**UPDATED ON MARCH 26, 2020 TO REFLECT ENACTED LEGISLATION**
On March 18, 2020, in an effort to mitigate the effects of the COVID-19 outbreak on our economy, the government proposed a wage subsidy for a period of three months to help employers and help prevent lay-offs due to revenue losses. Enabling legislation has now received Royal Assent. As mentioned in the Backgrounder issued by the Department of Finance on March 18, 2020, “the subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, partnerships, individuals who are employers, as well as non-profit organizations and charities. Employers would already need to have a payroll remittance account registered with the Minister on or before March 18, 2020. The statutory definition of eligible employers is provided in the COVID-19 Emergency Response Act.
We have since had some clarification from CRA in respect of the administration of the subsidy which has answered many of our previous questions. Here are some additional details that have been provided by CRA:
- CRA has provided additional information with respect to what is meant by the term “eligible for the small business deduction”. According to CRA, only businesses that are Canadian controlled private corporations (CCPC) whose taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million would qualify for the wage subsidy.
- We have also had some clarification with respect to the tax status of the subsidy. As we suspected it would be, it is indeed taxable.
- CRA has indicated that associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
- The subsidy is available immediately in respect of remuneration paid between March 18, 2020 and June 20, 2020. For example, regular remitters, can reduce their remittance that is due to the CRA on April 15, 2020.
- Note that the subsidy cannot be used to reduce CPP or EI remittances. It is only meant to reduce remittances of income tax withheld from employees.
- If eligible employers choose not to reduce their payroll remittances during the year, they can ask for the subsidy to be paid to them at the end of the year or transferred to next year’s remittance. Note though that only the remuneration paid between March 18, 2020 and June 20, 2020 is eligible for the subsidy.
There is no apparent restriction in respect of non-arm’s length employees.
Here are some numerical examples provided by CRA:
Example 1
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
Example 2
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
Example 3
If you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.
Example 4
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 have any questions with respect to how to access this wage subsidy, please contact your Welch LLP representative.
