Update: Canada Emergency Wage Subsidy and other COVID-19 tax issues
Canada Emergency Wage Subsidy
Top-priority questions on CEWS
Members of CPA Canada and the Canadian Tax Foundation (CTF) are raising many questions and concerns about the CEWS, so the two organizations formed a CEWS working group to help prioritize these issues and work together with the CRA to resolve them.
As this work progresses, the CRA asked us to submit a short list of key priorities for them to consider. We will keep you updated as the work on CEWS issues and questions advances.
The CRA’s FAQs on CEWS
The CRA has just posted a list of frequently asked questions and answers (FAQs) regarding the CEWS on their website. These FAQs address many common questions about the CEWS received by the CRA. We understand there are other questions to which the CRA is still developing answers. Most of the prioritized questions discussed earlier were not addressed. Note that the CRA states in question 35 that it may publish a list of applicants. We will review the FAQ and provide further updates as needed.
The CRA’s CEWS calculator
The CRA launched a CEWS calculator on April 21, 2020, before its system for accepting applications opens April 27. Releasing the calculator and related guidance in advance will help taxpayers and advisors know what they will need to have ready when they apply. According to the CRA, the actual application form will be a refined version of the calculator.
Based on our review, the material clarifies some aspects of the application process, but some areas of uncertainty remain that we have highlighted for the CRA. We also made a number of suggestions to the CRA, including these important items:
- Multiple payroll program accounts: The commentary suggests that employers must separately calculate and apply for each of their CRA payroll program accounts. This caused confusion for eligible entities with more than one payroll program account as the legislation in Bill C-14 requires the CEWS to be computed by the eligible entity as a whole.
We discussed this with CRA, and we understand that eligible remuneration must be computed on a payroll program account basis. The test to determine whether revenue declined by 15 or 30 per cent is done at the eligible entity level.
- Applications through Represent a Client: We have asked CRA for guidance on applications submitted through Represent a Client that clearly defines the expectations and responsibilities of taxpayers and advisors, in particular, around the attestation of the application. Bill C-14 seems to make it clear that the attestation should be done by a member of the applicant organization and not by an external advisor. The CRA say they are taking these concerns into account as they develop further guidance.
We also asked the CRA to confirm what authorization access level representatives will need to have to apply for the CEWS on their client’s behalf in RAC. We were told they must have level 2 or level 3 access and that more information will be provided in the upcoming guidance.
- More worksheets suggested: The calculator provides worksheet templates for employers who pay employees weekly or bi-weekly. Many employers follow a semi-monthly pay cycle, with payments on the 15th and last day of each month, so we suggested that the CRA develop templates for this and other pay cycles.
- Taxable benefits: We asked the CRA for more specific guidance on what taxable benefits are included in eligible remuneration, particularly automobile benefits. The backgrounders from the Department of Finance Canada say such amounts should be excluded, but the legislation does not seem to require this.
Rehiring employees retroactively
The CRA’s calculator commentary clarifies that employees who were laid off or on unpaid/reduced pay leave may be rehired retroactively and qualify for the CEWS, as long as:
- the employer rehires the employee
- the employee’s retroactive pay and status meet the eligibility criteria for the claim period
The CRA adds that employers must rehire and pay these employees before including them in the subsidy calculation.
The CRA also provides information on repaying Canada Emergency Response Benefit (CERB) amounts when an employee no longer qualifies for the CERB due to the change in their employment status.
Pre- and post-payment verification
After the application system opens on April 27, the CRA expects to begin to release funds for approved applications starting on May 5, 2020. Their goal is to process most applications within 10 business days of receipt. All applications will undergo an initial validation process, with CRA’s main objective to ensure the subsidy’s integrity while quickly releasing funds.
Post-payment verification work will start as early as June or July 2020. The CRA recognizes the importance of providing certainty to businesses on their subsidy claims as soon as possible.
As part of this pre- or post-payment verification work, the CRA may contact applicants by telephone to verify information on applications, so clients should be advised that they may get such a call. The CRA is aware that taxpayers will want to verify that they are really speaking to a CRA employee and will take steps to minimize this problem. We will update you as we learn more.
Updates on other COVID-19 tax questions
CPA Canada and the CTF are also collaborating on a list of other tax questions and issues related to COVID-19, and we posted the latest version of this list on April 20, 2020. This updated summary offers updates on many issues and highlights questions that are pending a response.
Below we highlight some developments that have occurred since our April 20 update.
Reimbursements of computer equipment expenses
On April 22, 2020, the CRA released technical interpretation 2020-0845431C6 (F) on reimbursements for personal computer equipment to allow employees to work from home during the COVID-19 crisis. The release states that the CRA is willing to accept a reimbursement of up to $500 for such purchases that are principally for the employer’s benefit and supported by an invoice, so a taxable benefit will not arise.
Tax filing deadlines
We have received feedback from several practitioners and firms on the current deadlines, including extensions. Although getting information from some clients remains difficult, most believe that they will be able to meet the general T1 deadline on June 1st where they have been able to get information from clients.
However, concerns are being raised on the T1 deadline for self-employed individuals and their spouses/partners on June 15 and the T2 deadlines for November 30 and December 31, 2019 year-ends (currently due June 1 and June 30 respectively). Many firms are realizing that the time they normally set aside for this work will be taken up by the extended T1 season, helping clients apply for government pandemic programs and a more general loss of capacity.
We have had an initial discussion with CRA about these concerns, and a follow up conversation is planned. We have also asked the CRA for more specific information on how the taxpayer relief program will operate for pandemic-related issues.
Self-employment income and the CERB
The government has recently updated its guidance regarding self-employment income and the CERB, indicating that self-employment income should be based on net “pre-tax income” for purposes of the CERB’s $5,000 minimum income requirement and the $1,000 of income that people can make during the claims period.
We will continue to stay on top of all the COVID-19 tax issues and keep you informed of new developments. Check our Federal Government COVID-19 Tax Updates page often for our latest updates.
NOTE: The commentary function of this page has been temporarily closed. Unfortunately, because of the volume of feedback regarding recently announced COVID-19 tax measures, we do not have the capacity to respond to individual inquiries. We strongly encourage you to visit our Federal Government COVID-19 Tax Updates page for information.