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Sheryne Mecklai

Tax Partner at Manning Elliott Vancouver
by Sheryne Mecklai
April 15, 2020

COVID-19 Emergency Response Act 2020

Bill C-14 – “COVID-19 Emergency Response Act, No. 2” received Royal Assent on Saturday, April 11, 2020.

This legislation enacts the previously announced Canada Emergency Wage Subsidy (“CEWS”), the 75% wage subsidy relief in response to the COVID-19 crisis.

The announcements (summarized here) were written into the legislation along with some additional items. The legislation also provided more details on CEWS.

Highlights of the COVID-19 Emergency Response Act Not Previously Announced
  • Employers who qualify for CEWS in one qualifying period will automatically qualify in the immediately following qualifying period. This measure provides employers with more certainty on their ability to retain and pay employees.

  • Income from non-arm’s length parties is included in revenue in some specific scenarios (see below).

  • The legislation allows the Finance Minister the option of extending the program to September 2020.

  • Applications will be made through the My Business Account Portal on CRA’s website and can be made until September 30, 2020.  The name of the applicants for the subsidy can be made public by the Minister. It is anticipated that employers will be able to start applying for CEWS in two to four weeks.

Concerns Not Resolved in The Legislation
  • Remuneration paid to a business owner after March 15, 2020, is only eligible for CEWS if that business owner received eligible remuneration between January 1, 2020, and March 15, 2020.  

  • CEWS only applies to subsidize employment income. Therefore, a business owner who receives dividends as opposed to salary cannot benefit from this program.  

  • The ability to qualify for the wage subsidy is based on lost revenue after March 15, 2020. There is no ability to benefit from this program if pre-COVID 19 revenues are retained but the entity had increased costs to achieve this. 

Qualifying Periods for Wage Subsidy Relief

Period 1

Claiming period

  • March 15 to April 11

Required reduction in revenue

  • 15%

Reference period for eligibility*

  • March 2020 compared to:

    • March 2019 or

    • Average of January and February 2020

Period 2

Claiming period

  • April 12 to May 9

Required reduction in revenue

  • 30%

Reference period for eligibility*

  • April 2020 compared to:

    • April 2019 or

    • Average of January and February 2020

Period 3

Claiming period

  • May 10 to June 6

Required reduction in revenue

  • 30%

Reference period for eligibility*

  • May 2020 compared to:

    • May 2019 or

    • Average of January and February 2020

* The COVID-19 Emergency Response Act stipulates that an election must be filed to use the average of January & February 2020 revenue as the reference period for eligibility. This election will require the average of January and February 2020 to be the reference period for all three claiming periods.

If the eligible entity was not carrying on a business or its ordinary business activities as of March 1, 2019, it must select January and February 2020 as the reference period for purposes of CEWS.

Amount of Wage Subsidy Relief

The wage subsidy relief received by the employer will depend on: 

  1. The relationship between the employer and the employee; 

  2. The pre-COVID remuneration paid (i.e. the baseline remuneration); 

  3. And the actual remuneration paid.

The baseline remuneration is the average weekly eligible remuneration paid to an employee by the employer between January 1, 2020, and March 15, 2020, excluding any period of 7 or more consecutive days in which the employee did not receive remuneration.  

Arm’s Length Employees

The weekly subsidy available to employers for eligible remuneration paid to each arm’s length employee is equal to the least of the following:

  1. $847;

  2. 75% of the eligible remuneration paid to the employee in that week if the remuneration paid is equal to or greater than the employee’s baseline remuneration; and

  3. Up to 100% of the eligible remuneration paid to the employee if it is less than 75% of the employee’s baseline remuneration.

Employers may be able to claim the full wage subsidy for remuneration to employees who are re-hired at a lower rate after the COVID-19 crisis.

Non-Arm’s Length (“NAL”) Employees

The subsidy available on eligible remuneration paid to NAL employees is limited to employees who received baseline remuneration (i.e. remuneration paid by the employer to the NAL employee from January 1, 2020, to March 15, 2020). If the NAL employee received baseline remuneration, the subsidy available is equal to the least of the following:

  1. $847;

  2. The eligible remuneration paid to the employee in that week; and

  3. 75% of the baseline remuneration paid to the employee

This calculation limits the ability for employers to access more of the subsidy by either hiring NAL employees after March 15, 2020, or increasing the remuneration to NAL employees. If the NAL employee did not receive baseline remuneration (i.e. remuneration paid between January 1, 2020, and March 15, 2020), remuneration paid to these NAL employees will not qualify for CEWS. 

