COVID-19 tax update: CEWS Q&A, other developments and CRA discussions

More details are emerging about the Canada Emergency Wage Subsidy (CEWS) and other COVID-19 related tax issues as the federal government finetunes these programs. Read our round-up of the latest developments.

As we continue to offer feedback and advice to the Canada Revenue Agency (CRA) and the Department of Finance Canada (Finance) on COVID-19 related tax issues, we’re learning details that are important for our members to know about. In this blog, we deliver new information on:

  • key questions about the CEWS answered by CRA officials in a session with CPAs
  • other CEWS Updates
  • how the Canada Emergency Response Benefit and Supplemental Employment Benefit interact
  • an update on other top-priority COVID-19 tax issues


Earlier this week, the CRA updated our members on the CEWS program and answered their questions during English and French conference calls that we co-hosted with the CRA. Below we summarize some important details we learned.

Amending CEWS applications

In early June, the CRA plans to launch a process in Represent a Client and My Business Account that will allow claimants and their representatives to change CEWS applications they have already submitted. The CRA confirmed this process will not be available via Web Forms

The CRA has indicated the amendment process will allow claimants to make changes that would either increase or decrease their initial claim. We have asked the CRA to communicate how the repayment process will work if an employer amends their claim and it results in a lower subsidy amount. We have also asked the CRA if interest should be charged, since many amendments may be due to uncertainty around the CEWS rules.

Initial delays in processing applications

The CRA’s goal is to process CEWS applications within 10 days, but it has taken longer in some cases. Most delays were for claims filed when the CEWS application launched on May 5th, and this backlog is expected to clear soon.

The CRA explained that it takes steps to verify each CEWS claim before payment. When a claim needs more review, a CRA agent typically calls the claimant or their representative to gather the additional information they need to process the claim. If the CRA cannot obtain this information, the claim may be delayed or denied.

Claimants can contact the CRA CEWS enquiry line for an update on their claim’s status.

Unclaimed temporary wage subsidy and CEWS

CRA officials answered questions about how eligible employers can access unclaimed amounts under the temporary wage subsidy (TWS), which employers could claim by reducing the amount of source deductions remitted (except for Canada Pension Plan and Employment Insurance (EI)).

The CRA said it would treat eligible employers that did not reduce their source deductions as having over-remitted their employee source deductions. These employers must also reduce their CEWS claim for the amount of the TWS they are entitled to. If these employers did not reduce their payroll source deductions on line F of their CEWS Application (e.g. if they entered “Nil”), they should submit both an amended CEWS claim and a TWS application.

The CRA was also asked whether the CEWS has to be reduced by a TWS claim for an employee whose salary is not eligible for CEWS. For example, consider a non-arm’s length employee who had no baseline remuneration. Remuneration paid to this employee during a claim period could be eligible for the TWS but not the CEWS. The answer provided by the CRA on the call was unclear.

Based on our review of the legislation, it appears clear that all TWS claims that the employer is eligible for will reduce the employer’s CEWS claim, regardless of whether remuneration for some employees is eligible for TWS but not CEWS. We have asked the CRA to confirm this understanding.

Normal accounting practices

Members raised several questions about whether certain gains and other amounts should be included when computing revenue for the CEWS:

  • Should unrealized hedging gains be included? The CRA stressed that the CEWS revenue computation should be based on the entity’s “normal accounting practices” and not on how the revenue is actually taxed. So, if the entity normally includes unrealized hedging gains in revenue for accounting purposes, they should include it in revenue for the CEWS.
  • Should unrealized gains on investments be included? Again, the CRA said the entity should include these amounts for CEWS purposes if this is the normal accounting practice.
  • Should professionals include their work in process (WIP)? As background, for accounting purposes, some firms may recognize WIP in revenue as work is performed, while others may wait and only recognize WIP as revenue when it is actually billed. How the WIP is included in income for income tax purposes is not relevant for CEWS revenue computations. Responding to this question during the French call, the CRA stated that the CEWS revenue test would be based on how WIP is recognized as revenue for accounting purposes.

As a reminder, employers may be able to deal with revenue recognition inconsistencies by electing to use the cash-basis of accounting to compute revenue for the CEWS.

Decline in revenue below 30 per cent

To be eligible for the CEWS in a specific period (i.e. for April or May), entities need to show that their revenue declined by 30 per cent or more. A member asked whether a claim would be allowed where revenue declined by less than 30 per cent — such as by 29.65 per cent. The CRA seemed to suggest that this might be possible in some scenarios but was not specific. We understand that CRA has made similar comments in other sessions.

In our view, the rule seems clear. To be eligible, the employer must have had a decline in qualifying revenue, that decline must meet the specified percentage, and the employer must attest to this.

We followed up with the CRA and now understand that the CRA’s view is that 30% (15% for March) is the test that applies when you file based on good faith and best efforts. If adjustments arise during the audit process and there is a close call, the CRA will determine the impact on a case by case basis.

Other top-priority CEWS Issues

Members on the call raised several questions that CPA Canada and the Canadian Tax Foundation have already noted in our jointly developed list of CEWS Prioritized Questions and Issues:

Are private schools eligible for CEWS?
The CRA clarified that all private and public schools are included in the definition of “public institution,” so they are not eligible for the CEWS.

How does the CEWS work in a paymaster arrangement?
Only a “qualifying entity” can file a CEWS claim, and they must have had a payroll account to qualify. The CRA acknowledged that these rules could disqualify some paymaster arrangements, such as where one entity manages and incurs the payroll of different parties under a cost-sharing agreement.

The CRA said they are still reviewing this issue. This question is quite common, however, and many members are awaiting an answer.

