With the Canada Emergency Wage Subsidy (“CEWS”), many small and medium-sized businesses are busy at work trying to figure out if their revenue decline was enough to qualify for CEWS. Many businesses, especially service businesses, are having a hard time collecting revenues. In this time of uncertainty, by carefully interpreting the revenue recognition accounting standards, businesses may be able to qualify for CEWS when on the surface, it looks like they did not meet the revenue-decline test.

What are revenues for the purposes of CEWS?

The CEWS legislation was enacted through section 125.7 of the Income Tax Act (the “Act”). Subsection 125.7(4) says, “the qualifying revenue of an eligible entity is to be determined with its normal accounting practices.” The Act does not provide guidance as to what constitutes “normal.”  However, when you compare how revenue is defined under the Act and the Accounting Standards for Private Enterprises (“ASPE”), it begins to reveal what the government may mean when they say “normal” accounting practices.

• Subsection 125.7(1) of the Act defines Qualifying Revenue as “…the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible entity…”

• Paragraph 3400.03 of the CPA Handbook comparably defines Revenue as “the inflow of cash, receivables, or other consideration in the course of the ordinary activities of an enterprise…”

Because these definitions are mirror images of each other, it would lead a reasonable person to conclude that, at a minimum, Finance Canada consulted the CPA Handbook as to how revenue should be computed for CEWS. Therefore, the rules under the CPA Handbook should be an acceptable standard to determine revenue under “normal” accounting practice.  If the CPA Handbook is acceptable, then all parts of the CPA Handbook should be observed when computing revenue for the CEWS subsidy.

Revenue & the effect of uncertainties

ASPE paragraph 3400.04 states the following concerning revenue recognition and collection uncertainty:

Revenue from sales and service transactions shall be recognized when the requirements as to performance […] are satisfied, provided that at the time of performance ultimate collection is reasonably assured.

Typically, for practical reasons, most small and medium-sized businesses recognize revenue when performance is complete, and there is no longer any additional obligation on the part of the seller.  If there were any bad debts or collection issues, these would be identified later in the business cycle rather than at the time the service is complete. This is usually done at the end of the year.

For entities applying for CEWS, this traditional approach may need to be revisited for March to May of 2020.  With an economy at a standstill, would a business be able to say that collection is reasonably assured?  If not, these businesses should consider closely following paragraph 3400.04 and NOT recognize revenue. Otherwise, revenues may be erroneously inflated and may jeopardize access to the CEWS since revenues for these months should be lower than the revenues recognized from March to May 2019 (or January to February 2020)[1].

Paragraph 3400.20 shows us that the timing of this analysis is critical.  Bad debts and other collection issues cannot reverse revenue once it has already been recognized:

ASPE 3400.20     When the uncertainty relates to collectability and arises subsequent to the time revenue was recognized, a separate provision to reflect the uncertainty would be made. The amount of revenue originally recorded would not be adjusted.

Therefore, businesses should perform a collectability analysis once the performance is complete rather than deferring this to a later time. This is because once revenue has been recognized, it will be used to calculate the CEWS subsidy, and a provision for bad or doubtful debts does not impact revenue per paragraph 3400.20 and presumably the definition of Qualifying Revenue.

Cash method

In applying for CEWS, paragraph 125.7(4)(e) permits businesses to recognize revenue using the cash method. This concession was given because the government acknowledges that there may be some uncertainties in collection.  However, this cash method is extremely rigid. It is based on subsection 28(1), which includes in income ALL amounts that were received in the course of carrying on a business – irrespective of when the revenue was earned or when performance was complete.  This all or nothing approach may not be suitable for all businesses, and this provision could be redundant in some cases due to paragraphs 3400.19 and 3400.A1 of the Handbook:

ASPE 3400.19     Recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured. When there is reasonable assurance of ultimate collection, revenue is recognized even though cash receipts are deferred. When there is uncertainty as to ultimate collection, it may be appropriate to recognize revenue only as cash is received.

ASPE A1.    The recognition criteria in this Section are usually applied separately to each transaction. […]

Normal accounting practice would appear to permit cash basis revenue recognition on a case by case basis already, defeating the need to file an election under 125.7(4)(e) which would require recognition of revenue on a cash basis on a global basis.  This provides more flexibility for businesses. For example, payments may be received in March, April, and May for services rendered or goods sold well before the COVID-19 economic downturn. In these cases, revenues will be inflated using the cash method under 125.7(4)(e).

Example

Consider a professional services firm that has three identical transactions in both May 2019 and May 2020. 

1. Collects a $100 retainer for services to be performed in July
2. Provides services to a grocery store for $100
3. Provides services to a restaurant for $100

Although there have not been any issues with collection in the past, in 2020, only the grocery store pays their bill in May 2020, while the bill owing from the restaurant is outstanding and uncertain due to COVID-19 business closure.

From the above example, the only method which shows a decline in revenue to be eligible for the CEWS would be if revenue was recognized under a careful analysis of collections under Section 3400.04. By digging deeper, businesses may end up qualifying for CEWS when on the surface, it looks like they do not.

How can we help?

There may be other favourable interpretations of the CPA Handbook and the Act especially given the complexities of both ASPE and IFRS.  If you need any assistance with determining eligibility for the CEWS, please do not hesitate to reach out to us.

Please also check out our free resources:

• CEWS Calculator to estimate your subsidy.
• In-depth commentary of Section 125.7 – The CEWS Legislation

Footnotes

[1] Read our commentary for more details.

The post Dig Deeper: You May Qualify for the Canada Emergency Wage Subsidy appeared first on LRK Tax LLP.

The explanation of the rules published in the department of finance’s website is a good starting point to determine whether you qualify or not. Once that is determined, the legislation clarifies how to compute the subsidy with detailed rules, especially for corporate groups. In this post, we have summarized this sophisticated piece of legislation. We hope that our commentary will help remove the veil of uncertainty surrounding these rules for Canadian businesses.

The CEWS Subsidy Calculation

The wage subsidy is available for a qualifying entity for a qualifying period. The wage subsidy is treated as an overpayment on account of the qualifying entity’s liability for income tax for the taxation year in which the qualifying period ends. You will find many definitions in the calculation of the CEWS subsidy, we explain each of these in detail below.

The CEWS for the qualifying period is determined by the following formula:

A − B − C + D

where

A = is the total of all amounts, each of which is for an eligible employee in respect of a week in the qualifying period, equal to the greater of:

(a) the least of

(ii) $847, and

(iii) if the eligible employee does not deal at arm’s length with the qualifying entity in the qualifying period, nil, and

(b)the least of

(i)the amount of eligible remuneration paid to the eligible employee in respect of that week,

(ii)75% of baseline remuneration in respect of the eligible employee determined for that week, and

(iii)$847;

B = is the total of all amounts deemed to have been remitted under subsection 153(1.‍02) by the qualifying entity in the qualifying period. This refers to benefits received under the 10% wage subsidy.

