New wage subsidy rules for July 5 and onward
JULY 20, 2020
All entrepreneurs should carefully review the new Wage Subsidy rules for the period July 5 and onward.
Tax changes are coming and most of them won’t be good news! Therefore, it's important to take advantage of the last tax win for entrepreneurs that we may see for some time.
The new rules have major changes that can help entrepreneurs. Two key items to focus on:
Any rate of decrease means that a business qualifies for a particular period (and the following period). It may be small – but unlike the previous 30% test all declines receive some support
The period from which you measure the decline can be reset: it can be either comparing to January and February of 2020 or the previous 2019 comparative month.
Plenty of options are available to help entrepreneurs retain employees for the 5 months from July 5 onward. (note: the period July 5 to August 1 is referred to as period 5 under the tax legislation).
Now the details:
Starting July 5, the wage subsidy will be based on a sliding scale. So any revenue decrease will result in a wage subsidy. When revenue has decreased more than 50% for the preceding 3 months, there is an additional top-up subsidy. The subsidy rate will gradually decrease over the coming periods.
For periods 5-9, there is an option to change the prior reference period to determine revenue decline. The options are to use either the January and February 2020 average, or the equivalent month in 2019. Once this is changed, this prior reference period must be used for all the remaining claim periods. There continues to be an option to use either the current month’s revenue, or the prior month’s revenue, whichever is more advantageous.
For baseline remuneration, this can be calculated using the January 1 to March 15, 2020 average wages or July 1 to December 31, 2019 average weekly wages. For periods 5 and onwards, employees who were unpaid for 14 or more days in a claim period will now be eligible for the wage subsidy.
To ease the transition to the new CEWS rate calculation, you are permitted to take advantage of the old rules for period 5 and 6. This allows you to use the previous 75% subsidy rate for revenue drops of greater than 30%. This may provide a more advantageous subsidy.
The subsidy rate for periods 5-9 is calculated as follows, using the calculated revenue drop and the tables below.
Overall CEWS rate = base rate + top-up rate
Table 1: Base CEWS rate for claim periods 5 to 9
Table 2: Top-up rate calculation for claim periods 5 to 9:
Example 1 – less than a 50% decrease in revenue
If the baseline revenue was $10,000 and claim period revenue is $8,000, this represents a 20% revenue drop. The CEWS base rate for the period would be 24% (calculated based on Table 1 column 3: 1.2 x revenue drop of 20%). The top-up rate would not apply here as the revenue drop was less than 50% for the preceding three months, so the overall CEWS rate is 24% for period 5.
Example 2 – above 50% decrease in revenue
If the baseline revenue was $10,000 and the claim period revenue was $4,000, this represents a 60% revenue drop. From the Table 1 column 2, as this is greater than 50%, the base rate would be 60%. The top-up rate would be calculated as 12.5% (calculated based on Table 2: 1.25 x (65% - 50%), The overall CEWS rate for this period would be 72.5%. However, for this period, there is the option to use the safe harbour rule for period 5 and 6, which would provide a 75% rate subsidy.
You can find more information and a CRA calculator to help you with the above at:
This work is complicated – so please contact your team at RMT for any required help.