As employers prepare applications for the Canada Emergency Wage Subsidy opening Monday, tax experts are seeking clarity about how the eligibility rules apply to specific scenarios.
“There’s no question there are many interpretive issues coming up in applying the rules,” said Doron Barkai, a partner at EY’s transaction tax advisory practice.
The Canada Emergency Wage Subsidy, which helps cover payroll costs during the pandemic, provides eligible employers with 75% of wages up to $847 per employee per week, for up to 12 weeks.
Eligibility includes demonstrating drops in revenue of at least 15% in March, and 30% in April and May.
The calculations get technical from there.
“There is a specific fact pattern that applies in each particular case, where folks should seek guidance,” Barkai said. “Be aware that there is some complexity to this, and do consult.”
For example, a business made up of multiple legal entities must decide whether to calculate revenue on a consolidated basis or not, among other decisions regarding the subsidy’s elective measures.
“You could get different results,” Barkai said. “You have to look at the various options.”
Tax experts hope to get further clarity for various situations, including when businesses have recent acquisitions or amalgamate.
“There are many items that are unclear or remain unresolved,” wrote Denham Patterson and Sam Tabrizi, principals at Fuller Landau LLP, in an email. “Each industry has its own quirks.”
For example, there’s a lack of clarity about revenue cycles that are uneven, cyclical or long term, as when a company has a few high-dollar-value sales.
They also noted challenges with payroll calculations, such as when pay periods aren’t weekly.
“Some organizations’ remuneration periods are annual, such as in the case of owner-managed businesses,” Patterson and Tabrizi wrote.
Application process and penalties
Applications for the subsidy open Monday, with money expected to start flowing on May 5. Businesses are expected to keep documents of their revenues and employee remuneration.
When applying, the business’s CFO or other person responsible for financial activities must attest that the application is complete and accurate.
The CRA says large claims or those with discrepancies identified during the automated processing may go through an additional manual verification process, which could mean a few additional days to process.
If an employer receives the subsidy but is later found to be ineligible, the subsidy must be paid back. In cases of gross negligence, the employers may incur a penalty of 50% of the subsidy’s overpayment.
Artificially reducing revenue to meet the required revenue reduction could result in a penalty of 25% of the subsidy amount, in addition to repaying the subsidy.
False or deceptive statements could also result in prosecution and potential jail time of up to five years.
There’s also a name-and-shame component to the subsidy: the finance minister can publicly disclose the names of businesses that apply.
Patterson and Tabrizi said very few clients have expressed concerns about the penalties. “Most clients know just by current activity levels that their revenue has declined more than 30%,” they said.
While the last period for the subsidy ends June 6, the wage subsidy legislation provides for a potential extension of the program to Sept. 30, 2020, and for changing the revenue criteria and subsidy amount during any such extension.
On Friday, the Business Development Bank of Canada finalized details of its $20-billion co-lending program through the government’s Business Credit Availability Program. Business owners must apply for the loans through their financial institutions.