The Government of Canada Response to COVID-19
*This article addresses measures that have been introduced up to and including noon on Wednesday, April 22, 2020.
On March 24, 2020, the Government of Canada introduced legislation to implement its economic response plan to COVID-19: the COVID-19 Emergency Response Act (the “ERA”). The ERA received Royal Assent on March 25, 2020. On April 11, 2020, Bill C-14 (which enacts the Canada Emergency Wage Subsidy (“CEWS”), discussed below) received Royal Assent. Changes to eligibility for the CEWS were included in Bill C-14.
The purpose of this article is to provide an overview of the various measures in the ERA and Bill C-14, and also to provide an update on certain administrative concessions and operational changes announced by the Canada Revenue Agency (“CRA”), and an update on practice directions announced by the Chief Justice of the Tax Court of Canada (“TCC”).
Emergency Response Act (“ERA”) – Key Measur
1. Canada Emergency Response Benefit (“CERB”)
Who does it apply to?
Self-employed workers
Employees of businesses
What are the criteria for applicants?
Must be:
- At least 15 years old.
- Residing in Canada.
- Stopped working because of COVID-19, have not voluntarily quit their job and are not eligible for EI regular or sickness benefits.
- Had income of at least $5,000 in 2019 or in the 12 months prior to the date of their application.
- Expected to receive no more than $1,000 (before taxes) of employment or self-employment income for at least 14 consecutive days in the initial four-week period, and in subsequent 14 day periods.
What is the process for applying?
If you were self-employed, you are to apply through CRA: https://www.canada.ca/en/revenue-agency/services/benefits/apply-for-cerb-with-cra.html
If you were an employee, you apply through Service Canada: https://www.canada.ca/en/services/benefits/ei/cerb-application/confirmation.html
For now, you are only required to provide personal information (such as your social insurance number). However, the Federal Government has indicated that you may be required to provide “additional documentation to verify your eligibility at a future date”.
What is the amount of the benefit?
$500 per week for a maximum of 16 weeks. Note that this benefit is considered taxable income and should be reported as income in the year the benefit was received.
Earlier this month, the Federal Government indicated that the scope of eligibility would be increased to: (1) include people such as rig workers, dentists, contractors and volunteer firefighters who work 10 or fewer hours per week; (2) adjustments may be made to provide support for those who continue to work but who are making less than they originally would; and (3) non-eligible dividends qualify towards the $5000 income requirement noted above. As of the time of writing this article, the only proposed adjustment which has been formalized is (2), wherein now an applicant is permitted to have received up to $1000 (before taxes) and still be eligible for the benefit.
2. 10% Temporary Wage Subsidy (“Temporary Wage Subsidy”)
See this website for further information on the Temporary Wage Subsidy:https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-subsidy-small-businesses.html
Who does it apply to?
Individuals, taxable corporations, partnerships, non-profit organizations and charities.
It is of note that partnerships are only eligible if their members consist exclusively of individuals (excluding trusts), registered charities, or Canadian-controlled private corporations (CCPCs) eligible for the small business deduction. Consideration should be given to allocating at least $1.00 of small business deduction to each corporate partner for the 2019 taxation year in order to ensure that the partnership qualifies for the subsidy.
What are the criteria for applicants?
In addition to meeting the above application criteria, the employer must have an existing business number and payroll program account with CRA as of March 18, 2020, and must pay salary, wages, bonuses or other remuneration to eligible employees.
What is the process for applying?
There is no application required. An employer is required to continue deducting income tax, CPP contributions, and EI premiums from salary, wages, bonuses and other remuneration paid to employees, and the subsidy is automatically calculated when those amounts are remitted. Once the subsidy is calculated, an employer can reduce the current payroll remittance of federal, provincial or territorial income tax by the amount of the subsidy.
*It is important to note that an employer is not permitted to reduce remittances in connection with CPP or EI premiums.
What is the amount of the benefit?
The subsidy is equal to 10% of the remuneration paid from March 18, 2020 to June 19, 2020, up to $1,375 for each eligible employee to a maximum of $25,000 total per employer.
Note: Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
Note that this subsidy is considered taxable income and should be reported as income in the year the subsidy was received. In addition, employers are asked to keep the following information in support of the subsidy:
- the total remuneration paid from March 18, 2020 to June 19, 2020;
- the federal, provincial, or territorial income tax that was deducted from that remuneration; and
- the number of eligible employees employed in that period.
The Federal Government has stated that further records may be required, and further information as to the scope of record-keeping will be provided at a later date. It is likely that we will see increased audit activity in the coming taxation year in connection with the use of this subsidy and the Canada Emergency Wage Subsidy (discussed below).
