April 7, 2020

Informational Circular for Businesses and Employers – Government Programs to combat challenges during the COVID 19 crisis

Updated as of January 25, 2021.

In response to the economic hardships caused by the outbreak of COVID-19, the government of Canada has passed legislation that establishes two wage subsidy programs that are aimed at assisting eligible employers, as well as certain measures to alleviate the pressures that businesses and employers are experiencing. Some of those measures were highlighted in an article prepared by Louis Sokolov and Tassia Poynter of our firm as of March 19, 2020. An updated summary of the subsidies and the measures released to date is set out below.

Sotos LLP will continue to monitor government announcements and we will update and circulate this Informational Circular as warranted.

  1. The Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (the “CEWS”) provides a subsidy of 75% of eligible remuneration that is paid by any eligible employer to each eligible employee, up to a maximum of $847 per week. The subsidy is intended to help eligible employers re-hire workers, prevent further job losses and ease back into normal operations.[1]

The CEWS was initially available for three 4 week periods from March 15, 2020 to June 6, 2020, and has been extended to June 30, 2021.

Eligible employers include individuals, trusts, taxable corporations and partnerships (consisting of 50% or more eligible employers), as well as non-profit organizations, registered charities and certain indigenous government-owned corporations.  Further, to be eligible, employers must have had a Canada Revenue Agency (“CRA”) payroll account on March 15, 2020 and have experienced a revenue drop. The amount of subsidy per employee is based on the size of the employer’s revenue drop.

For the purposes of the CEWS, an employer’s qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of its ordinary activities in Canada in a particular period.  Employers may calculate their revenues under either the accrual method or the cash method, but not a combination of both, and must use the same accounting method for all claims.

As of claim period 5 (July 5 to November 21, 2020), there is no minimum revenue drop required to qualify for the subsidy.  The rate that an employer’s revenue has dropped is only used to calculate how much subsidy they will receive for each period.  The federal government’s CEWS webpage provides an online calculator to establish the employer’s revenue drop for periods 5 and later while also calculating the amount of subsidy.

Subsidy rates vary, depending on how much the employer’s revenue has dropped.  Employers whose revenue dropped less than 30% can still qualify and also keep getting the subsidy as their employees return to work and their revenue improves.

As of claim period 5, there is also increased flexibility in how employers calculate their revenue drop.  Employers can use the current period’s revenue drop, or the previous period – whichever works most in their favour.  Even if the employer’s revenue has not dropped for the claim period, they can still qualify if their average revenue over the previous three months dropped by more than 50%.  Further, employees who were unpaid for 14 or more days may be included in the calculation.

Beginning in period 8 (September 27 to October 24), the top-up rate and base rate are calculated using the same one-month revenue drop.

Eligible remuneration can include salary, wages and other remuneration such as taxable benefits.  It does not include severance pay, or other items such as stock options.

For claim periods 1 to 4, employers must have demonstrated that their eligible revenue dropped by a minimum amount in order qualify for the subsidy, in which case the subsidy calculation used a fixed rate of 75%.  An employer’s revenue drop for a claim period is calculated by comparing the employer’s eligible revenue for the claim period month to the eligible revenue from a corresponding previous period.

The claim period is the period for which an eligible employer can claim the wage subsidy for remuneration paid to eligible employees.

The current reference period is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable prior reference period, to determine its revenue reduction.

The prior reference period, with respect to a claim period, is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable current reference period, to determine its revenue reduction. The applicable prior reference period in respect of a claim period will depend on the approach the eligible employer chooses to compare its revenue.

