COVID-19 tax updates: CEWS guidance, tools, and more

The Canada Revenue Agency (CRA) launched more tools and guidance to help businesses and practitioners apply for the Canada Emergency Wage Subsidy (CEWS). Learn about these and other developments.

In this update, we highlight

  • the CRA’s newly enhanced CEWS calculator and guidance
  • highlights of new details added to the CRA’s FAQs on the CEWS
  • more COVID-19 tax updates on taxable employee benefits and the Temporary Wage Subsidy

CRA launches enhanced CEWS calculator and guidance

The CRA’s new, enhanced online CEWS calculator and Excel spreadsheet, launched on August 11, 2020, reflect recent changes to the program that we summarized in our July 23 blog post. Both tools are designed to gather and compute much of the information that you need to make a CEWS claim in one place. The online calculator is likely best suited for smaller employers. Larger employers may find the spreadsheets more useful, especially if they can import the required data.

The CRA opened applications for CEWS period 5 on August 17, 2020. Applications are due by January 31, 2021. The CRA also updated its CEWS application guide on August 14 to account for the new rules and describe how to use the enhanced CEWS application tools.

The new calculator and spreadsheet deliver significant new guidance on calculating CEWS claims, and businesses and practitioners will find them highly useful. The new tools do have some limitations, however, so below we present some suggested best practices to keep in mind when preparing CEWS applications.

Determining the revenue drop

Employers can compute their revenue drop for CEWS purposes by using the general approach (i.e. year-over-year comparison) or by electing to use the alternative approach (i.e. average for January and February 2020 comparison). As we discussed in our July 23 blog, you must use the chosen approach to calculate both the base subsidy rate and the top-up rate.

Where an employer has used the general approach for periods 1 to 4, they may elect to use the alternative approach for periods 5 to 9 (or vice versa). However, once an approach is selected, the employer must use the same approach for all of periods 5 to 9. On the choice between the general approach and the alternative approach for periods 5 to 9, we have asked the CRA whether employers can change their approach later if one method turns out to provide a better result than the other.

Employers can also choose to determine their revenue using either the accrual method or cash method of accounting. Once the method is chosen, you must apply it for all of periods 1 to 9. However, the CRA has stated that it will allow late revenue recognition elections as long as prior claims are adjusted (see “Elections related to revenue calculations” below). The CRA makes no mention of revoking an election after it has been made.

It’s important for employers to analyze scenarios for all periods to determine which approach and which accounting method would produce the greater CEWS entitlement. Until CRA confirms that employers can later change their choice to use the general versus the alternative approach, it may make sense to wait and apply after all the claim periods are complete and revenues and payroll amounts are known, depending on the level of uncertainty.

Have all your information at hand when you start the calculation

Unfortunately, the data you enter in the online calculator cannot be saved. According to the CRA, this is due to data security and privacy issues. Ideally, you should try and complete the calculation in one sitting. If you can’t, you can print the data you’ve entered in the calculator so you can easily re-enter it in a later sitting. If you are likely to change data before you submit your claim, using the Excel spreadsheets may be a better option.

The CRA also provides a helpful checklist for employers to review before starting the application. Although many of us like to jump ahead when using online tools, we encourage you to carefully review each section of the calculation until you are comfortable with it.

Be sure to use the latest version of the CRA’s tools

The CRA developed and implemented the calculator and spreadsheet within a tight timeframe. We understand that the CRA is continually updating these tools to add improvements and fix any bugs that arise.

The online calculator should be up-to-date each time you access it. The Excel spreadsheets are updated periodically as issues are identified, so you’ll want to check the CRA’s webpage often to ensure you are using the latest version.

Revised CEWS FAQ

The CRA has revised its FAQs on the CEWS to provide guidance and examples on key aspects of the new rules. Below, we draw your attention to some specific issues that go beyond the basic computational rules, and we encourage you to review the FAQs for more information on these issues.

As noted, see our July 23 blog post for a more detailed summary of the new rules.

Relief for paymaster arrangements

As we reported in our June 18 blog post, the government has allowed relief to otherwise eligible employers who could not claim the CEWS because they used a “payroll service provider” to administer their payroll and did not have a CRA payroll account on or before March 15, 2020. In these arrangements, the payroll service provider used their own payroll account.

This relief was contained in Bill C-20 is, which is now law. The CRA announced how they will administer the legislative change in revised questions 3-8 and 4 of the CEWS FAQ. In particular, the CRA requires the employer to set up their own payroll account and the payroll service provider to send the CRA a summary of remittances made on that employer’s behalf and others it acts for. Once the summary has been provided, the CRA will transfer the remittances to the new account and notify the employer that a claim can be made. The CRA will also require the employer to use the new payroll account going forward.

