CLIENT UPDATE April 27, 2020 Another Update to the Canada Emergency Wage Subsidy

We are contacting you today to provide yet another update on the 75% enhanced Canada Emergency Wage Subsidy (CEWS). Given the number of updates to the measure over the last several weeks, this update will first provide the newest information and then provide a detailed consolidated summary of the program. 


Over the weekend, the Canada Revenue Agency clarified two areas of uncertainty:

  1. How CEWS can be claimed retroactively for employees that were laid off during the first part of the eligibility period; and
  2. Confirming that employers must reduce the amount of the CEWS subsidy by the amount of the 10% Temporary Wage Subsidy (TWS) they were eligible for, even it was not claimed. 

Retroactive Eligibility for Laid Off Employees

Throughout the roll-out of the subsidy, the government has been indicating it is their intention to make the program retroactive and to have employers rehire employees who were laid off. Unfortunately, it was not clear how that would work as employees are not eligible for a CEWS subsidy if they were unpaid for a 14-day period in the applicable period.  

On the CEWS website, the CRA indicates that employers may be eligible for the CEWS retroactively in respect of laid-off or furloughed employees if they are rehired and paid for the period they were laid off. If it is your intention to rehire employees and pay wages for the period they were laid off, applications for CEWS should be deferred until that payment has been made in order to include them in the calculation for the subsidy for that period.

If an employee is rehired and paid retroactively, this could impact the employee’s entitlement to the CERB, and they may be required to repay it.

Interaction with TWS

The CRA’s website now clearly states that an employer must reduce the CEWS subsidy by the eligible amount for the 10% Temporary Wage Subsidy for the period, even if the employer did not reduce their related payroll remittances by that amount.

Businesses that decided not to claim the TWS in anticipation of CEWS will still be able to claim the TWS for the prior periods either on their next payroll remittance or later in the year. Information on the TWS can be found on CRA’s website. As such, the maximum combined wage subsidies should not be affected but there may be a postponement of the entire benefit in many cases.


The specific details of the program we have available at this point in time are as follows:


Eligible employers are individuals, taxable corporations, and partnerships consisting of eligible employers as well as non‑profit organizations and registered charities. These employers must have experienced a 15% drop in revenue in March to be eligible for the first claim period and a 30% drop in revenue for April and May for subsequent periods. This can now be measured against the prior year or the average revenue of January and February 2020. If an employer qualifies for a particular period, they automatically qualify for the immediate subsequent period without having to meet the revenue test for that period.  

Public bodies such as municipalities, universities, hospitals and schools would not be eligible for this subsidy. 

Employers that do not qualify for CEWS may still qualify for the 10% TWS subsidy.


To start, revenue is only revenue from arm’s length sources. Further, the revenue must be determined using the employer’s normal accounting method, or the cash method, and excludes revenue from extraordinary items. The cash method of accounting allows businesses to qualify if they are still earning revenue but are not able to collect it due to the COVID crisis. Once the cash or accrual method has been chosen, it must be used consistently.

Non-profit organizations and charities will also exclude non-arm’s length revenue and have the option of also excluding government funding from revenue.

To determine whether or not there has been a decrease in the revenue for a “claiming period” as defined below, that month’s revenue will be compared to either the same month in the previous year or the average revenue for January and February 2020. The table below outlines each “claiming period” and the periods to compare to see if an employer is eligible for the subsidy:

For example, if revenues in March 2020 were down 20% compared to March 2019, the employer would be allowed to claim the Canadian Emergency Wage Subsidy (as calculated above) on remuneration paid between March 15 and April 11, 2020. In addition, the immediately subsequent period (April 12 to May 9, 2020) would also qualify.

Corporate Groups and Revenue from Related Parties

Special rules apply for companies to alleviate the requirement to have a change in arm’s length revenue. The absence of such rules could have eliminated many employers from the CEWS simply due to how their business organization is structured. The legislation allows for the following potential relief.

First, a group of affiliated entities is allowed to elect to calculate consolidated revenue and each employer in the group may utilize the consolidated amounts for the revenue test. This will assist groups where the loss in revenue may not be in the company that has the employees or where some companies in a group are more affected than others. Conversely, those companies in groups that only determine revenue on a consolidated basis will be allowed to separate them. In either case, all employers in a group must use the same method. 

Second, where all or substantially all of an employer’s revenue is from other non-arm’s length entities the rule generally allows the entity to determine its decline in revenue based on the decline in arm’s length revenue experienced by non-arm’s length entities from which it earned revenue. This will be useful for organizations that separate the payroll from the revenue generating activities such as a management company structure. This provision requires the revenue generating company to use worldwide revenues rather than Canadian revenues to see if there has been a reduction. 

For example, if a manufacturer sells all of its products to a related company, Salesco, and Salesco in turn sells to arm’s length parties, the manufacturer would be allowed to determine its revenue decline based on the decline in Salesco’s arm’s length revenue.

Lastly, the legislation provides special rules for joint ventures and partnerships.


Employees are eligible if they are employed in Canada.  Furthermore, an eligible employee must not have been without remuneration for more than 14 days in an eligibility period unless they have been subsequently re-hired and paid their retroactive wages for the period they were laid off. 