C = is the total of all amounts received by the eligible employee for each week in the qualifying period as a work-sharing benefit under the Employment Insurance Act; and

D = is the total of all amounts, each of which is for an eligible employee in respect of a week in the qualifying period, if the eligible employee is on leave with pay for that week and the amount is

(a) an amount payable by the qualifying entity

(i) as an employer’s premium under EI, or

(ii) as an employer’s contribution under CPP or QPP, or

(b)an amount payable by the qualifying entity as an employer’s premium under the Act respecting parental insurance, CQLR, c. A-29.‍011.

Commentary

The CEWS subsidy is treated as an overpayment of the qualifying entity’s income taxes for the taxation year in which the qualifying period ends. In other words, when you get the subsidy, it is on the basis as if you overpaid your taxes (though in reality, this may not be the case). We see the analysis that you must undertake as follows:

1. Make sure you are a qualifying entity for CEWS.
2. Choose a week in the qualifying period.
3. for each eligible employee compute the following two amounts:

• eligible remuneration paid to that employee in respect of a given week falling in the qualifying period. Note that the legislation does not say that a person must be paid weekly. All it says is that we need to determine the amount of eligible remuneration paid to the eligible employee in respect of a particular week falling in the qualifying period. Pay attention to the two anti-avoidance provisions we discuss in the commentary below under the definition of eligible remuneration.

• baseline remuneration paid to that employee (this is the average weekly eligible remuneration paid to the eligible employee by the eligible entity from January 1, 2020 to March 15, 2020, excluding any period of seven or more consecutive days where the employee was not remunerated.)

4. Reduce the CEWS benefit by any benefits received under the 10% wage subsidy.

5. For employees on leave with pay, you are entitled to receive back the employer’s portion of the CPP and EI in respect of that employee. Note that the legislation does not state that the employee must be on leave due to COVID-19 reasons, so there could be instances where the employee is on leave without pay for non-COVID 19 reasons, whereby the employer receives the CEWS and/or the return of CPP/EI.

Definitions

Baseline Remuneration

Average weekly eligible remuneration paid to the eligible employee by the eligible entity from January 1, 2020 to March 15, 2020, excluding any period of seven or more consecutive days where the employee was not remunerated.

Qualifying Period

This definition is used to figure out the subsidy for three periods between March 15 to June 6, 2020. A Qualifying period is:

• the period from March 15, 2020 to April 11, 2020;
• the period from April 12, 2020 to May 9, 2020; or
• the period from May 10, 2020 to June 6, 2020;

Current Reference Period

The Current Reference Period for a qualifying period, means

• for the qualifying period from March 15, 2020 to April 11, 2020, March 2020;
• for the qualifying period from April 12, 2020 to May 9, 2020, April 2020;
• for the qualifying period from May 10, 2020 to June 6, 2020, May 2020;

Prior Reference Period

This definition sets out the baseline comparison period to compare Current Reference Period revenues with. In summary, an eligible entity can choose one of the following two Prior Reference Period.

1. The Year-Over-Year Method
   • March 2019 – for the period from March 15, 2020 to April 11, 2020,
   • April 2019 – for the period from April 12, 2020 to May 9, 2020, and
   • May 2019 – for the period from May 10, 2020 to June 6, 2020.
2. The Alternate Method
   • January and February 2020, if the eligible entity meets one of the two conditions:
     1. on March 1, 2019, the eligible entity was not carrying on business or otherwise carrying on its ordinary activities, or
     2. the eligible entity elects for all of the qualifying periods to use the Alternate Method

Eligible Employee

Only remuneration paid to the eligible employees qualifies for CEWS. An eligible employee must meet the following three conditions:

1. has to work for an eligible entity in a week falling in the qualifying period;
2. must be employed in Canada by the eligible entity in the qualifying period; and
3. cannot be without remuneration by the eligible entity for 14 or more consecutive days in the qualifying period.

Eligible Entity

Only Eligible Entities qualify for CEWS. An Eligible Entity is one of the following entities listed below:

• a corporation, other than a tax-exempt corporation or a public institution;
• an individual;
• a registered charity, other than a public institution;
• a person that is exempt from tax under this Part because of paragraph 149(1)‍(e), (j), (k) or (l), other than a public institution (these include agricultural organization, a board of trade or a chamber of commerce, non-profit corporations for scientific research and experimental development, labour organizations, and non-profit organizations); or
• a partnership, all of the members of which are described in (a) to (d).

Public Institution

Public institutions are not Eligible Entities for the CEWS. These include: crown corporations, corporations owned by the crown, municipalities, wholly-owned municipal corporations, schools, school boards, hospitals, health authorities, public universities, and colleges.

Eligible Remuneration

Only eligible remuneration paid to eligible employees of an eligible entity qualifies for CEWS. For this purpose, Eligible Remuneration generally means:

• Amounts described in paragraph 153(1)‍(a) or (g), which is generally  salary, wages or other remuneration, including fees, commissions or other amounts for services.
• The following amounts are deemed NOT to be Eligible Remuneration:
  • A retiring allowance;
  • amounts deemed to have been received by eligible employees as stock option benefits under paragraphs 7(1)‍(a) to (d.‍1);
  • any amount received that can reasonably be expected to be paid or returned back, directly or indirectly, in any manner whatever, to
    • the eligible entity,
    • a persons not dealing at arm’s length with the eligible entity, or
    • other persons at the direction of the eligible entity; and
  • any amount that is paid in respect of a week in the qualifying period, if, as part of an arrangement involving the eligible employee and the eligible entity,
    • the amount is in excess of the eligible employee’s baseline remuneration,
    • after the qualifying period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and
    • one of the main purposes for the arrangement is to increase CEWS.

Qualifying Entity

An eligible entity has to be a qualifying entity in order to qualify for CEWS. A qualifying entity must meet the following four conditions:  

1. Application – files an application with the CRA for the qualifying period before October 2020;
2. Attestation – the individual who has principal responsibility for the financial activities has to attest that the application is complete and accurate in all material respects;
3. Revenue Test – its Qualifying Revenues for the Current Reference Period are equal to or less than the Specified Percentage, for the Qualifying Period, of
   1. if the Year-Over-Year prior reference period applies – its Qualifying Revenues for the Prior Reference Period (i.e., the prior year corresponding month), or
   2. If the Alternate (January and February 2020) prior Reference Period is used, the amount determined by the formula:

0.‍5 x A x (B/C)

where

4. Registered for Payroll Account –  it had, on March 15, 2020, a business number in respect of which it is registered with the Minister to make remittances required under section 153.‍

Qualifying Revenue

Qualifying Revenue is a calculation of revenues used for the revenue test to see if an eligible entity is a qualifying entity for CEWS.

Qualifying Revenue of an eligible entity for a prior reference period or a current reference period means (i) the inflow of cash, (ii) receivables or (iii) other consideration arising in the course of the ordinary activities of the eligible entity — generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity — in Canada in the particular period, subject to the following rules:

Specified Percentage

The Specified Percentage is used to determine if there is a required reduction in revenue to determine whether there is a drop of at least 15% of their revenue in March 2020 and 30% for the following months.

