March 27, 2020
Canada introduces Federal Wage Subsidy Program
In order to prevent layoffs, the Federal Government has introduced a wage subsidy program. Further details of the program were released as part of Bill C-13, COVID-19 Emergency Response Act, which was enacted on 25 March 2020. Under the terms of the program, eligible employers can receive a subsidy equal to 10% of eligible remuneration paid between 18 March 2020 and 19 June 2020 (the eligible period) up to a maximum of $1,375 per employee and $25,000 per employer.
Who is eligible?
An “eligible employer” for the wage subsidy is defined as a person or partnership who employs one or more eligible employees in Canada, is registered with the Canada Revenue Agency (CRA) for payroll remittance purposes, and meets one of the following requirements:
What is the amount of the wage subsidy?
The amount of the subsidy will be prescribed by regulation. As currently announced, the subsidy is equal to 10% of the eligible remuneration paid by eligible employers during the eligible period. This subsidy is subject to a maximum of CA$1,3751 per employee and $25,000 per employer (whichever amount is lower).
Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
What is eligible remuneration?
Eligible remuneration is defined as salary, wages or other remuneration paid to an eligible employee during the eligible period.
How does the reduction in withholdings and remittances work in practice?
Assume an eligible employer is required to pay an employee $5,000 between 18 March 2020 and 19 June 2020. The tax consequences will be as follows:
Future income tax remittances can also be reduced for remuneration paid before 20 June 2020 (i.e., this includes remittances made after 20 June 2020 should the income taxes deducted in the eligible period not be sufficient to offset the value of the subsidy), but the reductions cannot exceed $1,375 for any single employee and a maximum of $25,000 per employer. If the subsidy is not applied in reduction of the payroll remittances during the year, eligible employers can request that the subsidy be paid to them at the end of the year or transferred to the next year’s remittance.
Note that the reduction applies to income tax withholdings only and does not apply to other source deductions such as Canada Pension Plan contributions and Employment Insurance premiums.
As mentioned above, the eligible period goes from the start of the day on 18 March 2020 to the end of the day on 19 June 2020.
Employers are required to retain information to support their subsidy calculation.
According to the CRA, this information includes:
The CRA is currently updating reporting requirements. The CRA has stated that more information on how to report this subsidy will be released in the near future.
Treatment of the subsidy for tax purposes
The subsidy should be included in income in the taxation year in which it is received.
1. Currency references in this Alert are to the CA$.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), Toronto
Ernst & Young LLP (Canada), Montréal