This replaced the initial restriction that an employee is not eligible for a CEWS subsidy if they are also claiming the Canadian Emergency Response Benefit (CERB).

The government has made it clear that they want employers to pay employee 100% of their pre-crisis wage if it is possible.


The Per Employee Amount

The subsidy amount for an employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of X and Y:

X = The least of the following:

  1. 75% of eligible remuneration in respect of a week (i.e. actual pay)
  2. $847, or
  3. $0 – if the employee is a non-arm’s length employee 

Y = The least of the following:

  1. Eligible remuneration in respect of a week (i.e. actual pay)
  2. 75% of Baseline Remuneration 
  3. $847

In simpler terms, for arm’s length employees, the subsidy will be based on remuneration actually paid in respect of the relevant period.  The phrase “in respect of” should mean that the calculation is based on whether the employee has been paid for that period rather than being paid in that period. Employers cannot defer payment of wages until after the subsidy is applied for or received.

Eligible wages do not include severance pay and certain benefits like stock options and vehicles.

“Baseline Remuneration” is the average weekly remuneration paid in the period from January 1 to March 15, 2020, excluding any seven day period the employee did not receive remuneration.  For new arm’s length employees that do not have a pre-crisis wage, their subsidy will be based on the amounts actually paid. 

In addition, for non-arm’s length employees such as majority shareholders and their families, the subsidy will be limited based on amounts paid in the January 1 to March 15, 2020 period. As such, business owners and family members that were solely paid by way of dividends or an annual bonus that was paid outside the January 1 to March 15, 2020 period are not eligible for the subsidy.

There is no per-employer limit for this subsidy like the $25,000 limit for the 10% subsidy.

Additional Amount for Employees on Paid Leave

For payments to employees on a paid leave, an additional refund of is available of 100% refund of employer-paid contributions to certain Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay.

In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for an entire week but does not work in that week. We understand that an employee using vacation time can meet this test.

This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS.

Employers would still be required to continue to collect and remit employer and employee contributions to each program and then apply for a refund when they apply for the CEWS.

Reduction for Temporary Wage Subsidy

Businesses that are or were eligible to claim the 10% Temporary Wage Subsidy (TWS) must reduce any claims for CEWS by the TWS amount they are eligible for, whether or not it has been claimed. Businesses that decided not to claim the TWS in anticipation of CEWS will still be able to claim the TWS either on their next payroll remittance or later in the year. Information on the TWS can be found on CRA’s website.

Reduction for EI Work Sharing Program

Under the EI program, work sharing allows employees that have reduced hours to receive some compensation from EI if certain procedures are followed. This program has been temporarily expanded from a maximum 38 weeks to 76 weeks for employers affected by COVID-19. An employer’s CEWS subsidy will be reduced by the amount of any EI received by the employee under the work sharing program.


The application process became available on Monday, April 27, 2020 at 6:00 a.m. Employers will be able to apply using their CRA My Business Account portal or a separate online application form that will be available. Those looking to apply will need to obtain an online Web access code to use the application form. We are also able to submit the authorized application behalf of our clients.

A separate application for each “RP” payroll account will be required. The initial applications received from April 27 to May 3, 2020 will be processed together at the same time on May 4th so there is still time to apply prior to May 3rd.

The individual with primary responsibility for the financial activities of the employer will need to attest to the completeness and accuracy of each application using this form. In many cases, this individual would be the chief financial officer of the entity. This is a stricter requirement than most other tax filings, where any authorized person of the taxpayer can sign.

Most businesses will have their application approved using an automated process and can expect to receive payment via direct deposit on May 6 or May 7, 2020. The CRA estimates that 10% of businesses that apply for the CEWS will require manual verification and payment will be delayed. Manual verification will be required for companies with payroll information substantially different from CRA’s records, companies with sales of more than $250 million and claims for a “large sum”.

Before applying, applicants will need to calculate the estimated subsidy. An online calculator is available to help businesses determine what the CEWS will cover, and to simplify the application process. Businesses that go through the process of using the calculator will be able to print out the resulting information and use the printout to help expedite the online application process. The calculator is on the CRA’s CEWS information page. Our previous bulletins about how to determine eligibility for and the amount of the CEWS can be found on our website.


Like most other government assistance, the subsidy is a taxable income for the employer.  It will also reduce the amount of an employee’s wage that is eligible for other tax credits such as SR&ED and apprenticeship credits.


Employers would be required to repay amounts paid under the Canada Emergency Wage Subsidy if they do not meet the eligibility requirements. Penalties and fines may apply to individuals, employers or business administrators who provide false or misleading information to obtain access to this benefit or who misuse any funds obtained under the program. The penalties may include fines or even imprisonment.  In addition, the government is able to publish the names of any employer who applies for the program.

Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 per cent of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.

We are happy to discuss any questions you may have about these matters. To review any of our previous updates on COVID-19 please see our website.

This summary deals with proposed matters that are complex and may not apply to particular facts and circumstances. As well, the material and the references contained therein reflect laws and practices which are subject to change. For these reasons, this material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter.

Although this communication has been carefully prepared, Wilkinson & Company LLP does not accept any legal responsibility for its contents or for any consequences arising from its use.  No part of this document may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means (photocopying, electronic, mechanical, recording or otherwise).