Say two companies amalgamated on December 31, 2019. Could they use their combined revenue for March, April and May 2019 to measure the percentage of their revenue drop for the CEWS?
On an amalgamation, the combined company is deemed to be a new corporation (see Income Tax Act (“ITA”), paragraph 87(2)(a)). Since the “eligible entity” did not exist in 2019, there is no comparator for the “prior reference period.”

The CRA is still reviewing this issue and will update their Frequently Asked Questions (FAQs) on the CEWS when they have an answer.

If a large corporate group regularly prepares multiple divisional consolidations and all these groups comprise of an “affiliated group of eligible entities,” can it select any group to be the affiliated group?
The CEWS legislation allows a group of affiliated eligible entities to elect to calculate consolidated revenue under paragraph 125.7(4)(b). Each eligible group member can then use the consolidated amounts for the CEWS revenue test.

The CRA stated that the employer should use the definition of “affiliated persons” and “affiliated group of persons” in ITA section 251.1, and that employers cannot cherry-pick which companies to include. We understand from the CRA FAQ that where an election is made under paragraph 125.7(4)(b), it must be used by the entire group of affiliated entities. As considerable uncertain remains, we continue to discuss consolidation issues and the application of paragraphs 125.7(4)(a) and (b) with the CRA.

As you can see, a number of open questions still require further guidance and clarification from the CRA. We will continue to update you as we find out more information.


Extension and eligibility

As you may know, the federal government announced it is extending the CEWS beyond June to help kickstart Canada’s economy and boost job creation. When the federal government releases more information on the CEWS, CPA Canada hopes that it will also announce its decision on the CEWS eligibility requirements for certain partnership arrangements – such as private/public partnerships and partnerships involving pension funds. We will provide an update when the extension is announced in detail.

As noted previously on our federal government COVID-19 tax updates page, Indigenous Services Canada announced in an email to stakeholders that the CEWS definition of “eligible entity” will apply to certain Indigenous businesses. Unfortunately, official word is yet to come from Finance Canada or the CRA on this position. The CRA has suggested to us that such businesses should wait for an official announcement from Finance before applying for the CEWS.

Statistics on CEWS applications

The CRA has updated their CEWS webpage to include statistics on CEWS claims made to date.


In our Summary of Outstanding COVID–19 Tax Issues that we submitted to the government, we asked them to clarify how the Canada Emergency Response Benefit (CERB) interacts with the use of a Supplemental Unemployment Benefit (SUB). Specifically, we asked whether employers could use a SUB plan to increase their employee’s earnings while they are unemployed and collect CERB in the same way they can use a SUB Plan to top-up EI benefits.

Service Canada’s update to the CERB FAQs confirms that the EI provisions allowing employers to make additional payments to workers through SUB plans do not apply to employees receiving CERB. Thus, if an employee receives more than $1,000 per benefit period from employment income (which includes any SUB top-up payments), they would have to repay the CERB amounts they received for that same period.


In our blog last week, we highlighted key issues outside of CEWS we are actively discussing with the CRA. Here is an update on where these discussions stand:

Additional income tax deadline extensions

Our discussions with the CRA continue on additional income tax deadline extensions, primarily for self-employed T1 individual returns and T2 corporate tax returns. The CRA has expressed sympathy for our concerns and is considering them. We continue to believe that further extensions are possible, and we understand the CRA will make an announcement on this shortly.

Employee allowances, benefits, deductions, etc. and Form T2200

The CRA is reviewing their policies on the following areas:

  • Employer reimbursements of home office equipment: As we highlighted in our previous blog, the CRA provided a technical interpretation indicating that it would not consider reimbursements for employees of up to $500 for personal-use computer equipment due to the COVID-19 crisis to be taxable benefits. The CRA is considering whether this policy could apply more broadly to cover the reimbursement of any home office equipment expenses incurred as a result of COVID-19 measures.
  • Travel allowances and reimbursements: We understand that the CRA is considering whether reasonable travel allowances and reimbursements provided to employees who need to travel to their place of employment during COVID-19 can be received as a non-taxable benefit.
  • Home office expenses: The CRA is reviewing the rules for deductible home office expenses in ITA subsection 8(13) and how they should apply during COVID-19 times. From our discussion with the CRA, it appears that the legislative requirement that the home office is “the place where the individual principally performs the duties of the office or employment” could to be applied to the period in which COVID-19 measures are in place. This would mean that the requirement would not have to be met for the whole year.
  • Form T2200: It appears that the CRA does not expect employers to amend or issue new employment contracts to reflect work at home arrangements, which is a required condition on Form T2200. Rather, it seems the CRA would consider this condition to be met when it is understood by the employer and employee.
    • At this point, the requirement to complete T2200 forms for each employee remains in place. However, the CRA is reviewing the administrative requirements and processes to ensure flexibility and ease of compliance for employers and employees. We have stressed that the need to issue T2200 forms could create a significant amount of work, especially for larger employers, and the CRA should investigate methods to streamline the process.

We have provided a summary of some of the issues related to employment expenses and benefits during COVID-19 to the CRA and we have encouraged the CRA to reach out to us for more comprehensive discussions on these issues.

Mind and management and corporate residency issues

The CRA told us that it has developed guidance on this issue that is being reviewed internally. They expect to release this guidance shortly.

Electronic filing of other forms

We understand that the CRA has received special authorization to allow taxpayers to submit certain tax forms by email during this period and that the CRA will soon launch special email addresses to allow taxpayers to submit clearance certificates and waivers. The CRA is also looking into setting up similar email addresses for other forms and information.

We will continue to stay on top of all the COVID-19 tax issues and keep you informed of 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