The Specified Percentage for a qualifying period, means:

• 85% — for the qualifying period March 15, 2020 to April 11, 2020, 
• 70% — for the qualifying period March 15, 2020 to April 11, 2020 and May 10, 2020 to June 6, 2020,  and

Other Rules

CEWS deemed to be government assistance

Since the CEWS works as a deemed overpayment of tax, subsection 125.7(20 deems that  CEWS to be considered government assistance received immediately before the end of the qualifying period to which it relates. Government assistance payments are taxable in the year that it is received under subsection 12(1)(x).

Computation of Revenue for Corporate Groups and Management Companies

Subsection 125.7(4) has special rules for how Qualifying Revenue is to be computed. These are summarized here:

Accounting Method & Consolidated Revenues

• The qualifying revenue of an eligible entity is to be determined following normal accounting practices under paragraph 125.7(4)(a).
• If a group of eligible entities normally prepares consolidated financial statements, each member of the group may determine its qualifying revenue separately, provided every member of the group determines its qualifying revenue on that basis. Under “normal accounting practices,” a parent may be required to prepare consolidated financial statements. Therefore, revenues may be computed on a consolidated basis. This provision allows for parents and subsidiaries to calculate revenues on a legal entity basis as long as every member of the group determines revenues on an entity-by-entity basis.

Cash Method of Accounting

Paragraph 125.7(4)(e) allows an eligible entity to make an election, which must apply for all qualifying periods, to determine its revenues based on the cash method, within the meaning assigned by subsection 28(1) with any modifications that the circumstances require.

Business income is generally computed under section 9 on an accrual basis, following ordinary accounting and business practices. However, under section 28, a taxpayer can make an election to compute the income from a farming (or fishing) business under the cash method. The concession under paragraph 125.7(4)(e) permits all eligible entities (including those that are not farm or fishing businesses) to apply the cash method to calculate revenues using the rules prescribed by section 28, with appropriate modifications that circumstances may require.

Option to Consolidate Revenues for Affiliated Groups

If an eligible entity and each member of an affiliated group jointly elect under paragraph 125.7(4)(c), the qualifying revenue of the group determined on a consolidated basis in accordance with relevant accounting principles is to be used for each member of the group.

Under this election, every member of the affiliated group must make this election. You cannot have only certain members of the affiliated group make this election.

Suppose A and B are affiliated entities. If they both elect under 125.7(4)(b), A and B can consolidate their revenues. The consolidated revenue is now each of A and B’s Qualifying Revenue for the Revenue Test mentioned above.

Joint Venture Revenues

A joint venture by itself is not an eligible entity. Under paragraph 125.7(4)(c), If all or substantially all (greater than or equal to 90%) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, then the eligible entity may use the qualifying revenues of the joint venture (determined as if the joint venture were an eligible entity) instead of its qualifying revenues for the purposes of Revenue Test in the definition qualifying entity.

Joint Election for Inter-Corporate Revenues

It seems like the following rule is there to facilitate situations where eligible employees may be in one entity (“A”), which earns non-arm’s length revenues from another member in that same group (“B”) where B earns revenues from arm’s length Canadian sources.

Paragraph 125.7(4)(d) provides that if all or substantially all (generally, greater than or equal to 90%) of an eligible entity’s qualifying revenue (including revenues from non-arm’s length persons) for a qualifying period is from one or more non-arm’s length persons and each particular person jointly elects with the eligible entity, for the purposes of the Revenue Test, the following rules apply.

• the eligible entity’s qualifying revenue for the prior reference period is deemed to be $100, and
•  the eligible entity’s qualifying revenue for the current reference period is deemed to be the total of all amounts, each of which is determined by the formula:

$100(A/B)‍(C/D)

where

A = the eligible entity’s qualifying revenue (including non-arm’s length revenues) for the current reference period attributable to a particular person or partnership,

B = the total of all amounts, each of which is the eligible entity’s qualifying revenue for the current reference period attributable to a particular person or partnership,

C = the particular person’s qualifying revenue (including non-Canadian revenues) for the current reference period, and

D = the particular person’s qualifying revenue (including non-Canadian revenues) for the prior reference period.

Example of Inter-Corporate Revenue Election under 125.7(4)(d)

Suppose the following situation exists:

• Opco earns revenues from third parties equal to:
  • $200,000 in the current reference period, and
  • $500,000 in the prior reference period
• Management Co employs all the staff, and it earns the following management fee revenues from Opco, which is a related party:
  • $100,000 in the current reference period, and
  • $250,000 in the prior reference period
• Management Co earns no other revenues.

Applying the Rules under 125.7(4)(d):

• All or substantially all of Management Co’s revenues are from Opco, a  non-arm’s length person;
• Management Co and Opco jointly elect to have this paragraph apply;
• Management Co’s prior reference period is deemed to be $100;
• Management Co’s current reference period is deemed to be $40 ($100 x (100,000/100,000) x (200,000/500,000));
• Therefore, Management Co will compare $40 to $100 in determining whether it is a qualifying entity for CEWS.

Rules to Prevent Multiplying CEWS Between Non-Arm’s Length Entities

Under paragraph 125.7(5)(b), if an eligible employee is employed in a week by two or more qualifying entities that do not deal with each other at arm’s length, the total CEWS in respect of the eligible employee for that week CANNOT exceed the amount that would arise if the eligible employee’s eligible remuneration for that week were paid by one qualifying entity. This rule prevents two entities in the group from employing the same employee as a way to multiply the CEWS subsidy.

Anti-Avoidance Rules to Avoid Artificial Reduction of Qualifying Revenues

Subsection 125.7(6) has anti-avoidance rules to prevent employers from artificially reducing revenues in the current reference period.  The qualifying revenue of an eligible entity for a current reference period for a qualifying period is deemed to be equal to the qualifying revenue of the eligible entity for the relevant prior reference period, if all the following two conditions are met:

1. the eligible entity, or a non-arm’s length person enters into a transaction (or fails to take an action) that has the effect of reducing the qualifying revenues of the eligible entity for the current reference period; and
2. it is reasonable to conclude that one of the main purposes of the action or failure thereof in (a) is to cause an eligible entity to qualify for CEWS for that qualifying period.

Not only does this anti-avoidance provision looks at overt actions or transactions, but it also includes the failure to take action for the purpose of reducing current reference period revenues.

Penalty – Artificial Reduction of Qualifying Revenues

Subsection 163(2.‍901) provides that every eligible entity that is deemed by subsection 125.‍7(6) to engage in artificial transactions to reduce revenue to claim the CEWS, is liable to a penalty equal to 25% of the value of the subsidy claimed.

Partnerships Deemed to be a Taxpayer

As we noted above, since the CEWS is administered through the income tax act, it is deemed to be an overpayment of tax. Since partnerships are not liable for tax (instead its partners are liable), under subsection 125.7(7), a partnership is deemed:

• for the purpose of the CEWS and related provisions to be a taxpayer; and
• to have liability for tax for a taxation year in which a qualifying period ends.