PeriodClaim PeriodCurrent Reference PeriodBaseline RevenueRequired Drop
1March 15 to April 11, 2020March 2020March 2019
or
average of January and February 2020
15%
2April 12 to May 9, 2020April 2020April 2019
or
average of January and February 2020
30%
3May 10 to June 6, 2020 May 2020May 2019
or
average of January and February 2020
30%
4June 7 to July 4, 2020June 2020June 2019
or
average of January and February 2020
30%
5July 5 to August 1, 2020July 2020General prior reference period (current or previous) *

July 2020 over July 2019

or

June 2020 over June 2019

Alternative prior reference period (current or previous)

July 2020 over average of January and February 2020

or

June 2020 over average of January and February 2020

No minimum
6August 2 to August 29, 2020August 2020General prior reference period (current or previous)

           

August 2020 over August 2019

or

July 2020 over July 2019

 

Alternative prior reference period (current or previous)

August 2020 over average of January and February 2020

or

July 2020 over average of January and February 2020

No minimum
7August 30 to September 26, 2020September 2020General prior reference period (current or previous)

September 2020 over September 2019

or

August 2020 over August 2019

 

Alternative prior reference period (current or previous)

September 2020 over average of January and February 2020

or

August 2020 over average of January and February 2020

No minimum
8September 27 to October 24, 2020October 2020General prior reference period (current or previous)

October 2020 over October 2019

or

September 2020 over September 2019

 

Alternative prior reference period (current or previous)

October 2020 over average of January and February 2020

or

September 2020 over average of January and February 2020

No minimum
9October 25 to November 21, 2020November 2020General prior reference period (current or previous)

November 2020 over November 2019

or

October 2020 over October 2019

 

Alternative prior reference period (current or previous)

November 2020 over average of January and February 2020

or

October 2020 over average of January and February 2020

No minimum
10November 22 to December 19, 2020December 2020General prior reference period (current or previous)

December 2020 over December 2019

or

November 2020 over November 2019

Alternative prior reference period (current or previous)

December 2020 over average of January and February 2020

or

November 2020 over average of January and February 2020

No minimum

[2]

* For claim periods 5 and later, applicants will calculate 2 revenue drops and use the higher result in their base rate calculation.  The baseline revenue is determined by the prior reference period that they choose – either General prior reference period (the eligible revenue earned in the corresponding month(s) in 2019), or Alternative prior reference period (the average of the eligible revenue earned in January and February, 2020).

For claims periods 1 to 4, an eligible employer must use the alternative approach if:

  • on March 1, 2019, the eligible employer was not carrying on a business or otherwise carrying on its ordinary activities, or
  • the eligible employer elects to use January and February 2020 as the prior reference period for all four of those claim periods.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 1 to 4.

For claim periods 5 to 10, where the eligible employer is using the general approach for the claim periods 1 to 4, it can continue to use the same approach for all of claim periods 5 to 10, or it can elect to apply the alternative approach for all of the claim periods 5 to 10. Where the eligible employer is using the alternative approach for the claim periods 1 to 4, it can elect to continue to use the alternative approach for all of the claim periods 5 to 10, or it can apply the general approach for all of the claim periods 5 to 10.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 5 to 10.

Top-Up

If employers were hit especially hard by the COVID-19 crisis, they can qualify for an additional top-up subsidy, based on their average drop for the previous 3 months, as follows:

(1) If the employer’s revenue has dropped by 70% or more over a three month span, they can qualify for the maximum 25% top-up.

(2) If the employer’s revenue has dropped by 50-69% over a three month span, they can qualify for a top-up that is 1.25 times their revenue drop percentage minus 50%.

Please note that for claim periods 1 to 4, employers cannot include employees who had 14 or more consecutive unpaid days in the period.

For periods 8, 9 and 10, the maximum weekly benefit per employee is $734.  The top-up rate is based on the higher revenue drop between either (1) the one-month revenue drop of the claim period month used to calculate the base rate; or (2) the average revenue drop of the three months prior to the claim period month.  Subsidy rates will be the same each period.

Revenue DropBase RateTop-Up Rate
70% or more40%25%
50% to 69.99%40%1.25 x (revenue drop – 50%)
0% to 49.99%0.8% x revenue drop0%

 

The program also offers a 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan.  These refunds would apply in respect of remuneration paid to furloughed employees in respect of weeks of a period where the employer is eligible for CEWS.

Applications for claim periods 1 to 10 are now open. Employers must apply for the CEWS through the CRA My Business Account portal or through the Web Forms application using their web access code.

