What Is it?
Among the package of COVID-19 proposals is a temporary subsidy to employers to offset payroll remittances that are due in the next three months. The subsidy is targeted to assist small to modest-sized employers as defined below. This subsidy was part of the original announcements made by the federal government on March 18, 2020, and implemented in Bill C-13 which was enacted on March 25, 2020, which provides further guidance and clarification.
GCSE Observations: The maximum eligible subsidies, the applicable rates and description of how the rules will apply are based on the original announcements made on March 18, 2020. Some of the information contained below is not reflected in the legislation passed on March 25, 2020. The implementing legislation referred to regulations that will prescribe applicable amounts and rates. Until these are released, we are uncertain whether there will be additional rules restricting access to the subsidy.
Who is entitled to the subsidy?
An eligible employer must be:
- a non-profit organization, a registered charity, or a Canadian-controlled private corporation (CCPC) if its taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million;
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses, or other remuneration to an eligible employee. An eligible employee means an individual who is employed in Canada.
The enacted legislation amended the eligible employer criteria as follows:
- The CCPC must have a business limit in the preceding year. This criterion takes into consideration the taxable capital of associated companies for the $15 million cap, but not the business limit grind resulting from excess investment income;
- If a CCPC did not have a year-end prior to the eligible period, it is an eligible employer if it meets the criteria for the period deemed ended immediately prior to the eligible period;
- Individuals (other than trusts) can be eligible employers; and
- Partnerships, all of the members of which are eligible employers other than non-profit organizations, may qualify as eligible employers.
What types of businesses will not qualify for the subsidy?
Based on the information available, employers who exceeded the $15 million taxable capital in the preceding year, certain unincorporated businesses (other than those listed above), businesses that hire contractors instead of employees and businesses without paid employees do not qualify.
GCSE Observation: Due to the requirement to have a payroll program account on March 18, it appears businesses cannot convert contractors into employees after March 18 in order to qualify for the subsidy.
What is the eligible period?
As originally announced, wages paid between March 18 through June 20, 2020, are eligible for the subsidy. The implementing legislation amended that to refer to a period that begins on March 18 and ends on June 19, 2020.
How much subsidy is available?
The maximum subsidy is $25,000 per eligible employer. Associated businesses are not required to share the $25,000.
The subsidy is calculated as 10% of wages paid between March 18, 2020, and June 19, 2020, and limited to $1,375 per employee. The subsidy is based on total wages paid in the period and does not appear to be based on the wages paid to each of the employees.
For example, if an employer has 10 employees, and the total wages paid in the March 18 to June 19 period is $250,000, the subsidy that may be claimed is the lower of $25,000 (10% of $250,000) and $13,750 ($1,375 each for 10 employees).
- If the payroll withholdings on one employee’s wages exceeded $25,000, and the other 9 employees earned nominal wages during the period, the wording in the proposal appears to allow the employer to claim a subsidy of $13,750 (see above) based on the total number of employees. It is unclear whether all the employees must have worked a certain number of hours or paid a certain amount of wages to be counted for this purpose.
- The wages “paid between March 18, 2020, and June 19, 2020” refers to the actual date of payment to the employees as per normal source deduction rules. It would appear that may allow for manipulation (such as prepayment of wages in order to maximize the subsidy available) that may not be intended.
What if the subsidy exceeds the amount of required payroll remittances for the period?
The legislation clarified that the subsidy is deemed payment by the employer when source deductions on wages paid within the eligible period are withheld. If the calculated subsidy is higher than the required payroll remittance for the period, the current period remittance will be zero (except, as noted below, any remittance amount related to CPP and EI). The excess may be used to reduce future remittances, including remittances in respect of wages paid after June 19, 2020. This possibility is not reflected in the legislation.
Can the subsidy be applied to all payroll remittance amounts?
The subsidy can only reduce the federal and provincial income tax portion of the payroll remittance, excluding any remittances that relate to the employer’s or employees’ portion of CPP and EI premiums.
Will subsidy affect actual amounts withheld from employees’ pay?
No. The subsidy will only reduce the employer’s remittance obligations. It does not impact the employees’ source deductions obligations.
Is there an alternative to apply the subsidy to payroll remittance?
Yes. The business may request to have the calculated amount paid at the end of the year or have it applied to the following year’s remittances.
GCSE Observation: No details as to how and when a business advises the CRA that it is choosing either option.
What books and records will be required to support the subsidy calculation?
The required information includes the total wages paid during March 18 through June 19, 2020 period, the total federal and provincial income tax that was deducted from the wages, and the number of employees paid during the period.
GCSE Observation: CRA will release information on how the subsidy should be reported in the near future.
Is the subsidy taxable to the employer?
Yes. It is income in the year the subsidy is received.
GCSE Observation: It is not clear when the subsidy is considered received when claimed as a reduction of payroll remittance, when earned or when cash is received (if that option is chosen).
What if the business is closed, or did not pay any wages during the period?
The business must have paid wages to be entitled to claim the subsidy.
Are remittances to Revenu Quebec eligible for the subsidy?
Only remittances to the CRA are eligible for the subsidy.