COVID-19 Update #5
This post contains significant updates regarding the Temporary Wage Subsidy for Employers, and changes that have been made to relief measures available for individuals. Before we get to that though, please keep a couple of other things in mind:
Scammers are already at work manipulating the confusion, government announcements, etc. Please be VERY CAREFUL about clicking on any texts, emails, etc. notifying you of government payments being sent to you. The federal and provincial governments will NEVER text or WhatsApp you to give you money! If it sounds too good to be true, it likely is. If in doubt, feel free to reach out to us.
Also note that our T1 (personal tax return) processing pace has slowed significantly recently. At the moment, we are trying to ensure that we keep on top of business and personal relief measures, helping clients who need assistance accessing aid programs, EI, etc. We will refocus on T1s as soon as we possibly can. We hope you can understand, and that you can accommodate us. Of course, if you require a completed T1 urgently for financing or other requirements, let us know and we will get it done for you.
If you are not an employer, there is likely no point in reading further, although we will not discourage you from doing so! However, if you do have employees, please keep reading, because the following will affect you!
Temporary Wage Subsidy – Important for all employers
Legislation was passed yesterday, enabling the Temporary Wage Subsidy which was announced earlier. This gives us certainty as to what shape the program will take, who is eligible, etc. There were a few changes from the details that were previously announced. And there will continue to be some changes. We received a phone call today from our local MP, Alex Ruff, who assured me that much of this whole relief package is still a work in progress. However, with the Temporary Wage Subsidy in particular, we believe the specifics are sufficiently finalized that we can provide some solid guidance.
Eligibility has been expanded. Eligible employers now include any person or partnership that employs at least one individual in Canada, had a CRA payroll number on March 18, 2020. As announced earlier, most Canadian-controlled private corporations (a “CCPC”), non-profit entities, and registered charities are also eligible.
The subsidy will be calculated on eligible wages PAID during the period beginning March 18, 2020 and ending June 19, 2020. The subsidy amount will be equal to 10% of the remuneration paid during this period, to a maximum of $1,375 per employee (which equates to $55,000 of annual salary with $13,750 gross salary paid during the three month period). There is also a cap of $25,000 total subsidy per employer. If an employer has total eligible payroll of more than $250,000 during the three month period, the cap will limit the amount received. Otherwise, only the per employee cap will apply.
So how does this program actually work? It’s interesting… For any payroll run during the eligible period, you will need to manually calculate the subsidy as a reduction to the required payroll income tax remittance. For example, if you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050 (thanks, CRA website).
Once you have calculated the subsidy to which you are entitled, you can reduce your current payroll remittance by that amount. So, you will fill out your paper or electronic PD7A payroll remittance voucher as usual, except that you will reduce the income tax deduction reported by the subsidy amount calculated above. It’s important to note that you will not adjust your paycheques, you will only reduce the REPORTED income tax deductions remitted.
Unless you are an advanced remitter, the first remittance to the CRA that will be affected will be the remittance due April 15, 2020.
Some have asked whether they must reduce remittances during the eligible period. The answer is no. You can choose to calculate the subsidy later, and then request that the subsidy be paid to you at the end of the year, or be transferred to next year’s remittance. Of course, anyone who has had much to do with T4s, PIER Reviews, etc. will know how stingy the CRA can be with releasing credits on payroll accounts at year-end. Therefore, proceed in this direction with caution.
It is important that you maintain records to support your calculation. The CRA says these records must include the total remuneration paid during the eligible period, total amount of all income tax that was deducted from that remuneration, and the number of employees paid during that period. However, they go on to say that they are currently updating reporting requirements, so this could change yet.
You may very well have questions how to account for this subsidy in your financial records, and/or in your payroll software. This is something we are still exploring, and the approach is of course going to vary depending on the software you use. If you are using WagePoint, or if we are preparing payroll for you, it is all looked after. However, if you are preparing your own payroll, keep an eye out for alerts, how-to guides, etc. from your software provider. If you do not receive guidance, or if you need help, please let us know and we will do our best to help you out.
You should also remember that it appears this subsidy will be taxable (for the recipient, which is the employer). This is going to lead to interesting times approximately a year from now when we will need to demonstrate to the CRA that the amount received has in fact been included in your taxable income. This is another reason why good records will be essential for this program.
The CRA says their objective with this program is to help prevent layoffs of employees. Is this realistic? Should you consider keeping staff on, or perhaps pay non-arms-length employees in order to access this subsidy? Probably not. Moodys Gartner Tax Law has the following observations on their website:
“While the subsidy is a nice benefit to employers, it may not actually be significant enough to impact decision making when an employer is making the hard decision whether to lay-off employees:
- The subsidy only reduces income tax remittances. It cannot reduce remittance of CPP or EI contributions;
- Although not mentioned in the Bill, the CRA has expressed its view on the same webpage referenced above that the subsidy is taxable to the employer. The CRA likely views the subsidy to be taxable pursuant to paragraph 12(1)(x) of the Income Tax Act;
- In order to receive the $1,375 wage subsidy from the government, employers would need to expend an estimated $1,026 to the government in CPP and EI. Assuming the employer is subject to general corporate tax rates, the employer would pay $345 of corporate income tax on the subsidy. Therefore, an employer nets a whopping $4 benefit from the government for retaining and paying an employee versus a layoff.”
If you are short of work for your employees, you are better off financially to temporarily release them, and direct them to apply for the Emergency Response Benefit or EI benefits. We will cover the details on these approaches in future updates.
While we owe our thanks to the government for all aid provided, this is not free money. There are certainly substantial record-keeping responsibilities, and we anticipate a lot of administrative headaches a year from now (or earlier) when CRA will be sending out letters to verify calculations, inclusion in taxable income, and so on. This will lead to increased professional fees, compliance costs, etc. However, if you qualify, and if the program fits your circumstances, you will certainly benefit from participating in it.
Please let us know if you have questions. We’ll do our best to help you out. And as always, keep facing the sunshine!