Automatic Meeting of Revenue Test in the Subsequent Period

Subsection 125.7(9) provides that if an eligible entity meets the Revenue Test in a particular qualifying period, then the eligible entity is deemed to meet the Revenue Test for the immediately following qualifying period.

This was put in place to provide certainty for employers.  According to Finance Canada, an employer with a revenue drop of more than 15% in March would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9. Similarly, an employer with a revenue drop of 30% in April would qualify for the second and third periods of the program, covering remuneration paid between May 10 to June 6.

False statements or omissions Penalty

Paragraph 163(2)(i) provides that every person who makes or acquiesced in the making of a false statement or omission in the CEWS application either knowingly or under circumstances amounting to gross negligence, there is a penalty of the greater of $100 and 50% of the total of the excess CEWS subsidy received. Partnerships are liable as if they were corporations by virtue of paragraph 169(2.9)(i).

CRA Permitted to Issue CEWS without Tax Return Filed

Subsection 164(2.01) provides that the CRA  shall not refund an overpayment of tax unless the taxpayer has filed all of its returns that are required to be filed are actually filed. However, for the purpose of CEWS, subsection 164(1.6) provides that despite what subsection (2.‍01) says, if at any time after the beginning of a taxation year the taxpayer is entitled to CEWS (which is treated as an overpayment of tax) the CRA may refund to the taxpayer all or any part of the overpayment. This rule permits CRA to issue a “refund” for the CEWS without a taxpayer having to file a tax return for that period.

The legislation did not comment on whether such deemed overpayment will be refunded in instances where the eligible employer owes an amount to the CRA for any outstanding income, HST, or payroll taxes. 

No Interest on CEWS Payments

Subsection 164(3) provides that CRA does not have to pay interest on the CEWS payments. This is similar to other benefits such as the GST credit or the Canada child tax benefit.

References to Prescribed Rules

There are many references to prescribed legislation.  Prescribed amounts and rules are often administered through the Income Tax Regulations, which is easier to pass into law. This gives the government flexibility to make changes to the CEWS without having to go through a rigorous parliamentary process. This could include changing the numbers involved or perhaps even extending the CEWS program beyond June 6, 2020 depending on the COVID-19 situation. However, it appears that the furthest the government can extend the CEWS is September 30, 2020.

The post Canada Emergency Wage Subsidy: Detailed Commentary on New Income Tax Act Section 125.7 appeared first on LRK Tax LLP.

Conditions to Qualify

• The subsidy is available to eligible employers who suffer a drop in revenues of at least 15% in March, and 30% in April or May compared to a chosen benchmark period (below).
• If eligible, the government will subsidize atleast 75% of the wages paid to eligible employees. (it is possible to also get 100% of the wages subsidized as we discuss below)

Who are Eligible Employers?

• Individuals, corporations, non-profit organizations, registered charities, and partnerships consisting of eligible employers.

Benchmark Period to Compare Revenues under Version 2.0

• Under Version 1.0, the government required employers to compare revenues to the corresponding month in 2019.
• To broaden this test, under Version 2.0, employers can also compare their March, April, and May revenues to the average revenue in January and February 2020.
• Once the benchmark (year-over-year or the alternative approach) is chosen for the first CEWS application (i.e., March), employers need to continue using the same benchmark for the remaining application periods (i.e., April and May).

This will help many new businesses that did not have a previous track record of revenues.

Who are eligible employees?

• Wages must be paid to “eligible employees.”
• An eligible employee must be employed in Canada.
• An eligible employee does not include employees that have been without pay for more than 14 consecutive days in any of the 3 claim periods above. This is so that both the CEWS and Canadian Emergency Response Benefit (CERB) is not claimed on the same employee.
• This last point is a bit inconsistent and may not achieve the desired outcome. According to CRA’s recently released Q&A about the CERB, for the May and June CERB application, CRA expects employees to have no employment income in the entire application period instead of only 14 consecutive days. Suppose you have an employee who does not work for 15 straight days in a claim period; this employee may not qualify for the CERB or CEWS as the rules are currently described.

Claim Periods

There are three claim periods to apply for the CEWS.

• Period 1 – March 15 to April 11
  • Compare March 2020 revenues with (i) March 2019 or (ii) Average of Jan/Feb 2020
• Period 2 – April 12 to May 9
  • Compare April 2020 revenues with (i) April 2019 or (ii) Average of Jan/Feb 2020
• Period 3 – May 10 to June 6
  • Compare May 2020 revenues with (i) May 2019 or (ii) Average of Jan/Feb 2020
• Note once you choose the benchmark approach, you need to stay consistent throughout all three claim periods.

Computing Revenues under CEWS Version 2.0: Cash or Accrual Method

• Under Version 1.0, the employer’s revenue was their revenue in Canada earned from arm’s-length sources calculated using the normal accounting method (excluding revenues from extraordinary items and amounts on account of capital.
• Under Version 2.0, employers can calculate their revenues under the accrual method or the cash method, but not a combination of both.
• Employers would select an accounting method when first applying for the CEWS (i.e., for the March period) and would be required to use the same method for subsequent applications (i.e., April and May period).
• The ability to use the cash method of accounting for revenues is welcoming news for many companies with stable revenues but having difficulties collecting their revenues due to the economic downturn.

Computing Revenues for NPOs and Charities

• Registered charities and non-profit organizations can choose whether or not to include revenue from government sources as part of the revenue calculation.
• Once chosen, the same approach would have to apply throughout the program period.
• It is not clear whether you can include government grants in the benchmark period but exclude them for the March, April, and May 2019 revenues.

Amount of Subsidy

The subsidy per employee on remuneration paid between March 15 and June 6, 2020, would be the greater of:

• 75% of eligible remuneration paid, up to a maximum benefit of $847 per week; and
• The lesser of the following amounts:
  • remuneration paid, up to a max benefit of $847 per week, or
  • 75% of the employee’s pre-crisis weekly remuneration

Can you get 100% of the employee’s pre-crisis weekly subsidized?

Yes. It is possible if you pay employees only 75% of pre-crisis wages. The below example demonstrates this:  

Example

• Pat earned pre-crisis earnings of $500 per week
• Pat was re-hired in April 2020 and earned $375 per week (75% of the pre-crisis earnings)

The subsidized portion of Pat’s remuneration per week is $375. In effect, 100% of Pat’s weekly wage is subsidized. However, based on good faith, where possible, the government expects employers to maintain employees’ pre-crisis employment earnings. This is not a requirement, however.

What is Pre-crisis Remuneration

The pre-crisis remuneration for a given employee is the average weekly remuneration paid between January 1 and March 15, excluding any 7-day periods where the employee did not receive remuneration.

New employees without pre-crisis earnings

Employers will be eligible for a subsidy of up to 75% of the remuneration paid to new employees.

Eligible Remuneration

• Eligible remuneration may include salary, wages, and taxable benefits.
• However, it does not include severance pay, stock option benefits, or auto benefits from personal use of a corporate vehicle.

