Introduction

On 30 March 2020 the government announced that employers which experience a COVID-19-caused revenue loss of at least 30% will be eligible for a subsidy of up to 75% of each employee's wages.

This announcement is the fourth version of the federal government wage support programme (the so-called 'Canada Emergency Wage Subsidy'). The content was announced orally by the prime minister. At the time of writing, the government had not confirmed the announcement in writing or posted details online.

Key features

According to the oral announcement, this current iteration of the subsidy will:

  • provide a subsidy of up to 75% of an employee's wages (increased from the previously announced 10%);
  • extend to charities, non-profit organisations and large and small businesses (previously, the only business corporations eligible were Canadian-controlled private corporations that qualify for the small business deduction);
  • benefit employers that have experienced a revenue reduction of at least 30% due to COVID-19 (this is the first mention of a revenue test);
  • apply to the first C$58,700 earned per employee – equivalent to up to C$847 per week per employee (under earlier versions of the programme, the subsidy was to be capped at the lesser of C$1,375 per employee and C$25,000 per employer); and
  • be retroactive to 15 March 2020.

The fourth iteration of the subsidy differs significantly from the second iteration, which was included in the COVID-19 Emergency Response Act that Parliament recently approved. Under the second iteration, the specific mechanism used to deliver the subsidy was an Income Tax Act amendment allowing eligible employers to reduce the amount that they would otherwise have to remit to the Canada Revenue Agency in respect of payroll withholdings.

While it is expected that the same approach will be used to deliver the new version of the subsidy, further legislation will be required. The COVID-19 Emergency Response Act allows the Federal Cabinet to determine the amount of the subsidy, but fixes in statute which employers are eligible. To extend the subsidy to companies that are not small businesses, or to implement a revenue-loss test, would require legislative amendment. However, in the case of tax measures, it is conventional for the government to implement a programme as announced and later seek Parliamentary approval of retroactive enabling legislation. The same is expected to occur here.

Comment

The technical details of the programme will likely be released shortly. At present, it is unknown whether additional criteria or procedural requirements will be applied. It is also unclear whether or how the subsidy will apply should an employer have insufficient work for its employees in the first place.

To date, both federal and provincial responses to COVID-19 have often involved implementation details and legal instruments that differ materially from initial announcements.

The programme as announced is not intended to permit employers to pay workers only the 75% covered by the federal subsidies. Employers may only claim a credit for 75% of what they actually pay their employees. Claiming a tax credit under false pretences is an offence under the Income Tax Act.