So We Know a Little More…
So…. it’s April 1, and we had some more announcements. We assume that these are not intended to be April Fool jokes.
A large caveat: The PM and his other ministers have been quite candid about the following:
- They’re (practically) making this stuff up on the fly – we’ve never been here before.
- They are focusing on the big stuff: keeping Canadians linked to their employers, and making sure there’s a safety net for individuals and businesses. Lots of invoking “Team Canada”, war-time spirit, we’re all in this together, etc….. Lots of calls to businesses to “Rehire your workers”. Probably the right focus to keep.
- They acknowledge that the programmes are not fine-tuned. There will be things that fall through the cracks, don’t make obvious sense, etc….. They will tidy up as much of it as they can, as quick as they can. They’ve also commented that there will be zero-tolerance for anybody who tries to abuse this situation for unfair advantage. Fair enough.
- These measures have an expiry date penciled in – but these are not firm, and will be re-assessed as necessary. The goal is to get everybody through this.
- This will be expensive – the total package of support is currently costed at $105bn, or nearly $3,000 per Canadian – but this isn’t the time to be counting the cost.
Broadly, we agree with this approach and feel that the Government is doing the best that can be done. Some of the details and unanswered questions will affect many of our friends and clients. We’ve tried to call these out as best we can, below. We also note that the PM and ministers have to be a bit cautious in what they say, before it gets put before Parliament…
Big item #1: Canada Emergency Response Benefit (CERB)
You may recall that this is the “catch-all” benefit available for anybody affected by COVID, who is not claiming EI, or has not been (re)hired by their employer. Reminder – if you’re on EI you will already be in the system for CERB as applicable.
If you have been hired back and are being paid via the 75% wage subsidy, you can’t claim this.
The front page of the portal for applications is now live (canada.ca/coronavirus-cerb), but you can’t actually apply until Monday, April 6.
Things to note since our last update (CLICK HERE):
- The amount has been tweaked to $500/wk (not $2k/mo). Good idea because (a) that brings it slightly closer to the max amount you get under EI, and (b) hopefully you can get rehired mid-month!
- You have to reapply weekly and the portal will accept applications on a birthday-staggered basis (Jan-Mar babies on Mondays starting April 6, Apr-June babies on Tuesdays April 7, Jul-Sep babies on Wednesday, April 8 and Oct-Dec babies on Thursday, April 9, Friday, Saturday and Sunday are for any birthdays), presumably to prevent overloading the system on Monday. You won’t be able to apply ahead of the day – so don’t try!
- Funds expected to flow mid-April. January birthdays won’t get their money any faster than December birthdays. Claims can be backdated to March 15.
- Data will automatically transfer from the EI system into the CERB system. We’re not quite sure exactly when this would happen or apply. We presume this will be made clear in the future.
- No idea of the evidence that’s needed in order to apply. Or if it applies equally to people who were in full-time work, vs part-time. I guess we’ll find that out on Monday.
Big item #2: 75% Wage subsidy (Canadian Emergency Wage Subsidy – CEWS)
Please read our overview from the last post. This post updates what we know and don’t know. The government’s announcement was delayed 24 hours because they’re still working out the details. And there are more details to follow.
IMPORTANT: This information is what was announced at the press conference. We’ve seen nothing written. And it’s not law until it’s gone through Parliament.
We note that the 10% wage subsidy that was announced earlier has been passed into legislation (on March 25) – unlike these measures announced on April 1. The 10% is confusingly named the “Temporary Wage Subsidy for Employers (TWSE). Same per-business and per-employee limits apply to the 10% as were previously announced. We haven’t seen the paperwork, but as far as we know, the 10% TWSE remains in place, and the businesses that down qualify for the 75% CEWS can claim it.
Again, an emphasis that this is “policy on the fly”… We have some sympathy, as they are trying to push through huge technology and process changes, in an incredibly short time.
Q1: Who gets the subsidy money? And what about the 10% we heard able earlier?
The process appears to be that the company will pay employees at least 75% of what they were making before, as normal – and then apply to CRA for reimbursement. CRA will reimburse the employer up to 75% of the wages previously paid. Reminder – only eligible companies can apply – see Q6(a) and (b) below.
The previously announced 10% TWSE was also money that was supported by the employer (by reducing the payroll remittances that need to be sent to CRA)
Businesses that are not eligible for the 75% CEWS subsidy (eg. they haven’t suffered a 30% revenue hit) should be eligible for the 10%.
We understand that if you qualify for and claim the 10% – you only get to claim an additional 65% here. In other words, you get up to a total of 75%, but no double-dipping.
We believe that all the payroll processes (methods of payments, deductions, etc.) will apply as normal. The burden is not on the employee to apply. We also assume that means that T4 process won’t be affected, other than reflecting the actual salary received (regardless of if paid by the employer or covered by the government).
Q2: 75% of what amount?
If somebody was on salary or stable hours, then it’s fairly simple – the government will reimburse the employer 75% of that.
Less clear as to how you calculate it for somebody with variable hours or overtime. The Q&A suggested looking to what was paid in the past – suggesting that you calculate it using (for example) an average of the last 3 months. Unless we get specific guidance on this, this may be a decision for the employer to make, potentially in discussion with the employee(s).
We assume that this reference to earlier months is also meant to limit risk of abuse (people suddenly adding their kids to payroll, increasing their own hourly rate, etc.).
Q3: 75% or 100%?
The subsidy will be 75% of whatever the “baseline” or wage is, as per above. That means that the employee will receive a salary/wage of at least 75% of that, to a maximum of $847 per week per person. That’s 75% of an annual salary of $58,40. Unlike the initial TWSE subsidy, this 75% CEWS does not have a cap on the total $ per employee or total $ that can be received by the employer.
