Are you an owner/manager of a small business or Canadian Controlled Private Corporation (CCPC) and wondering how to help your employees who are working fewer hours or have been laid off due to the COVID-19 health pandemic? Recently, the federal government set up a Temporary Wage Subsidy Plan to help these individuals and this program is already in operation. It should be noted that this program is separate from the Canada Emergency Wage Subsidy Program (CEWSP) that was announced on March 27th, which is in draft legislation right now. That subsidy will be a topic for a future blog.
Which Employers are Eligible?
Eligible employers include:
- individuals (excluding trusts),
- partnerships comprised exclusively of individuals, registered charities or CCPCs eligible for the small business deduction,
- non-profit organizations,
- registered charities, or
- CCPCs (including a cooperative corporation) eligible for the small business deduction.
Eligible employers must also have one or more employees, a Business Number and a Payroll Program account as of March 18th, 2020. CCPCs must have had a business limit for small business deduction purposes in their prior taxation year.
These programs are being offered as an incentive for employers to keep employees working during this unprecedented time in our country. In order to receive the Temporary Wage Subsidy, employers must have employees on the payroll during the applicable period. If a business is closed during this time or has laid off all employees due to an interruption in business, they will not be able to claim the subsidy.
How Does the Temporary Wage Subsidy Work?
The subsidy equals 10% of the remuneration paid for a three-month period starting on March 18th, 2020 through to June 19th, 2020. The total amount of the subsidy is capped at $1,375 per employee and $25,000 per employer (associated CCPCs are not required to share the per-employer maximum).
It is not necessary to apply for the subsidy; rather, businesses will simply factor it into their operations using a calculation based on the number of eligible employees employed during the three-month period. It should be noted that this program is available to employers who may not qualify for the CEWSP but may still be eligible to take advantage of this program. Some employers may qualify for both and if so, any subsidy applied under the Temporary Wage Subsidy will likely be deducted from future benefits under the CEWSP.
The primary way for eligible employers to access this subsidy by reducing the payroll deductions they remit to the Canada Revenue Agency (CRA) during this period. If they choose not to reduce deductions, they can do the following:
- they can ask for a subsidy payment at the end of the year or
- transfer the unused subsidy amount to their next year’s remittance.
Employers should continue to deduct income tax, CPP contributions and EI premiums from employees’ salary, wages or other remuneration as they normally would. The subsidy will then be applied when the employer remits these amounts to the CRA, as the employer’s payroll remittance of federal and provincial income tax will be reduced by the amount of the subsidy. It should be noted that employers are not permitted to reduce their remittance of CPP contributions or EI premiums. The subsidy is to be applied to federal and provincial income tax deductions only.
A Sample Calculation:
Below is a sample calculation provided by the CRA, for an employer with 8 employees, whose salaries would exceed the cap of $1,375 per employee:
You pay 8 eligible employees monthly salaries of $4,750 for a total monthly payroll of $38,000. Your wage subsidy for the month will be 10% of $38,000, or $3,800.
For the three-month period, if all your payroll information remains the same in each month, you will pay $114,000 of remuneration. Therefore, 10% of the remuneration you pay in the three-month period is $11,400.
Since this amount is above the maximum allowable amount of $11,000 ($1,375 x 8 employees), your total wage subsidy for the three-month period will be capped at $11,000.
The CRA recommends that eligible employers keep documentation to support their subsidy calculations, including:
- the total remuneration paid between March 18, 2020, and June 20, 2020
- the amount of federal, provincial or territorial income tax deducted from that remuneration
- the number of employees paid in that period
The Temporary Wage Subsidy may assist employers facing a reduction in business during the global pandemic by increasing cash flow, allowing them to keep more employees on board during this time and reducing layoffs. However, the application and calculation of the subsidy can become complex. Employers who are unsure about their eligibility, or how to apply the subsidy to their current payroll should seek the advice of experienced accounting professionals to ensure compliance with the program and avoid penalties down the road.
If you are an employer and would like more information about your business’s eligibility or how the Temporary Wage Subsidy program could benefit your business, please contact the Chartered Professional Accountants at ESS CPAs LLP by calling 905-517-2297 or contacting them online.