Elections related to revenue calculations

When applying the revenue comparison rules, the default rule is to use revenue determined through normal accounting practices, but it is possible to elect to use the cash method of accounting. Bill C-20 added a new rule for employers who use the cash method under their normal accounting practices, allowing them to elect to use the accrual method in accordance with generally accepted accounting principles.

In revised question 12, the CRA now states that where an employer did not make an election to use the cash or accrual method (as applicable), they can still make an election later. However, as the election would apply to all periods, the employer must amend all previously submitted applications to reflect this change.

Registered charities and non-profit organizations can elect to exclude funding received from government sources when determining their qualifying revenue. In revised question 7, the CRA now states that an election can be made retroactively. However, since the election applies for all prior and current reference periods, all prior applications must be amended to reflect this change.

Non-resident issues

New question 3-02 discusses the consequences when a non-resident corporation earns income that is exempt from Canadian income tax because of a tax treaty. The answer is the same as we reported in our June 18 blog post – the non-resident corporation is not listed in subsection 149(1) of the Income Tax Act (ITA) as being exempt from tax under Part I of the ITA, so the fact that the treaty provides that the non-resident’s income is not taxable in Canada does not prevent the non-resident from being an eligible employer.

The CRA was asked to consider the situation where an employer resident in Canada wants to use the election in paragraph 125.7(4)(d) but has made all their sales to a foreign non-arm’s-length customer. In example 6-1, the CRA confirms that the election can be used based on the foreign entity’s revenue.

Acquiring business assets

As discussed in our July 23 blog, the government introduced a rule that allows an employer who has acquired a business through an asset purchase to consider the vendor’s pre-acquisition revenue. Several questions have been added or adjusted to provide information on this new rule, including the following:

  • Incorporating a proprietorship: Revised question 6-5 confirms that a CEWS claim is now possible. Example 6-2 also discusses the new rules that apply for periods 5 to 9.
  • Vendor has multiple divisions: New question 8-3 and example 6-3 discuss the operation of the new rules and confirm that the purchaser has to buy all or substantially all of the business assets owned by the vender as a whole, and not a particular division or business.

Other key changes

  • Change in business activities: In new question 6-2.1, the CRA confirms that where an employer changes businesses activities to produce essential products during the pandemic and earns revenue but no profit, the employer is still eligible for the CEWS.
  • Elections for affiliated groups: In new question 10-3, the CRA discusses making elections where some entities of an affiliated group are eligible for the CEWS and others are not.
  • Eligibility of non-cash benefits: In new questions 17-01 and 17-02, the CRA confirms that non-cash benefits, such as automobile standby charges and registered pension plan contributions, are not eligible for the CEWS, whether or not the benefit is taxable.
  • Meaning of on leave with pay: New question 20-03 confirms that on leave with pay does not include paid absence, such as a vacation leave, sick leave or sabbatical. Also excluded is pay related to termination of employment.
  • Impact of other government funding: New question 20-04 confirms that remuneration for CEWS purposes is not reduced where other employment-related government funding is received under a different program, provided that the eligible employee does not receive the amount directly. This does not include Temporary Wage Subsidy and the work-sharing benefit under the Employment Insurance Act.
  • Reporting CEWS claims on T4s: The CRA previously stated that eligible employers will be expected to report the eligible remuneration paid to each employee on the employees' T4 slips. In revised question 29, the CRA states that more information on T4 reporting requirements will be released shortly. 

Other COVID-19 tax news

Employee expenses and reporting requirements

As we discussed in our May 7 blog post, there are a number of outstanding issues related to home office expenses, reimbursements, allowances, and other taxable benefit issues arising out of the COVID-19 crisis, as well as the CRA’s expectations in these areas. There are also questions on employers’ T4 requirements for CEWS and TWS reporting. The CRA has formed a working group to discuss these issues, identify their impact on year-end reporting requirements, and determine how to minimize the administrative burden. We will keep you updated as we learn more about the CRA’s plans in this area.

10 per cent Temporary Wage Subsidy (TWS)

In case you missed the report on our COVID-19 tax updates page, the CRA recently released Form PD27, 10% Temporary Wage Subsidy Self-identification Form for Employers. We have also raised some issues with the CRA about the certification section of the PD27 web form in Represent a Client. We understand they are reviewing this issue, and we expect they will update the form accordingly.

Questions on July 27 tax deadline announcement

The CRA announced further relief to interest and late-filing penalties on July 27, and some questions have arisen. We are in the process of getting further information from the CRA and will post a summary soon. 

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NOTE: The commentary function of this page has been temporarily closed. Unfortunately, because of the volume of feedback regarding recently announced COVID-19 tax measures, we do not have the capacity to respond to individual inquiries. We strongly encourage you to visit our Federal Government COVID-19 Tax Updates page for information.

About the Author

Bruce Ball, FCPA, FCA, CFP

Vice-president, Taxation, CPA Canada