Special Rules for Owner-Managers & Related Employees

• The subsidy is available in respect of non-arm’s length employees only if they were employed before March 15, 2020, provided they earned pre-crisis earnings.
• The subsidy for non-arm’s length employees will be limited to:
  • 75% of the employee’s pre-crisis weekly remuneration, or
  • $847 per week.
• When performing the wage subsidy calculation, make sure to identify family members who are employees and modify the calculation.

Is there a limit to the CEWS?

• No limit on the subsidy amount that an eligible employer may claim.

Do I Have to Remit CPP and EI on Subsidized Wages?

• Yes, you would be required to continue to remit employer and employee contributions.
• Refunds available for employees on paid leave (see heading below).

CPP and EI Refund for Employees on Leave with Pay

• In addition to CEWS, there will be a 100% refund for the employer’s contributions to EI and CPP for each week for an employee who is on leave with pay and where the employer is eligible to claim the CEWS for those employees.  
• The employee cannot do any work for the employer in that entire week. This refund is not available where employees are on leave with pay for only a portion of a week.
• The CPP/WI Refund is not subject to the maximum weekly benefit per employee of $847 and no overall limit on the refund amount.
• It is not enough to simply ask employees to not come into work. The backgrounder makes it clear that the employees cannot perform any work for the employer in that week. If employees work from home, you may not qualify for the CPP/EI refund.
• It is not clear how these rules will work for non-arm’s length employees. Whether an owner-manager can pay him or herself salary without working, and yet get the CPP/EI refund in addition to the 75% wage subsidy. 

Re-hiring employees that are getting the CERB?

• This program aims to help businesses re-hire their employees. The government is looking at a process to allow re-hired employees during the same eligibility period to cancel their CERB claim and repay that amount. The intention is that an employee cannot get CERB while their wages are subsidized through CEWS.

Interaction with 10% Wage Subsidy

• The 10% wage subsidy program is still available
• Check out our free calculator.
• If you’re eligible for both programs, then any benefit from the 10% Wage Subsidy will reduce the benefit available under CEWS in the claim period.

Are CEWS benefits taxable?

• Yes, it is considered government assistance.
• CEWS also reduces the eligible remuneration eligible for certain tax credits like SR&ED tax credit.

Penalties

• Employers who do artificial transactions to reduce revenues would have to repay the subsidy with a 25% additional penalty.
• Anti-abuse rules will be in place to ensure employers do not get the subsidy in situations where they fail to pay employees.

How do I Apply?

• Apply through the Canada Revenue Agency’s My Business Account 
• The application should be available in 2 to 5 weeks from today; however, legislation has to be passed in parliament first (which we understand is in progress and maybe looking at a session after Easter).
• Set up direct deposits to receive amounts faster.

Example of How CEWS Works

The following example from Finance Canada helps us to apply the above:

• M and S own a corporation.
• M and S work full time in the corporation and continue to pay themselves $1,300 per week.
• They have 3 part-time employees, each earning $800 per week.
• M and S initially laid off their employees, but re-hired them and asked employees not to report to work or do any work.
• M and S pay employees 75% of their pre-crisis salary ($600 per week).

Applying for CEWS

• M and S would be eligible for a weekly wage subsidy of $847 for each of themselves (since they had pre-crisis earnings) and $600 for each of their employees.
• M and S would also be eligible for a 100% refund of their portion of the EI and CPP paid their employees, providing an additional benefit of up to $124 per week. 
• At the end of each claiming period, M and S would submit an application attesting that their decline in revenues in each month is sufficient to qualify when compared to the benchmark methods discussed above.

The post 75% Wage Subsidy Version 2.0: Welcoming Changes for Many Businesses appeared first on LRK Tax LLP.

According to portions of the new regulations tweeted by Ontario’s Attorney General, the requirement to witness a will can be satisfied by audio-visual communication technology (i.e., video chat applications such as Skype, Zoom, Cisco WebEx, Teams, etc.). This is a good gesture by the Ontario government and will put many Ontarians looking to get their affairs in order at ease.

Here are snippets of the legislation. The entire legislation should be available sometime today.

The post Electronic Witnessing of Wills and Power of Attorney Permitted During COVID-19 appeared first on LRK Tax LLP.

Individuals & Families (Including Expats Living in Canada)

• Certain U.S. individuals will be entitled to one-time stimulus cheques (Recovery Rebate)
  • Single filers with gross income of up to $75,000 ($112,500 for head of household filers) will be eligible for a $1,200 cheque.
  • Couples earning up to $150,000 a year will be eligible for a $2,400 cheque.
  • Parents will receive $500 additionally for each child 16 years of age or under.
  • The amount of the cheques will be progressively phased out for incomes exceeding those amounts; phase-out will be $5 for every $100 of adjusted gross income exceeding the above thresholds.
  • Non-resident aliens who do not have green cards or legal immigration status (i.e. H-1B visas) are not eligible to receive the cheques.
  • U.S. citizens living abroad are eligible so long as they meet the income requirements. This is good news for U.S. expats. Expats must have at least filed their 2018 tax return. If these expats already provided IRS with bank account details, then the Recovery Rebate will be deposited into their accounts. Otherwise, a cheque should be mailed based on the address in IRS’s records. This is one reason why certain expats may want to bring their U.S. tax returns up to date. We can help with that.
  • It is unclear whether Canada would prevent these persons from receiving the Canada Emergency Response Benefit (CERB). CERB is available to Canadian Residents.  However, the CERB Act says that you can’t qualify if you receive any income that is prescribed by regulations. The government has yet to release these regulations to know whether it would prevent a person – who receives COVID-19 benefits from other governments – from getting the CERB.
  • The payments are not taxable and are based on your 2020 income. Since your 2020 returns would not have been filed, the IRS will use your 2019 return (2018 if it has not yet been filed) to determine income eligibility for the cheques and any underpayments in entitlements will be captured when filing your 2020 return.  Barring certain exception, if you have not filed a U.S. tax return in either 2018 or 2019, you will not receive the stimulus payment now, but it may be received through the filing of your 2020 tax return so long as the other requirements are met.

Tax Relief

Individuals (including Canadians with a U.S. Tax Obligation)

• The April 15, 2020 filing and payment due date for the 2019 individual income tax returns (for most calendar year filers) has been extended to July 15, 2020.
  • First-quarter instalments due dates have also been extended.
  • Note that not all states may not conform to the federal extension, and each state should be examined individually to determine their measures and whether their filing/payment deadline has also been extended. 
• Taxpayers can make an election to increase the 60% gross income limitation on the itemized deduction for charitable contributions to 100% for cash contributions made during 2020 to qualifying organizations.
• The waiving of the early withdrawal penalty for coronavirus-related distribution of up to $100,000 from qualified retirement accounts. The amounts are still taxed, but the taxes are spread over three years.