3. Canada Emergency Wage Subsidy (“CEWS”):
The CEWS program was announced subsequent to the Temporary Wage Subsidy. Further details on the CEWS program can be found here:https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/support-employers-cra-covid-19.html Bill C-14 (which enacts the CEWS program) received Royal Assent on April 11, 2020. A copy of Bill C-14 can be found here: https://www.parl.ca/DocumentViewer/en/43-1/bill/C-14/royal-assent
The CEWS program is separate from the Temporary Wage Subsidy (which remains in effect). If the employer qualifies for both programs, the payments under CEWS will be reduced to account for any benefit the employer receives under the Temporary Wage Subsidy. In addition, an employer is not entitled to receive payments under CEWS in respect of an employee during a period when that employee is eligible for the CERB.
Who does it apply to?
Individuals, taxable corporations, partnerships, non-profit organizations and charities.
It is of note that partnerships are only eligible if their members consist exclusively of individuals (excluding trusts), registered charities, or Canadian-controlled private corporations (CCPCs) eligible for the small business deduction. Consideration should be given to allocating at least $1.00 of small business deduction to each corporate partner for the 2019 taxation year in order to ensure that the partnership qualifies for the subsidy.
What are the criteria for applicants?
In order to qualify for the 75% wage subsidy for the month of March, the organization will need to be able to demonstrate that its gross revenues for the month in which that period began were 15% less than they were for that month in the prior year. In order to claim the subsidy for April and May, the organization will have to demonstrate that its gross revenues for the particular month were 30% less than they were for that month in the prior year.
An alternative method of determining declining revenues is that employers can choose to average revenues from January and February 2020 to compare to their revenue for March, April and May 2020. However, once an organization chooses a comparison method, they are required to continue with that same comparison method throughout the months where they are applying for the subsidy.
In addition, businesses will be allowed to measure revenues on the basis of accrual accounting or cash accounting to determine the decline – but once an accounting method is chosen, the business is required to continue with that same accounting method for the calculation in subsequent months.
What is the process for applying?
Eligible employers would be able to apply for CEWS through the CRA My Business Account portal. The web-based portal will be available starting Monday, April 27, 2020.
There is a fairly stringent record keeping requirement for this program. Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.
The Federal Government has stated that if an employer was not entitled to the subsidy, the employer will be required to repay any amounts paid under the CEWS. In addition, penalties may apply in the case of fraudulent claims. The Federal Government has stated that they are considering proposing the creation of new offences that would apply to individuals, employers or business administrators who provide false or misleading information to obtain access to the benefit, or who misuse the program.
What is the amount of the benefit?
The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:
- 75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
- the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less.
It is of note that for individuals who are non-arm’s length employees, they will be limited to 75% f their baseline remuneration, which is defined as “average weekly eligible remuneration paid between Jan 1 and March 15th”. Therefore, if a non-arm’s length employee was not receiving any remuneration between Jan 1 and March 15th, they will not be entitled to any subsidy.
“Pre-crisis weekly remuneration” was clarified to mean the average weekly remuneration paid between January 1, 2020 and March 15, 2020 inclusively, excluding any seven-day periods that the employee did not receive remuneration.
“Eligible remuneration” includes salary, wages and other remuneration, but not severance pay or stock option benefits. However, taxable benefits are considered to be included in the definition of “eligible remuneration”. It excludes amounts derived from non-arm’s length sources.
In addition, the Federal Government announced on April 8, 2020 that employers eligible for the subsidy will be entitled to receive a 100% refund for certain employer-paid contributions to Employment Insurance, and the Canada Pension Plan. This was confirmed in Bill C-14.
Bill C-14 has also provided some clarification on how to compute revenue within a corporate group. Specifically:
- where a group of eligible entities normally prepares consolidated financial statements, each member of the group may determine its qualifying revenue separately (but each member of the group must determine revenue on the same basis);
- Affiliated groups can jointly elect to determine the qualifying revenue of the group on a consolidated basis.
- Where certain eligible entities receive all or substantially all of their revenue from non-arm’s length sources, they are permitted to jointly elect to determine whether each entity meets the required revenue reduction percentage for a period by reference to a weighted average of the qualifying revenues of the non-arm’s length persons or partnerships from whom the entity’s revenue is earned.
The Federal Government has indicated that employers who do not use the subsidy as intended would face “stiff and severe” penalties. Bill C-14 confirms a new 25% penalty for employers manipulating their revenues, as well as an existing penalty of 50% of an excessive claim for false statements or gross negligence, or as much as a 200% fine and 5 years’ imprisonment for fraud/tax evasion. The Bill also gives CRA the ability to name applicants that abuse the subsidy.
The Bill also confirms that employers are required to designate someone with control over finances to ensure that the claims are appropriate.
CRA Operational Changes and Administrative Concessions
For the most recent information on the changes announced by CRA, please see the following website: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update.html
1. Filing Deadlines: CRA extended filing deadlines in connection with certain income tax returns relating to the 2019 tax year and extended the deadline for payment in connection with any amounts owing in the 2019 tax year. A summary of these changes can be found in the table below.
