MARCH 25: UPDATE TO THE ARTICLE BELOW
On March 25, Bill C-13, “An Act respecting certain measures in response to COVID-19” received Royal Assent. This legislation provides further detail as well as changes to the measures previously announced in Canada’s COVID-19 Economic Response Plan, including the Temporary Wage Subsidy measure. We originally reported on this measure in the article below. This is an update, as of March 25, to our original article.
While generally consistent with the original announcement, the most noteworthy changes to the previously announced Temporary Wage Subsidy measure are in relation to eligibility as follows:
The legislation now includes the following as eligible employers:
- individuals (other than a trust)
The legislation now further defines the eligible employer requirements for a CCPC, as being based on eligibility for the small business deduction as follows:
- Eligibility for a CCPC requires that the CCPC had a business limit, for purposes of the small business deduction, greater than nil for its most recent tax year ended prior to March 18, 2020 (or, if it has no taxation year ended before that date, would have a business limit greater than nil if its taxation year ended on March 17, 2020).
For this purpose, the reduction to the business limit caused by passive income (“Adjusted Aggregate Investment Income”) is not considered. However, a CCPC which had no business limit for other reasons would not qualify for the subsidy.
MARCH 19 ARTICLE: THE COVID-19 WAGE SUBSIDY: A CLOSER LOOK
On March 18, 2020, the Government of Canada released a series of financial measures to help combat the adverse financial effects of COVID-19 on businesses and individuals. On March 19, the Canada Revenue Agency issued additional guidance with respect to one of these measures – the Temporary Wage Subsidy for Employers. This document summarizes this additional guidance.
WHAT IS THE SUBSIDY?
The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).
AM I ELIGIBLE FOR THE SUBSIDY?
You are an eligible employer if you:
- are a non-profit organization, registered charity, or a Canadian-controlled private corporation (CCPC); (see update above)
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses, or other remuneration to an employee.
Note: CCPCs are only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million.
The Temporary Wage Subsidy for Employers is limited to the eligible employers listed above.
HOW DO I CALCULATE THE SUBSIDY?
The subsidy must be calculated manually. The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 20, 2020. The subsidy is subject to two caps:
- maximum of $1,375 per employee and
- maximum of $25,000 total per employer
Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
If you did not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 20, 2020, you cannot receive the subsidy, even if you are an eligible employer.
- If you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
- If you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
HOW DO I RECEIVE THE SUBSIDY?
Once you have calculated your subsidy, you can reduce your current remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy. The subsidy will not affect deductions from your employees. You will continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from salary, wages, bonuses, or other remuneration paid to your employees, as you currently do. The subsidy is only calculated when you remit these amounts to the CRA.
Remittances Made to Revenu Québec
This Temporary Wage Subsidy for Employers allows eligible employers to reduce remittances made to the CRA only.
If Subsidies Exceed the Remittances
If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).
For example, if you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.
If You Do Not Reduce Remittances During the Year
If you are an eligible employer, but choose not to reduce your payroll remittances during the year, calculate the temporary wage subsidy on remuneration paid between March 18, 2020, and June 20, 2020. You can then ask for the subsidy to be paid to you at the end of the year, or transferred to the next year’s remittance.
HOW DO I BEGIN RECEIVING THE SUBSIDY?
You can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020.
For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
WHAT RECORDS DO I NEED TO KEEP?
You will need to keep information to support your subsidy calculation. This includes:
- the total remuneration paid between March 18, 2020, and June 20, 2020;
- the federal, provincial, or territorial income tax that was deducted from that remuneration; and
- the number of employees paid in that period.
The CRA is currently updating reporting requirements. More information on how to report this subsidy will be released in the near future.
IS THE SUBSIDY TAXABLE?
The subsidy is considered taxable income. If you receive the subsidy, you have to report the total amount as income in the year in which the subsidy is received.
WHERE DO I FIND OUT MORE?
This article summarizes additional guidance issued by the Canada Revenue Agency as of March 19, 2020 with respect to the temporary wage subsidy for businesses. As the situation develops further, there may be additional government measures, or modifications to those already announced. Over the next days and weeks, the specifics on all the programs announced on March 18 will continue to be released. Most of the details for these initiatives will be released on one of these four webpages:
Canada Revenue Agency:
Employment and Social Development Canada:
For further assistance on the temporary wage subsidy and it’s application to your specific circumstances, contact us. We are here to help.