Corporations/Businesses

• The April 15, 2020 filing and payment due date for the 2019 corporate income tax returns (for calendar year filers) has been extended to July 15, 2020.
  • First-quarter instalments due dates have also been extended.
  • Note that not all states may conform to the federal extensions, and each state should be examined individually to determine their measures and whether their filing/payment deadline has also been extended.  
• Net operating losses (“NOLs”) are temporarily not subject to the 80% taxable income limitation. Additionally, 2018, 2019, & 2020 NOLs can now be carried back five years.
• Clarification is provided that the 80% taxable income NOL limitation is to be calculated without including the 199A deduction or the FDII/GILTI deduction.
• The 163(j) interest expense limitation is temporarily increased from 30% of adjusted taxable income to 50% of adjusted taxable income. Taxpayers can also elect to calculate the interest limitation for 2020 using their 2019 taxable income. As a reminder, the interest expense limitation only applies to taxpayers whose average annual gross receipts are more than $25 million for the prior three years.
• Retroactive modifications are made to the 163(j) interest expense limitation calculation provision. The CARES Act does not address how taxpayers should proceed with correcting prior year returns that were not filed in accordance with the modifications (i.e. amending returns).  
• Employers may be eligible for a 50% refundable payroll tax credit on wages paid up to $10,000 during COVID-19 as well as a delay of payment of payroll tax.
• A number of other measures were announced including an acceleration of alternative minimum tax (“AMT”) credit refunds, technical corrections to the Tax Cuts and Jobs Act, etc.

There are still a lot of gaps that need to be filled. We will continue to monitor the developments and keep you up to date.

Mohammed Al-khooly, CPA, CA

Haroon Khan, CPA, CA, CPA (IL)

Martin Lee, CPA, CA, CPA (NH)

Thanusan Raveendran, CPA, CA

The post U.S.’s Coronavirus Aid – Good News for U.S. Expats & Canadians Doing Business Down South appeared first on LRK Tax LLP.

• The Canada Emergency Wage Subsidy (CEWS) would apply at a rate of 75% of the first $58,700 normally earned by employees – representing a benefit of up to $847 per week per employee[1].

What period does the subsidy cover?

• The program would be in place for 12 weeks, from March 15 to June 6, 2020.

Who qualifies & 30% Revenue Decline Test

• All private-sector employers of all sizes and across all sectors of the economy. Individuals, corporations, and partnerships.
• Eligible employers must suffer a drop in gross revenues of at least 30% in March, April or May when compared to the same month in 2019.
• Employers would be required to attest to the decline in revenue.
• For non-profit organizations and registered charities similarly affected by a loss of revenue, the government will work on coming up with a definition of revenue for this sector. This could be a loss in donations compared to the previous year. For instance, many places of worship have lost contributions due to social-distancing measures.

Reference period for comparing year-over-year revenues

• compare it to the corresponding month in which the benefit period began.
• Here’s a useful chart from Finance Canada:

What if I am a new business? What’s my reference point?

• For new employers established after February 2019, eligibility would be determined by comparing monthly revenues to a “reasonable benchmark.”
• Hopefully, Finance Canada provides more guidance on what’s a reasonable benchmark.

Calculating Revenues

• Revenue = revenue from its business carried on in Canada from arm’s-length sources.
• Calculated using the employer’s normal accounting method
• Excludes revenues from extraordinary items and amounts on account of capital.

Calculating Amount of the Subsidy

Greater of:

• 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
• the amount of remuneration paid, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less.

How do I compute pre-crisis weekly remuneration?

• Further guidance to be provided in the coming days.
• Employers can receive a benefit equal to 75% of pre-crisis wages. Employers are expected to top up the remaining 25%. However, there is no penalty for failing to top up employees. Based on trust and good faith.

How do I compute remuneration?

• Remuneration includes salary, wages, and other remuneration which employers would generally be required to withhold tax on.
• It does not include severance pay, stock option benefits, or the automobile benefits from personal use of a corporate vehicle.

Can owner-managers take advantage of CEWS on their own salaries?

• It seems to be the case based on information released thus far, but with further conditions.
• A special rule will apply to employees that do not deal at arm’s length with the employer (i.e., the corporation).
• The subsidy amount for such employees will be limited to:
  • the eligible remuneration paid in any pay period between March 15 and June 6, 2020,
  • up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration.
• We need to wait and see how the government will define pre-crisis weekly remuneration.

Is there a limit on the subsidy a business can receive?

• no overall limit on the subsidy amount that an eligible employer may claim

When and how can I apply?

• Minister Morneau stated that an online portal will open in 3 to 6 weeks on the CRA Website. Payment should be deployed at the latest by 6 weeks.

How will I get paid?

• Unlike the previously announced 10% subsidy (see below – this program is still available) where you could have remitted less taxes on payroll source deductions, this new 75% Subsidy is directly paid by the government (via CRA).
• Minister Morneau encouraged small businesses to set up direct deposits to receive payments faster.
• Since the application is through the  CRA  online portal, make sure to register for direct deposits to get the subsidy faster.

Penalties

• Minister Morneau warned that if this money is used for fraudulent purposes, they will face severe penalties.
• Anti‑abuse rules will be proposed to ensure that the subsidy is not abused and to ensure that employees are paid the amounts they are owed.
• Appears that penalties for offences will be very strict and not worth testing.

Can I still apply for the old 10% Temporary Wage Subsidy?

• If you do not qualify for the CEWS, you may qualify for the previously announced Temporary Wage Subsidy of 10% of wages paid from March 18 to before June 20, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
• Check out our free calculator.
• If you’re eligible for both programs, then any benefit from the 10% Wage Subsidy will reduce the benefit available under CEWS in the period of application.

Can I get CEWS if my Employee is eligible for the Canadian Emergency Response Benefit (CERB)?

• CEWS application is for a 4-week period.
• If an employee is eligible for the CERB during that 4-week period, then the employer cannot claim the CEWS on wages paid to that employee in that same period.
• For example:
  • ABC Inc. told Mary to not work 14 consecutive days in the period April 12 to May 9. She worked on the other days in this period and received wages.
  • Mary applies for CERB for the same period.
  • ABC inc. is not eligible for CEWS relief on wages paid to Mary from April 12 to May 9.
• We need more guidance in where the CERB and CEWS period stagger.

Are CEWS benefits taxable?

• Yes, it is considered government assistance.
• CEWS also reduced the eligible remuneration eligible for certain tax credits like SR&ED tax credit.

Unanswered questions and ways we think this program can be improved

Computing Revenues

• There are many businesses whose accounting revenues have not declined by at least 30%. Yet, their cash flows are very low because they are not able to collect.

New Businesses in the Dark

• We need more guidance for new businesses that do not have revenues in the prior year.

Timeliness

• 6 weeks to deploy payments might be too late.

CERB vs CEWS

• Depending on their level of wages, if employers do not utilize staff, it may be more beneficial for those employees to claim CERB as opposed to keeping them on the payroll for the 75% subsidy.
• Keep in mind CEWS-subsidized wages will be net of tax while CERB has no withholding tax (although both are taxable when the employee files their tax return in April 2021). In some cases, it may be better to lay off the employee and have them apply for CERB instead. See our blog post on CERB.