  1. Temporary Wage Subsidy

Organizations that do not qualify for the CEWS may still qualify for the Temporary Wage Subsidy (“TWS”).  The TWS is a three month subsidy that allows eligible employers to reduce the amount of payroll deductions they need to remit to the CRA.  It is equal to 10% of the remuneration paid from March 18 to before June 20, 2020, up to a maximum of $1,375 per employee and $25,000 per employer.  Those employers that are eligible for this measure are individuals (excluding trusts), partnerships[3] non-profit organizations, registered charities and Canadian-controlled private corporations that are eligible for the small business deduction.  Businesses that are eligible for this support can benefit by reducing their remittances of income tax withheld on their employees’ remuneration.[4]

For employers that are eligible for both the CEWS and TWS, any benefit from the TWS paid in a specific period will reduce the amount available to be claimed under the CEWS in that same period.  If employers are eligible for the TWS, but only want to participate in the CEWS, they are able to make a special election for the TWS to be equal to 0% of the paid remuneration.

  1. Business Credit Availability Program (“BCAP”)

BCAP was introduced by the federal government to provide $65 billion of additional support through the Business Development Bank of Canada (“BDC”) and Export Development Canada (“EDC”).

The EDC Loan Guarantee for Small and Medium-Sized Enterprises allows financial institutions to issue operating credit and cash flow term loans of up to $6.25M to existing clients with 80% of the loans guaranteed by the EDC.  These loans are intended to be used for operational expenses and not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt.  Businesses from all sectors that were otherwise financially viable and revenue generating prior to the outbreak of COVID-19 are eligible to apply.  This program is now available at various financial institutions, including credit unions.[5]

The BDC Co-Lending Program for Small and Medium Enterprises provides term loans for both the operational and liquidity needs of businesses.  The loans may be used to make interest payments on existing debt. This program is available to businesses that were financially viable and revenue-generating prior to the COVID-19 outbreak. These loans are available in amounts between $1M and $12.5M, depending on the revenues of a business.[6]

The BDC’s Mid-Market Financing Program provides junior loans between $12.5M and $60M to medium-sized businesses (with annual revenues in excess of $100 million to $500 million) that have been particularly impacted by the COVID-19 pandemic and/or the recent decline in oil and gas prices.  This support is available until June, 2021 and is provided jointly by BDC and the business’ primary financial institution.[7]

For additional information on any of the BCAP programs or to apply, businesses should contact their primary lender, by phone or email, where they have a pre-existing relationship.[8]

  1. Increased Access to Employment Insurance and Recovery Benefits

On August 20, 2020, the federal government announced that it would extend the Canada Emergency Response Benefit (“CERB”) into September, before it transitioned into a simplified Employment Insurance program (“EI”) as of September 27, 2020.

In order to qualify, individuals need to have completed a minimum of 120 hours of work in the last 52 weeks.  Qualified individuals receive a one-time insurable hours credit of (1) 300 insurable hours for claims for regular benefits (job loss) and (2) 480 insurable hours for claims for special benefits (sickness, maternity/paternity leave, compassionate care or family caregiver).  Applicants receive between a minimum $500 per week, and maximum $573 per week, depending on past earnings.

The unemployment rate in the region in which a claimant resides determines the number of hours of insurable employment the claimant needs to have accumulated in their qualifying period to be eligible for EI regular benefits, the number of weeks of EI regular benefits the claimant may be entitled to, and the number of best weeks of earnings that will be used to establish their weekly benefit rate.  The government uses a minimum unemployment rate of 13.1% for all EI economic regions in order to lower the hours required to qualify for EI regular benefits.  The government has also frozen the EI premium rate for employees at $1.58 per $100 of insurable earnings for two years.

