Finance consults on potential CEWS changes: CPA Canada provides feedback

The Department of Finance Canada consulted with Canadians on potential changes to the Canada Emergency Wage Subsidy (CEWS). Find out about our feedback on improving this vital program for supporting employers affected by COVID-19.

With the consultation announced on May 25, 2020, Finance sought views on potential changes to the program that would help protect employment in Canada, encourage growth, and meet the needs of businesses and workers in the current challenging conditions.

Finance reached out to CPA Canada directly for its input. We gathered insights from members of CPA Canada’s tax committees using Finance’s eight consultation questions to frame our discussions.

Our summary of the feedback we received centres on the key barriers to accessing the CEWS and how the CEWS could be changed to better meet its objectives. We also cautioned against increasing the complexity of the CEWS unnecessarily.

Highlights of our feedback to Finance are as follows.

Barriers to accessing the CEWS

Employers trying to access the CEWS face logistical issues and uncertainty over how some rules apply and who is eligible. These barriers can be overcome in some but not all cases, such as where there are eligibility problems. We encouraged Finance to consider how each of these barriers could be addressed.

Eligibility rules

A backgrounder and regulations from Finance released on May 15, 2020 deal with several CEWS eligibility issues. However, some common business arrangements may still disqualify employers from the CEWS. We asked Finance to consider these arrangements further, especially more significant ones that involve:

  • employers who use paymaster or cost-sharing arrangements
  • employers who have acquired another business through an asset purchase
  • owner-managers and other non-arm’s length employees who don’t have baseline remuneration
  • employers operating separate businesses or divisions
  • employers who are public institutions

We suggested that Finance should consider these scenarios and the eligibility requirements as a first step in their CEWS review. You can find more details on most of these eligibility issues in our CEWS priority issues summary. 

Note that the paymaster/cost sharing issue was addressed in Bill C-17 – see our update posted on June 11, 2020. 

Complexity of CEWS computations

From the feedback we received, it appears many employers are finding the CEWS program too complex. For some, this complexity is delaying the timing of claims, and it’s discouraging others from applying altogether. We highlighted this feedback to Finance, pointing out that the program is even more complicated because it’s brand new and uses a revenue test approach that has not been used before.

The complexity is really two-fold:

  • how the rules technically apply is uncertain in some circumstances (discussed in greater detail in the next section)
  • the administrative process of extracting required data from accounting and payroll systems and applying the CEWS rules to that data can add even more complexity

On the administrative complexities, many employers find it hard to compute remuneration for the CEWS because the accounting and payroll records they maintain don’t match what the legislation requires.

We suggested Finance consider realigning the program’s parameters with common pay periods as an alternative approach. This could significantly simplify claims for some without affecting those who have already created processes to track the required data and make claims.

Another common administrative burden is that many businesses have more than one payroll program account number. Employers must compute and apply for the CEWS separately for each of their payroll accounts, which requires significant extra time and resources. We suggested Finance could give entities the choice of making one claim that covers all of their payroll accounts.

Technical uncertainty and administrative issues

Because this program is new and had to be launched quickly, some application uncertainty was inevitable. The Canada Revenue Agency (CRA) has provided guidance on many of the foundational rules and examples of how to apply the legislation in a range of scenarios. However, many employers, particularly those with more complex business arrangements, are still uncertain about how to apply the rules, and they’re looking to the government for more direction.

We urged the government to further clarify how the existing legislation applies and how they plan to improve the program in its next phase.

The CEWS anti-avoidance rule is another source of uncertainty and concern, especially given the harsh penalties that could apply. Many employers are uncertain which scenarios will be caught by the rule and want the CRA to specify what they’ll look for when they consider applying this provision. Concerns were raised about common scenarios in which employers:

  • defer billing or collecting revenues to help their customers or clients (depending on whether accrual or cash method is used)
  • provide discounts to help customers during the pandemic
  • are taking part as landlords in the Canada Emergency Commercial Rent Assistance program for small businesses

We encouraged Finance to provide guidance on how the anti-avoidance provisions will be applied.

Other potential improvements 

Beyond these barriers and accessibility issues, we suggested additional adjustments to expand the CEWS program and enhance this support:

Provide more support to businesses that need it most

We suggested that Finance consider making the CEWS more equitable and effective by better correlating the employer’s decline in revenue with the subsidy amount they receive. For example, businesses that saw their revenue drop by 75 per cent likely need more support than those with only a 35 per cent decline.

Gradual phase out is needed 

The CEWS is currently scheduled to end on August 29, 2020. The prospect of a hard stop is worrying many employers who can’t know whether they will have the economic activity and cash flow they need to keep their staff by then – which is contrary to the CEWS’ objective. We presented two alternatives for Finance to consider for phasing out the program:

1. Graduated subsidy rate based on the revenue test. If a business has been receiving the CEWS up to August 29, it could continue to qualify but with the CEWS amount based on the extent of its revenue decline. For example, the subsidy amount for a business with a revenue decline of 30 per cent or more could continue to get the full CEWS. Businesses with a 25 per cent decline could qualify for an 80 per cent subsidy, and those with a 20 per cent drop could receive a subsidy of 60 per cent. This approach would allow businesses to receive a reduced subsidy as they gradually recover. Businesses that remain significantly affected would still qualify for the full amount.

2. Standard phase-out period. A second alternative could work like amortization. Businesses who received the CEWS up to August 29 could continue receiving gradually reduced amounts over a set period of time. For example, the subsidy rate of 75 per cent of eligible remuneration could be reduced to 50 per cent in September and 25 per cent in October, along with similar adjustments to the weekly cap. 

Similar concerns could arise for businesses that start to recover before August 29. If they do well enough to fail the revenue test, they could lose their benefit all at once. Although employers can currently claim the CEWS for one additional month after they don’t meet the test, the program is otherwise all or nothing. 

We suggested that Finance could address these concerns using the same sort of graduated approaches discussed above.

Avoiding unneeded additional complexity

As Finance considers how to evolve the CEWS, we stressed that the current program is already complex, both technically and administratively. Many organizations have spent significant time and resources trying to understand the current rules, training staff, and creating and setting up processes for computing the revenue test and actual subsidy amount. Adding complexity or making changes to the CEWS program in general would put a costly burden on current applicants.

That said, we suggested that more complexity could be acceptable in narrow situations, such as rules to allow specific entities to be eligible or deal with specific issues. For example, additional rules may be needed to address the issues noted above related to disqualification due to recent business acquisitions.

Finally, we stressed to Finance that any changes should be optional methods or alternatives for employers already in the program, so they don’t need to redo calculations or change their processes for computing the subsidy.

As businesses continue to reopen, CPA Canada supports Finance’s work to enhance the CEWS with the aim of getting more employees back to work and rebuilding the economy. We plan to continue our discussions with Finance on program improvements and update you on new developments.

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