Pre-crisis weekly remuneration

• More guidance needed.
• Does it include only recurring periodic payments and excludes performance-based bonuses or commissions?

Online Bandwidth and Data Breach

• Will the government be able to pull this monumental task off, which involves developing an online portal in such a short period to handle large amounts of web traffic and confidential information? How will they protect the system against hackers?
• Businesses will be making rehiring decisions based on the government being able to subsidize wages; therefore, confidence in the system needs to be provided to the public.

[1] $58,700 x 1/52 * 75% = $847.

Read more details on Finance Canada website.

The post What does the 75% Canada Emergency Wage Subsidy mean for your business? appeared first on LRK Tax LLP.

• The government proposed to increase the wage subsidy from 10% to 75% of wages.
• However, no announcement was made whether the $1,375 per employee limit or the $25,000 per employer limit will be increased. We suspect that these may be increased because the intent seems to be to keep employees employed during business disruptions.  However, we will need to wait for the details to come to light.
• The subsidy is proposed to be backdated to Sunday, March 15, 2020. Previously, the subsidy started from pay periods running between March 18^th to June 19^th. This would allow business owners to take advantage of the subsidy additional pay periods in March.
• As soon as we get the details, we’ll release an updated Wage Subsidy calculated here.

Interest-Free Loans via Canada Emergency Business Account

• The government also announced a new Canada Emergency Business Account (CEBA) benefit for small and medium businesses & not-for-profits, where they can receive up to $40,000 in a loan that will be interest-free for the first year.
• Guaranteed and funded by the Canadian government.
• To qualify, businesses need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019.
• Repaying the balance of the loan on or before December 31, 2022, will result in loan forgiveness of 25 percent (up to $10,000).
• Implemented by eligible financial institutions in cooperation with Export Development Canada (EDC). Contact your financial institution to apply for these loans

Co-Lending Program

• Business Development Bank of Canada (BDC) and financial institutions to team up co-lend term loans to SMEs for their operational cash flow requirements.
• Apply directly through financial institutions.
• To roll out in three weeks.

HST Payments Deferred

• GST and HST payments will be deferred, including duties on imports, until June.
• This applies to payments and returns due in March, April, and May.

The details for these announcements are not yet available. An update is expected Monday. We will stay on top of the latest developments and continue to share them with you.

CRA’s Administrative tax measures

Administrative tax measures

• All returns, elections, designations and information requests due after March 18, 2020, can be deferred to June 1, 2020
• This does NOT include Payroll deductions payments and all payroll related activities.

Trusts, Partnerships and NR4 Information Returns

• The deadlines for trusts, partnership and NR4 information returns are all extended to May 1, 2020.

Charity Information Returns

• Information Returns deadline extended to December 31, 2020.

Suspending collections on new debt

• Collections on amounts owing to the government will be suspended until further notice.
• Payment arrangements available on a case-by-case basis if you can’t pay your taxes, child and family benefit overpayments, Canada Student Loans, or other government program overpayments in full.

Extending the deadline for filing an objection

• For tax objection requests due March 18 or later, the deadline is effectively extended until June 30, 2020.

Read about the details here.

Access all the Financial Measures in Place

Click here to read about all the measures currently in place to help individuals and small businesses.

The post Relief for Small Businesses Announced appeared first on LRK Tax LLP.

On March 25, 2020, the Canadian government passed Bill C-13 to enact legislative measures in response to COVID-19.  Among these measures were various amendments to the Income Tax Act (the “Act”), including Section 153 of the Act.  Subsection 153(1) of the Act deals with the withholding of tax and source deductions on wages.  This amendment, commonly known as the Temporary Wage Subsidy for employers, is intended to allow employers to remit less taxes on their payroll.

The Legislation – New Subsection 153(1.03)

New subsection 153(1.03) introduces various new definitions, one of which is “eligible employer.”  One form of an eligible employer, and presumably the most common, is a Canadian controlled private corporation (CCPC) that:

• Would have a business limit for its last taxation year that ended before the start of the eligible period greater than nil, if the amount determined for paragraph 125(5.1)(b) were deemed to be nil[1], or

• If the corporation does not have a taxation year
  that ended before the start of the eligible period, would meet the condition in
  clause (A) if its taxation year ended immediately before the start of the
  eligible period,

[Emphasis added]

Multiplying the Wage Subsidy Among Associated Corporations & Potential Pitfall

The Temporary Wage Subsidy has a limit of $25,000 per employer; however, this is not shared amongst employers. This means, one corporate group with many operating companies may access multiple subsidies.  However, a potential oversight in filing the corporate tax return may deny access to multiple wage subsidies if tax planning is not carefully undertaken.

Under subsection 125(2), every corporation has a business limit of $500,000. This business limit is reduced by taxable capital under paragraph 125(5.1)(a) and passive income under paragraph 125(5.1)(b).  Since subsection 125(5.1)(b) is deemed to be nil, Finance appears to restrict access to the wage subsidy based on a corporate group’s taxable capital as its only limitation.

However, also under subsection 125(2), a corporation that is associated with another corporation automatically has a business limit of nil.  If a corporation does not have a business limit, it is not eligible for the temporary wage subsidy. 

Fortunately, subsection 125(3) allows associated corporations to file an agreement (Schedule 23 of T2 Return) to share the $500,000 business limit. This allocation is a possible trap that needs to be carefully evaluated. We highlight two practical examples of how taxpayers can fall into this trap.

Example 1 – Allocating the Small Business Limit

Consider a fact pattern in which there are two associated corporations, each of which has a taxable income of $500,000.  As long as a full $500,000 is sheltered using the small business deduction, most taxpayers would be indifferent as to which corporation received the small business limit.  In many instances, one corporation would be assigned 100% of the limit. The other corporation would be assigned none of the business limit for the sake of simplicity.  Even though the income tax payable would not be any different if both corporations were assigned 50% of the small business limit, it has an impact on accessing the wage subsidy since an eligible employer must have a business limit.  Even if 1% of the business limit is allocated, both corporations would be able to access the wage subsidy.

Example 2 – Management Corporation

In other instances, a corporation may be responsible for the payroll function of an associated corporate group.  This management corporation acts as a cost center with any income allocated to it entirely offset by the wages paid, such that any income earned would be nominal and unlikely to warrant an allocation of the small business limit in ordinary circumstances.  Taxpayers who continue to adopt this approach may realize that they may be ineligible for the wage subsidy even though they have eligible employees but are otherwise ineligible because of the mere fact that the management corporation was not assigned a portion of the small business limit.

These examples highlight that corporate groups with multiple employers should assign at least some portion of the small business limit across all of the associated corporations if they want to use the temporary wage subsidy amongst various entities within the same group.

Martin Lee, CPA, CA

Thanusan Raveendran, CPA, CA

Mohammed Al-khooly, CPA, CA

Notes

[1] Interestingly, the wage subsidy would also be available for corporations that earn passive income.  While corporations that earn passive income do not enjoy the small business deduction under subsection 125(1), these corporations are still entitled to a business limit so assigning even 1% to these corporations would entitle these passive corporations to access the wage subsidy.