The government also introduced a further  three recovery benefits:

  1. Canada Recovery Benefit

Effective as of September 27, 2020, for one year, the Canada Recovery Benefit provides $500 per week for up to 26 weeks for workers who are not eligible for EI – mainly individuals who are self-employed, and including individuals who work in the gig economy (independent contractors, contract workers, on-call workers and temporary workers).  Claimants can continue to earn income from employment while receiving this benefit as long as they continue to meet the following requirements:

  • be at least 15 years of age and have a valid Social Insurance Number (“SIN”);
  • were not employed or self-employed for reasons related to COVID-19; or had a 50% reduction in average weekly income compared to the previous year due to COVID-19;
  • be ineligible for EI;
  • reside and were present in Canada;
  • have had employment and/or self-employment income of at least $5,000 in 2019 or in 2020; and
  • have not quit their job or reduced their hours voluntarily on or after September 27, 2020, unless it was reasonable to do so.

It is important to note that claimants will need to repay some or all of the benefit through their income tax return if their annual net income, excluding the Canada Recovery Benefit payment, is over $38,000.  Further, applicants cannot apply for or receive any of the following: Canada Recovery Sickness Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits or Quebec Parental Insurance Plan benefits.[9]

  1. Canada Recovery Sickness Benefit

The Canada Recovery Sickness Benefit provides $500 per week for up to 2 weeks, for one year as of September 27, 2020, for workers who are unable to work at least 50% of the week because they are sick, must self-isolate due to the outbreak of COVID-19, or have any underlying conditions that, in the opinion of a medical practitioner, would make them susceptible to COVID-19.

In order to be eligible, workers need:

  • to be a resident of Canada who is at least 15 years of age and has a valid SIN;
  • to be employed or self-employed at the time of the application; and
  • to have earned at least $5,000 in 2019 or 2020.

Workers will also need to have missed a minimum of 60% of their scheduled work in the week for which they claim the benefit, and cannot also claim other paid sick leave for that period. Further, applicants cannot apply for or receive any of the following: Canada Recovery Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[10]

  1. Canada Recovery Caregiving Benefit

The new Canada Recovery Caregiver Benefit provides $500 per week, for up to 26 weeks, per household to eligible individuals.  In order to be eligible, individuals need to be residents of Canada, at least 15 years of age on the first day of the period for which they apply for the benefit, have a valid SIN, and

  • be employed or self-employed on the day immediately preceding the period for which the application is made;
  • have earned at least $5,000 in 2019 or 2020; and
  • have been unable to work at least 50% of their normally scheduled work within a given week because of any of the following reasons:
    • they are caring for their child who is under 12 years old or a family member who needs supervised care because they are at home for one of the following reasons:
      • Their school, daycare, day program, or care facility is closed or unavailable to them due to COVID-19; or
      • Their regular care services are unavailable due to COVID-19; or
      • The person under their care is (1) sick with COVID-19 or has symptoms of COVID-19; (2) at risk of serious health complications if they get COVID-19, as advised by a medical professional; or (3) self-isolating due to COVID-19.

Further, applicants cannot be receiving paid leave from an employer for the same week, or be in receipt of another form of government assistance including: Canada Recovery Benefit, Canada Recovery Sickness Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[11]

  1. The Canada Emergency Business Account

The Canada Emergency Business Account (“CEBA”) provides interest-free loans of up to $60,000 to small businesses and not-for-profits.  Applicants who have received the original $40,000 CEBA loan may apply for $20,000 in additional financing.  All applicants have until March 31, 2021 to apply for the $60,000 CEBA loan or the $20,000 expansion.  Half of this additional financing will be forgivable if repaid by December 31, 2022.[12]

Eligible applicants must meet the following criteria:

  • Have an active CRA Business Number with an effective date of registration on or prior to March 1, 2020;
  • Have an active business chequing/operating account with the lender at the time of applying for CEBA, or create a business chequing/operating account at their primary financial institution before applying;
  • Have not previously used CEBA and must not apply for support under CEBA from any other financial institution; and
  • Intend to continue to operate its business or to resume operations.

The application process follows one of two streams: (1) the Payroll Stream, and (2) the Non-Deferrable Expense Stream.

The Payroll Stream is for applicants with employment income paid in the 2019 calendar year between $20,000 and $1,500,000.  The Non-Deferrable Expenses Stream is for applicants with $20,000 or less in total employment income paid in the 2019 calendar year.  The application process differs for each stream.