INDIVIDUALS
Filing Date for 2019 tax year
June 1, 2020
Payment Date for 2019 tax year
September 1, 2020
*This includes the June 15, 2020 installment payment for those who have to pay by instalments.
SELF-EMPLOYED AND THEIR SPOUSE OR COMMON-LAW PARTNER
Filing Date for 2019 tax year
June 15, 2020
*NOTE: This date remains unchanged.
Payment Date for 2019 tax year
September 1, 2020
*This includes the June 15, 2020 installment payment for those who have to pay by instalments.
CORPORATIONS
Filing Date for current tax year
June 1, 2020
*This applies to corporations that would otherwise have a filing due date after March 18, 2020 and before June 1, 2020.
Payment Date for 2019 tax year
September 1, 2020
*This applies to balances and instalments under Part I of the Income Tax Act (Canada) due on or after March 18, 2020 and before September 1, 2020.
Note that changes were also made in connection with the filing of other returns (including, but not limited to returns filed for trusts, charities and partnerships). See: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html for further information.
If a taxpayer is anticipating a refund and/or if the taxpayer qualifies for certain credits (such as the GST/HST Credit, or Canada Child Benefit, it would be prudent to file the return as soon as possible to ensure that the benefits are not interrupted.
2. Remittance Deadlines:
- Payroll: CRA has not made any changes in connection with the requirement to file and remit payroll deductions. Relief in connection with payroll obligations was discussed above under the headings discussing the Temporary Wage Subsidy and CEWS.
- GST/HST: CRA has stated that businesses can defer (until the end of June 2020) any GST/HST payments or remittances that become owing on or after March 27, 2020 and before June 2020. This means that no interest will accrue on the outstanding balance so long as payments or remittances are made by end of June 2020. However, businesses are still required to file their returns on time to report their net tax for the particular reporting period. CRA has stated that it will not impose penalties where a return is filed late provided that the return is filed by June 30, 2020. For further information on GST compliance in light of COVID-19, please see:https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-gst-hst.html.
3. Operational Changes: For further details on the operational changes announced by CRA, please see: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-collections-audits-appeals.html.
- Collections Activity: CRA has stated that all collections activity on new debt will be suspended until further notice and flexible payment arrangements will be available. We recommend that if a taxpayer is currently working with a collections officer in connection with pre-existing debt, that communication with the officer be maintained throughout this period. In addition, if a payment plan arrangement was previously put in place: (1) if the taxpayer is able to continue making payments under the arrangement, payment should be made; or (2) if the taxpayer is not able to continue making payments under the arrangement, the taxpayer should communicate with CRA in advance of the payment deadline to negotiate a more flexible arrangement.
- Audits: CRA has stated that it will generally not contact small or medium businesses to conduct tax audits for the next 4 weeks. Further, interaction with taxpayers will be limited to “high risk and exceptional cases”.
- Objections and appeals: All objections are being held in abeyance, save and except for objections relating to Canadians’ entitlement to benefits and credits. For objections due on March 18, 2020 or later, the filing deadline is automatically extended to June 30, 2020.
- Taxpayer Relief: Taxpayers who are unable to file a return or make a payment by the deadline can request the cancellation of a penalty and interest through the taxpayer relief program. However, CRA has stated that penalties and interest may be charged if a taxpayer fails to meet the new deadlines set out by CRA for filing and payment. Taxpayer relief requests are made by filling out an RC4288 form: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc4288.html. This relief is not available to corporate taxpayers. If seeking relief due to COVID-19, it is important to state “COVID-19” prominently on the request for relief, as those applications will be processed first once full operations resume at CRA.
Tax Court of Canada – Practice Directions
1. On April 17, 2020, the Chief Justice of the TCC released an updated notice to the public and the profession advising: All TCC sittings and conference calls through to May 29, 2020 are cancelled.
2. The period beginning on March 16, 2020 and ending on the date that is 60 days after the Tax Court of Canada Registry office reopens for business will be excluded from the computation of time under: the Tax Court of Canada Rules (General Procedure), all other rules made under the Tax Court of Canada Act governing the conduct of matters that are under the TCC’s jurisdiction, or an Order or Direction of the TCC.
3. If a party is filing a document electronically, the party is exempted from any requirement to provide paper copies.
4. No documents will be processed by the Registry Office until the Court’s operations resume.
The TCC states that it will reassess on May 20, 2020 whether the judicial sittings schedule will have to be further altered, and parties will be contacted directly if affected.
Amanda S. A. Doucette
STEVENSON HOOD THORNTON BEAUBIER LLP
500 – 123 2nd Avenue South, Saskatoon, SK S7K 7E6
Telephone: 306-244-0132
Email: adoucette@shtb-law.com
Blog: https://taxchickca.wordpress.com/
The information in this guide is not legal advice. We encourage you
to consult with your legal advisor for specific advice.