April 8th, 2020 the Government of Canada has shared new information regarding the 75% Canada Emergency Wage Subsidy; with some changes to the previous announcement.
Disclosed below are the changes from our last post.
(a) Revenue test – the government has loosened the declining revenue criteria in the month of March by changing it from 30% to 15%. The 30% revenue test remains intact for the months of April through to June.
The other notable change, in addition to the year-over-year revenue calculation, is an alternative benchmark in calculating the change in revenues. We now have two methods of determine your change in revenue. Under this approach, employers would be able to compare their revenue using an average of their revenue earned in January and February 2020.
For example, assume your revenues in January and February were $100,000 and $140,000 for a monthly average of $120,000. If your March 2020 revenues dropped to $90,000, your business would suffer a 25% drop in revenues which is greater than the 15% threshold. If revenues for any of the months April, May, or June drop to $84,000 or lower, your business would suffer a 30% drop in revenues and eligible for the wage subsidy.
One caveat is that you are required to select only one approach, and apply it throughout the program period. That means you can’t alternate between the two methods.
(b) Accrual or cash method – the government has also allowed business owners to calculate the revenue noted above using the accrual or cash method. I find this one interesting and could benefit those where cash collection of sales/accounts receivable have significantly dropped in 2020 compared to 2019. I recommend you start reviewing the historical revenues and cash collected from 2019. Then comparing that to your actual March 2020 figures and forecasted estimates for April and subsequent months.
Again, similar to the revenue test, once you have chosen the accounting method you will be required to use that method throughout the program period.
(c) CPP and EI Refund – the government is also proposing to expand the CEWS through a refund of CPP and EI taxes paid by the employer. This is a 100% refund for each week throughout which those employee are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees. 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 that week but does not perform any work for the employer in that week.
Note – as at July 15, 2020 this subsidy has been extended to December 2020.
More information about this new CEWS can be found here: