CRA Clarifies Important CEWS Details in FAQ

Beth Graddon

Over the past weekend, the government quietly added to their Canada Emergency Wage Subsidy (CEWS) FAQ and updated the application portal, clarifying a number of important questions for business owners on the deeming rule for claim periods 5 to 10, employee bonus and commission in eligible remuneration calculations, and how to handle pay associated with termination when applying for the CEWS. We’ve pulled out the highlights for you:

Here are the most recent clarifications that the CRA has provided on their CEWS FAQ:

5-03.1. How is the reduction in revenue for the immediately preceding period calculated for purposes of the deeming rule for claim periods 5 to 10?

In order to determine if the deeming rule (see Q5-03) applies, an eligible employer must compare its reduction in revenue for the current claim period with its reduction in revenue for the immediately preceding claim period. For this purpose, the reduction in revenue for the immediately preceding claim period is calculated using the rules (that is, the elections and approaches) that were applicable to that specific claim period for the eligible employer.

12-3. Can an eligible employer amend or revoke an election?

Yes, an eligible employer may amend or revoke an election. However, the amendment or revocation must be made and the claim amended (where applicable), on or before the due date for filing the wage subsidy application for that claim period (see Q26). For elections that apply to multiple claim periods (such as the election to use the cash or accrual method for determining qualifying revenue (see Q12), or the election to use the alternative approach for prior reference periods (see Q2)), the amendment or revocation must be made before the application due date for the first claim period in respect of which the election is made.

7-5. Are bonuses paid to an eligible employee included in eligible remuneration for purposes of computing the wage subsidy?

An amount paid as a bonus by an eligible employer to an eligible employee is generally considered salary, wages and remuneration, and would be considered eligible remuneration.

However, only eligible remuneration paid by an eligible employer to an eligible employee in respect of a week in a claim period is included for purposes of computing the wage subsidy. Therefore, an eligible employer may need to do a manual calculation to determine the amount that was paid in respect of each week in the claim period.

For example, in the case of an annual bonus paid by an eligible employer to an eligible employee, it would generally be reasonable to consider that the annual bonus was earned throughout the fiscal period to which it relates.

Further, for the purposes of computing baseline remuneration in respect of an eligible employee for a claim period, the bonus amount must be paid during the relevant baseline remuneration period as described in Q18. It would also be reasonable, for purposes of computing baseline remuneration, to calculate the average weekly eligible remuneration by dividing the bonus amount by the number of weeks included in the period to which it relates (see Q18-2).

An eligible employer will not be eligible for the wage subsidy in respect of eligible remuneration paid to an eligible employee with which it does not deal at arm’s length (for example, an owner-manager) for a week in the claim period, if it did not pay any eligible remuneration during the employee’s relevant baseline remuneration period described in Q18 (see Q17-2).

17-6. How are commissions paid to an eligible employee included in eligible remuneration for purposes of computing the wage subsidy?

An amount paid as a commission by an eligible employer to an eligible employee is generally considered salary, wages and remuneration, and would be considered eligible remuneration. However, only eligible remuneration paid by an eligible employer to an eligible employee in respect of a week in a claim period, is included for purposes of computing the wage subsidy.

To determine whether a commission payment is in respect of a specific week, it is necessary to review the complete set of facts pertaining to a particular situation, including the employment contract, which would normally describe the conditions required to be met for an employee to be entitled to a commission. Other factors may also be relevant, such as the practices specific to a particular industry, which may provide a reasonable methodology to determine whether a commission relates to a given week.

For example, if a car salesperson, who is remunerated by commission when a car is sold as provided in the employment contract, sells two cars in a given week in a claim period, it could be reasonable to consider that those commissions are paid “in respect of the week” in which those two sales occurred.

17-7. Are payments of wages in lieu of termination notice and salary continuance payments eligible for the wage subsidy?

An amount received by an individual arising out of or in consequence of the termination of their employment may be considered income from employment or a retiring allowance. A retiring allowance is not eligible remuneration for purposes of the wage subsidy.

A payment in lieu of earnings for a period of reasonable notice of termination (wages in lieu of termination notice) that is made under the explicit or implied terms of an individual’s employment is considered salary or wages from employment. However, wages in lieu of termination notice are not considered to have been paid in respect of a week, and therefore are not eligible for the wage subsidy.

Salary continuance payments are generally periodic amounts paid to an employee who is being terminated but who remains on payroll and remains entitled to benefits available only to employees, even if they are no longer required to report to work. Where pension benefits continue to accrue to the individual, an employment relationship continues to exist (as pension benefits only accrue to employees) even though the individual is not required to report to work.

Where the employment relationship continues to exist, salary continuance payments to an eligible employee are salary or wages from employment, that would generally be considered eligible remuneration paid in respect of a week and would be eligible for the wage subsidy. However, an employee receiving salary continuance payments will not be considered to be on leave with pay for purposes of the wage subsidy (see Q20-03).

17-8. Does a payment to an eligible employee under a supplementary unemployment benefit plan (“SUBP”) qualify for the wage subsidy?

A SUBP, often described as a top-up plan, provides benefits that supplement the employment insurance benefits that employees receive during a period of unemployment due to a temporary work stoppage. A SUBP can be funded through a trust or unfunded and can be registered with Service Canada or with both Service Canada and CRA.

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