These loans have 0% interest and require no minimum monthly principal payments until December 31, 2022.  There is also a $10,000 loan forgiveness available provided that the outstanding balance is fully paid on or before December 31, 2022.[13]

  1. Economic Assistance Measures for Businesses and Employers

As part of Canada’s COVID-19 Economic Response plan, the government has announced other economic measures aimed at assisting businesses that include:

  • The CRA extended the payment due date for 2019 individual tax returns and 2019 or 2020 corporation or trust returns, as well as for instalments payments, to September 30, 2020.
  • The government has extended the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks.  Note that for employers and employees that are participating in a Work-Sharing program, employment insurance benefits received by employees through the program would reduce the benefit that the employer can receive under the CEWS.
  • The federal government is providing $1.5 billion through the Regional Relief and Recovery Fund (“RRRF”) to assist businesses and organizations in sectors such as manufacturing, technology and tourism that are important to local economies.  The fund is specially targeted for those businesses and organizations that require assistance to recover from the effects of the COVID-19 pandemic, but have been unable to access other support measures.
  • The Northern Business Relief Fund (“NBRF”) provides a non-repayable grant to small and medium-sized territorial businesses that were economically impacted by COVID-19 to help with ongoing operational costs.  The non-repayable grants range from $2,500 to a maximum of $100,000 and cover a maximum period of 4 months, retroactive to April 1, 2020.[14]
  • The Large Employer Emergency Financing Facility (“LEEFF”) is administered by the Canada Enterprise Emergency Funding Corporation and is open to large Canadian employers who:
  1. have a significant impact on Canada’s economy demonstrated by (i) having significant operations in Canada or (ii) supporting a significant workforce in Canada;
  2. can generally demonstrate approximately $300M or more in annual revenues; and
  3. require a minimum loan size of “about” $60M.[15]

LEEFF provides bridge financing to Canada’s largest employers when conventional financing is unavailable or insufficient.

  • The government has extended time periods for temporary layoffs by up to six months in the Canada Labour Standards Regulations to allow employers more time to recall laid-off employees.  For employees laid off prior to March 31, 2020, the time period is extended by six months or to December 30, 2020, whichever comes first.  For employees laid off between March 31, 2020 and September 30, 2020, the time period is extended until December 30, 2020, unless a later recall date was provided in a written notice at the time of the layoff.[16]

 

At Sotos LLP, our team of experts has been advising businesses in the automotive, restaurant, grocery, personal, home and professional services, hotel, retail and cannabis sectors as they face challenging economic and financial issues relating to the current pandemic. Please contact us if you wish to discuss your eligibility for any of the government assistance programs, and to determine an effective approach to combatting business challenges caused by the outbreak of COVID-19.

 


 

[1] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html
[2] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-who-apply.html, https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-how-revenue-drop-subsidy-rate-calculated.html#basedrop
[3] Note that partnerships are only eligible if members of the partnership consist exclusively of individuals, registered charities, or Canadian-controlled private corporations eligible for the small business deduction.
[4] https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2020/april/temporary-wage-subsidy
[5] https://www.edc.ca/en/solutions/working-capital/bcap-guarantee.html
[6] https://www.bdc.ca/en/pages/co-lending-program.aspx
[7] https://www.bdc.ca/en/pages/mid-market-financing-program.aspx
[8]https://www.canada.ca/en/department-finance/programs/financial-sector-policy/business-credit-availability-program.html
[9] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-benefit/crb-who-apply.html
[10] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-sickness-benefit/crsb-who-apply.html
[11] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-caregiving-benefit/crcb-who-apply.html
[12] https://ceba-cuec.ca/
[13] https://ceba-cuec.ca/
[14] https://www.cannor.gc.ca/eng/1587153226618/1587153246025
[15] https://www.cdev.gc.ca/home-ceefc/
[16] https://www.canada.ca/en/employment-social-development/news/2020/06/the-government-of-canada-temporarily-extends-time-periods-given-to-employers-to-recall-employees-laid-off-due-to-the-covid-19-pandemic.html