The post Temporary wage subsidy: Pitfalls for Associated Corporations appeared first on LRK Tax LLP.

Key Highlights

• Interest and penalties relief to Ontario businesses on payments to the Ontario government
• Temporary increase to the Employer Health Tax (EHT) exemption
• Double the Guaranteed Annual Income System (GAINS) maximum payment for older people
• A $200 a one-time payment per child up to 12 years of age, and $250 for those with support needs
• Providing six months of OSAP loan and interest accrual relief
• the Regional Opportunities Investment Tax Credit for investments in some areas of Ontario
• $200 million in new funding to food banks, homeless shelters, churches and emergency services

Interest and Penalty Relief for Ontario Businesses

From April 1, 2020 up until August 31, 2020, penalties and interest will not apply to Ontario’s businesses that miss any filing or remittance deadlines under select provincially administered taxes. These include: Employer Health Tax, Insurance Premium Tax, and Retail Sales Tax. Businesses do not have to provide any documentation supporting their reasons for late‑filing or payments.

Employer Health Tax

Temporary increase to the Employer Health Tax (EHT) exemption from $490,000 to $1 million for 2020. With this plan, more than 90 percent of private-sector employers would not pay EHT in 2020. The exemption would return to its current level of $490,000 on January 1, 2021.

Regional Opportunities Investment Tax Credit

The Government is proposing to introduce a new 10% refundable Corporate Income Tax credit for capital investments in some regions of Ontario. These areas include Kawartha Lakes, Bruce, Elgin, St. Thomas, Windsor , Kingston, Haliburton, Prince Edward, Muskoka, Nipissing Parry Sound Sudbury, and Thunder Bay (there are others not mentioned here).

A Canadian-controlled private corporation that makes qualifying investments that become available for use on or after March 25, 2020, in specified regions of Ontario would be eligible for the tax credit.

Qualifying investments would be eligible expenditures for capital property included in Class 1 and Class 6 to calculate capital cost allowance. These would consist of expenses for constructing, renovating or acquiring commercial and industrial buildings, greenhouses, fences and other assets.

The tax credit would be available for expenditures over $50,000 and up to a limit of $500,000

OSAP Loan and Interest Relief

The Government is temporarily deferring loan payments and interest accrual for six months for Ontario Student Assistance Program (OSAP) borrowers.

Guaranteed Annual Income System (GAINS) maximum payment

To help older people cover essential expenses during the COVID‑19 outbreak, the Government is proposing to double the Guaranteed Annual Income System (GAINS) maximum payment for low-income older people, for six months starting in April 2020. This would increase the maximum benefit to $166 per month for individuals and $332 per month for couples.

You qualify for GAINS payments if you:

• are 65 years or older
• have lived in Ontario for the past 12 months or
  for a total of 20 years since turning age 18
• have been a Canadian resident for 10 years or
  more
• receive the federal OAS pension and GIS payments
• have an annual private income of up to $1,992 if
  you are a single senior or up to $3,984 if you are a senior couple.
• Private income may include money from a private
  pension, the Canada Pension Plan, bank interest, etc.

Parents

To help parents pay for the extra costs associated with school closures, the Government is providing a one-time payment of $200 per child up to 12 years of age, and $250 for those with support needs, including kids enrolled in private schools.

Postponing Planned Property Tax Reassessment

The Government is postponing the planned property tax reassessment for 2021.

Property taxation is based on the assessed value of properties, and in Ontario, those assessments are updated every four years. The next property valuation update had been scheduled to be completed by the Municipal Property Assessment Corporation (MPAC) in 2020 for the 2021 taxation year.

The Government is postponing the reassessment. Assessments for the 2021 taxation year will continue to be based on the same valuation date that was in effect for the 2020 taxation year.

The post Ontario’s Action Plan: Responding to COVID‑19 appeared first on LRK Tax LLP.

You may apply for any four-week period falling within the period beginning on March 15, 2020 and ending on October 3, 2020. According to the draft legislation, the last day to apply is December 2, 2020.

The CERB is supposed to be a simpler and more accessible than the previously announced Emergency Care Benefit and Emergency Support Benefit.

The CERB would cover Canadians who have lost their job, are sick, quarantined, or taking care of someone who is sick with COVID-19, as well as working parents who must stay home without pay to care for children who are sick or at home because of school and daycare closures.

The CERB would apply to wage earners, as well as contract workers and self-employed individuals who would not otherwise be eligible for Employment Insurance (EI). Alternatively, individuals eligible for EI can apply for the CERB instead of EI if the CERB benefit will be more.

Do employees need to be laid off?

Workers who are still employed but are not receiving income because of disruptions to their work situation due to COVID-19, would also qualify for the CERB. In other words, their work must cease due to COVID-19, but they could still be employed.

This would help businesses keep their employees as they navigate these challenging times while ensuring they preserve the ability to quickly resume operations as soon as it becomes possible.

Who is eligible?

Canadian workers, whether through an employer or self-employed, over the age of 15 who have earned more than $5,000 from:

• employment,
• self-employment,
• certain other benefits/income, or
• non-eligible dividends **note this was a late addition on CRA’s website**

in the last 12 months but are now earning no income because of the COVID-19 pandemic would qualify.

A worker is eligible for an income support payment only if the following two conditions are met:

(a) the worker ceases working for reasons related to COVID-19 for at least 14 consecutive days within the four-week period in respect of which they apply for the payment; and

(b) the worker does not receive, during these 14 days, income from:

• employment,
• self-employment,
• Employment Insurance benefits,
• allowances, money or other benefits paid to them under a provincial plan because of pregnancy or in respect of the care by the worker of their new-born children or children placed with them for the purpose of adoption.
• (presumably this includes non-eligible dividends as well due to CRA’s late addition to the rules)

**On April 6th, CRA clarified that for subsequent benefit periods (i.e., after the March 15th to April 10th initial 4-week period), they expect to have no employment or self-employment income.

Can I quit my job and apply?

No. According to the draft legislation, an employed worker cannot quit their employment voluntarily and be eligible for the CERB.

Can I apply if I am already getting EI regular and sickness benefits?

No. Canadians who are already receiving EI regular and sickness benefits as of today would continue to receive their benefits and should not apply to the CERB.

If their EI benefits end before October 3, 2020, they could apply for the CERB once their EI benefits cease, if they are unable to return to work due to COVID-19, provided they meet the other conditions above.

 Canadians who are eligible for EI regular and sickness benefits would still be able to access their normal EI benefits, if still unemployed, after the 16-week period covered by the CERB.

When Can I apply?

The portal for accessing the CERB would be available on April 6th . EI eligible Canadians who have lost their job can continue to apply for EI here, as can Canadians applying for other EI benefits.

The days that you can apply is based on your birth month to avoid bandwidth overload.

How soon will the Benefits be Deployed?

Within 10 days of application. The CERB would be paid every four weeks and be available from March 15, 2020 until October 3, 2020. If you apply for the CERB in early April when the application first opens, your first payment would be 10 days following your date of application.

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