The PM and Minister Morneau also reiterated that they expect employers to “do all they can” to top up that wage, ideally to keep it at 100% of the baseline amount. This means that the company has to cover cashflow for 100% of the wage (plus employer EI, CPP etc.) in the short-term, and ultimately pays 25% of it after subsidy.
It was also acknowledged that in some cases – for example, your restaurant is closed – that this will not be possible. It’s a strong encouragement to top salary up. This was mentioned several times with different wording, with lots of references to “all in this together”…
However….. There was no word if the government will revisit this later. Or, if so, how they would assess whether or not employers really made all efforts, to top up salary. We seem to be assuming good faith, for now.
This is a decision for the employer: “Can I afford to top up to 100%, or do my employees have to take a pay cut of up to 25%?”
Q4: How does the employer get the money back, and what’s the cash flow impact?
Minister Morneau indicated a CRA portal to apply, with funds to flow by mid-May. He stressed that they are building the system as fast as they can. As said above, we have some sympathy with this – the changes are HUGE and the timetable very short.
Companies need to be aware that this may strain their cashflows, if you’re running payroll in April, but not getting the money until mid-May.
The government acknowledged this and referenced the cashflow support that they have tried to put in place, to help companies bridge this gap. See our prior posts, but as a reminder these include:
- $40k government-guaranteed, zero-interest loan, accessed via your bank or credit union (Canada Emergency Business Account)
- Behind-the-scenes work with commercial lenders, to “open the taps” for credit
- Extending lending from Crown Corporations such as BDC, including potentially significant cash flow support
- Deferral of any non-payroll tax payments (eg. HST, corporate taxes)
- Banks are giving businesses the ability to defer loan payments to free up cash flow
Q5: How and when does the company phase employees back in?
The government didn’t discuss “how”, but encouraged “as soon as possible”
This is a decision for the employer: “I have no money coming in. When can I first afford to start paying payroll again, given I won’t get reimbursed until mid-May?”
In many cases, the employer won’t be in a position to “backdate” payroll to when the crisis started.
Minister Morneau indicated that employees should claim the CERB (or EI), if they suffered a gap in paid employment before wages start to flow again. Recall that CERB claims can be backdated to March 15. Again we hope that details will follow.
Q6(a): Is my business eligible to apply for the subsidy – Business structure
It’s been clearly stated that there is no size restriction and that charities and non-profits are also eligible.
We believe that from remarks that the CEWS is also available to unincorporated businesses – those who are structure as proprietorships or partnerships – rather than just corporations. If correct, this is helpful and a good clarification. we look forward to seeing the paperwork.
Minister Morneau did not address whether unincorporated employers – those who are structured as proprietorships or partnerships – are eligible for the subsidy. He used the word “company” (not “businesses”) in his prepared remarks, although it was less precise in Q&A. So we still don’t know if unincorporated businesses can apply. We hope this will be clarified.
He also did not address whether or not the business needs to be Canadian-owned or controlled to be eligible. For example, is a Canadian company eligible, if it is controlled by US shareholders? We don’t know. From some wording that was used earlier, we assume that this means Canadian-controlled companies only, but we don’t know this for sure.
Q6(b) Is my business eligible to apply for the subsidy – 30% revenue hit
Eligibility is based on a 30% reduction in your gross revenues in the corresponding month in 2019 (and you need to reapply each month).
There are several unknowns. Here are the obvious ones – we hope we will see clarity on these:
- What if you’re in your first year of business (or had no revenues in the same month last year for any other reasons)? Minister Morneau indicated in response to a Q that they are working on this (possibly compare against last month, etc). More to follow.
- What happens if you’ve grown dramatically since last year? For example, you’ve doubled revenues and payroll since last spring – but took a 50% hit in March. That would mean your revenues are stable, year-on-year, and superficially you don’t qualify. We don’t know yet.
- I lost half of my revenue from March 15 onwards. That’s a 25% hit in March, not 30% – do I still qualify in March? Or not until April? Again, we don’t know yet.
Other notes:
- You need to know what your revenue was in that corresponding month. You’ll need access to that information on a month-by-month basis. That may be challenging for some. You also need to reapply each month, but we don’t know what that process looks like yet.
- A note to our full-service clients: Please CALL US if you anticipate you will need this revenue data – for either March 2019 or 2020 – and don’t know how to get access to it. We’ll work with you to help you demonstrate your revenue loss.
- Businesses who invoice – We interpret the words “gross revenues” to suggest that eligibility is based on the amounts you have billed (regardless of whether or not you bill when you do the work, before you do it, or upon completion). So, your eligibility may depend on the timing of billing, not when work was actually done. This is our interpretation, not theirs. Waiting to see the fine print.
Q7: I’m an employer – what do I tell my employees?
We always recommend to be as truthful as you can – including on what you don’t know. But we also suggest you think through your answer to some of the questions we’ve posed above, so you don’t mislead or create false expectations.
One extra thing from the Ontario government
The Feds have been making most of the running – but the provincial government hasn’t been idle either. For those of you in Ontario, we refer you to https://budget.ontario.ca/2020/marchupdate/annex.html#section-3.
In particular, we draw your attention to the Regional Opportunities Investment Tax Credit…. If you’ve been thinking of buying commercial property – and those plans will survive this crisis – your Ontario government wants to help you out with up to $50,000. Fortune favours the bold!
CONCLUSION:
Clearly there are things we don’t know. We hope the above will be helpful. Please think through your situation, then call us if we can help.
Good luck and stay safe!