligible for period 2 automatically. If you’re eligible for period 2, you’re eligible for period 3 automatically. 

Note that once you choose an option to be eligible for the CEWS, you have to stick with that option going forward.

Here’s a summary of the ways you can be eligible based on your revenue (If your business is eligible)

CEWS Period 1

Example 1 for Period 1: Robert owns a business. His revenues in March 2020 were down over 15% compared to March 2019. His revenues were also down over 15% compared to the January and February 2020 average. In both instances, Robert is eligible for the wage subsidy for his business for period 1.

CEWS Period 2

Example 2 For Period 2: Michelle owns a business. Her revenues in April 2020 were down over 15% compared to April 2019. Her revenues were also down over 15% compared to the January and February 2020 average. She also was eligible for the CEWS in period one. In all three scenarios, Michelle is eligible for the wage subsidy for her business for period two.

CEWS Period 3

Example 3 For Period 3: Jamie owns a business. Her revenues in May 2020 were down over 15% compared to May 2019. Her revenues were also down over 15% compared to the January and February 2020 average. She also was eligible for the CEWS in period two. In all three scenarios, Michelle is eligible for the wage subsidy for her business for period three. 

How You Can Apply For CEWS

If you’re an eligible employer, you can apply for the CEWS by going to CRA’s My Business Account portal found here.

You will need to provide records showing your reduction in revenues for your business, and wages and payroll payments made to employees.

Note that there are serious penalties for fraudulent applications or revenue manipulations, so make sure you fill out your information accurately. 

CEWS Full Example 

Josephine and Fred own a business that operates an auto servicing shop in Edmonton, Alberta. They both work full time and draw a salary of $2,000 per week. They have three full-time employees, each earning $1,000 per week, for a total weekly payroll of $7,000. 

Times have been tough and revenue has reduced greatly, by more than 40% from the same month last year.

They were going to lay off their employees, but they have now decided not to after the announcement of the Canada Emergency Wage Subsidy (CEWS)

Because Josephine and Fred run an eligible business and the decrease in revenue meets the eligibility criteria, they qualify for the CEWS. Each employee will earn $750/week, or 75% of their salary.

Josephine and Fred would be eligible for a weekly wage subsidy of $847, the maximum allowable, each, plus $750/week for each employee. The total weekly wage subsidy would be $3,097/week. They would also be eligible for a 100% refund of their employer-paid contributions to EI and the CPP for their employees. 

CEWS FAQ

Is the CEWS payment taxable income?

For the employee, yes the wage paid to them will still be taxable income.

Can I get both this and the 10% Wage Subsidy?

If you are receiving the 10% wage subsidy from the March 25 COVID-19 Emergency Response Act, you will have that amount deducted from your CEWS payments for that same period. 

What is a non-arms length transaction for revenue?

In order for your revenue decrease to be eligible for CEWS, it must be a non-arms length transaction. This means the parties must be independent of each other.

Conclusion

The CEWS is a lifeline for struggling employers, and is an excellent program that will help many businesses get through COVID-19. 

If you’re an individual who lost their job, read about if you qualify for the Canada Emergency Response Benefit (CERB) here.

There is also the one-time special GST/HST credit this year that lower-medium income families will receive, which you can read about if you qualify here.