The wage subsidy relief is reduced by any amounts received under the 10% Temporary Wage Subsidy and amounts received by the eligible employee as a work-sharing benefit under EI.

The subsidy is increased by the employer’s portion of the CPP and EI remitted on remuneration paid to employees on leave for an entire week.

The CEWS received will be included in the employer’s income and will be subject to income tax.

Eligible Entities 

According to the COVID-19 Emergency Response Act, entities that are eligible for the subsidy (i.e. the Eligible Entities) include:

  1. Corporations taxable under Part 1 of the Income Tax Act

  2. Individuals;

  3. Registered charities;

  4. Not for profits; and 

  5. Partnerships, where the members of the partnership are entities described in 1, 2, 3 and 4 above. 

Public institutions are not eligible entities. These include schools, hospitals, public universities, and colleges.

Eligible Employees and Eligible Remuneration

Eligible employees are employees who are resident in Canada and have not been without remuneration from the eligible entity for 14 or more consecutive days in the qualifying period (see table above).

Eligible remuneration includes salary or commissions paid to the eligible employee excluding certain items such as retiring allowances, stock option benefits, and reimbursable expenses. It does not include amounts that are expected to be paid or returned to the eligible entity, a NAL person or partnership, or anyone else at the direction of the eligible entity.    

There is a rule to prevent increasing an employee’s salary beyond the baseline remuneration if the employee’s salary will be reduced after the qualifying period and it is reasonable to conclude that the increased salary was in order to access a higher CEWS.

Remuneration to Non-Arm’s Length Parties

As noted above, remuneration to NAL employees (including the shareholder of the employer or a related person) will only qualify if the NAL employee received baseline remuneration (i.e. remuneration between January 1, 2020, and March 15, 2020). Note again, that dividends do not qualify for CEWS.


The COVID-19 Emergency Response Act legislation provides more clarity on revenue for the purposes of eligibility for CEWS.   

Revenue is calculated as the inflow of cash, receivables, or other consideration received by the eligible entity on the sale of goods in Canada, the provision of services in Canada, or the use of the eligible entity’s resources in Canada.  

An eligible entity will be able to calculate revenue in accordance with its normal accounting practices or elect to use the cash method. However, if selected, the cash method must be used for all qualifying periods applied for.

Qualifying Revenues for most Eligible Entities excludes extraordinary items, amounts from non-arms length parties (unless certain conditions are met – see below), and the income inclusions from CEWS (this 75% wage subsidy) and the Temporary Wage Subsidy (the 10% wage subsidy).  

Groups of Eligible Entities can determine qualifying revenue separately even if they normally prepare consolidated financial statements. The entire group must be consistent in the calculation of qualifying revenue.

If a group of affiliated Eligible Entities jointly elect, the qualifying revenue can be determined on a consolidated basis. The entities need to be affiliated, which is more restrictive than related or associated.

A special rule is available to use the revenue of joint ventures (JV) if more than 90% of the qualifying revenue for an eligible entity is from the JV and 100% of the interest in the eligible entity is owned by participants in the JV.

Revenue from Non-Arm’s Length Parties

CEWS relief is available for Eligible Entities with revenues from NAL parties. If more than 90% of qualifying revenue of the eligible entity is from NAL parties, then the eligible entity can rely on the NAL party’s change in revenue to determine whether the eligible entity is able to access the relief provided from the CEWS.  

This provides relief for multi-enterprise entities such as management companies, which charges fees to other NAL entities that have experienced a decrease in revenue.

This also provides relief for Eligible Entities that are cost-share arrangements if more than 90% of the cost share’s income is from NAL parties to the cost-share.


A penalty will apply if the information submitted in the application is falsified or is misleading. The penalty includes a requirement to repay the subsidy received plus a penalty of up to 225%. There are gross negligence penalties that may also apply.  

We Are Here to Help

If you have any questions about the COVID-19 Emergency Response Act, Manning Elliott is here to help. To assist business owners in navigating through these trying times, visit our blog to stay up to date on the most recent activity related to COVID-19. 

This content is believed to be accurate as of the date of posting. Canadian tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.