Details on the Canada Emergency Wage Subsidy Extension

The government is proposing to further extend the wage subsidy program until June 2021 and implement other enhancements to the program to better respond to the evolving economic and health situation. These proposed changes will make the program more flexible and more generous, and ensure that the program provides continued support to employers and meets the needs of the health and economic situation as it evolves.

November 5, 2020

The government introduced the Canada Emergency Wage Subsidy to protect Canadian jobs, encourage employers to quickly rehire workers previously laid off because of COVID-19, and help bridge the Canadian economy to the other side of this unprecedented crisis. The wage subsidy program was put in place for an initial 12-week period from March 15 to June 6, 2020, providing a 75 per cent wage subsidy to eligible employers. On May 15, 2020, the government announced a 12-week extension, to August 29, 2020. On July 17, 2020, the government unveiled a redesign allowing more employers to access wage subsidy support while ensuring that support is better targeted to their needs, and proposed a further extension to December 19, 2020.

The government is proposing to further extend the wage subsidy program until June 2021 and implement other enhancements to the program to better respond to the evolving economic and health situation. These proposed changes will make the program more flexible and more generous, and ensure that the program provides continued support to employers.

Details of the program until December 19, 2020 are provided here. The government will provide details for the upcoming periods in advance of the current terms’ expiry and will ensure the wage subsidy program continues to be responsive to the economic situation.

Maintaining the Base Subsidy at its Current Level Until December

The wage subsidy includes a base subsidy for all employers whose revenues have been impacted by the pandemic. The base subsidy rate for Period 8 (September 27 to October 24, 2020) would continue to apply for Periods 9 and 10 (October 25 to December 19, 2020). As such, the maximum base subsidy rate would be set at 40 per cent for this period. Table 1, below, shows the new rate structure of the base subsidy.

The new rate structure for the base wage subsidy would replace the one previously announced on July 17, 2020 for Period 9.

Top-up Wage Subsidy More Responsive to Support the Most Affected Employers

A top-up wage subsidy of up to 25 per cent is available to employers most adversely impacted by the pandemic. Currently, an eligible employer’s top-up wage subsidy is generally determined based on the revenue drop over the preceding three months compared to the same months in the prior year. Under the alternative approach to the calculation of baseline revenues, the top-up wage subsidy is determined based on the revenue drop experienced when comparing average monthly revenue in the preceding three months to the average monthly revenue in January and February 2020.

To make the top-up wage subsidy more responsive to sudden changes in revenue, the revenue-decline test for the base subsidy and the top-up wage subsidy would be harmonized from September 27, 2020 onward. Instead of using the current three-month revenue-decline test for the top-up wage subsidy, both the base and top-up wage subsidies would be determined by the change in an eligible employer's monthly revenues, year-over-year, for either the current or previous calendar month. This means an employer with a 70 per cent or greater revenue loss in a single period would be eligible for a 65-per-cent wage subsidy. For employers using the alternative method (announced on April 8, 2020), both the base subsidy and the top-up wage subsidy would be determined by comparing its current monthly revenues with the average of its January 2020 and February 2020 revenues.

Because the wage subsidy would now be based on the current month’s revenue losses, instead of the preceding three months’, an employer who had strong revenues over the summer, but is facing a revenue decline of over 50 per cent in Period 8, would qualify for a more generous wage subsidy this fall.

Table 2, below, shows the new combined rate structure with the base subsidy and the top-up wage subsidy.

Figure 1
Rate Structure of the Combined Base Subsidy and the Top-up Wage Subsidy

Under the alternative approach, both the base subsidy and the top-up wage subsidy would be determined by the change in an eligible employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues. Table 3, below, outlines each qualifying period and the relevant period for determining an eligible employer’s change in revenue.

Employers that had chosen to use the general approach to choosing a prior reference period for Period 5 (July 5 to August 1) and onward would continue to use that approach. Similarly, employers that had chosen to use the alternative approach for Period 5 and onward would continue to use the alternative approach.

An eligible employer would use the greater of its percentage revenue decline for the current qualifying period and that for the previous qualifying period for the purpose of determining its combined base subsidy and top-up wage subsidy rate for the current qualifying period.

Safe Harbour Rule for the Top-up Wage Subsidy for Periods 8 through 10

For Periods 8 through 10, an eligible employer would be entitled to a top-up wage subsidy rate not lower than the rate that it would be entitled to if its entitlement were calculated under the three month revenue-decline test. Under this safe harbour rule, an eligible employer’s top-up wage subsidy would generally be determined based on the revenue drop experienced when comparing revenues in the preceding three months to the same months in the prior year. Under the alternative approach to the calculation of baseline revenues, an eligible employer’s top-up wage subsidy would be determined based on the revenue drop experienced when comparing average monthly revenue in the preceding three months to the average monthly revenue in January and February 2020. Table 4, below, outlines the reference periods for the safe harbour rule.

* The calculation would equal the average monthly revenue over the three months of the reference period divided by the average revenue for the months of January and February 2020.

Alignment of Benefits for Furloughed Employees

As announced on October 14, 2020, for Periods 9 (October 25 to November 21) and 10 (November 22 to December 19), the wage subsidy for furloughed employees would be adjusted to align with the benefits provided through Employment Insurance (EI) to ensure equitable treatment of employees on furlough between both programs.

Specifically, the wage subsidy calculation for a furloughed employee would be the lesser of:

• the amount of eligible remuneration paid in respect of the week; and
• the greater of:
  • $500, and
  • 55 per cent of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $573.

The employer portion of contributions in respect if the Canada Pension Plan, EI, the Quebec Pension Plan, and the Quebec Parental Insurance Plan in respect of furloughed employees would continue to be refunded.

Special Baseline Remuneration Period for Employees Returning from Leave

Under the general rules, an eligible employer’s entitlement to the wage subsidy for a furloughed employee, as well as an active employee in certain circumstances, is determined through a calculation that takes into account both the employee’s current and baseline (pre-crisis) remuneration.

Baseline remuneration means the average weekly eligible remuneration paid to an eligible employee by an eligible employer during the period beginning January 1, 2020, and ending March 15, 2020. Any period of seven or more consecutive days for which the employee was not remunerated is excluded from the calculation. However, the eligible employer may elect, for each qualifying period in respect of an employee, an alternative baseline period for calculating the average weekly eligible remuneration. For Periods 5 through 9 (July 5 to November 21, 2020), the alternative baseline remunation period begins on July 1, 2019 and ends on December 31, 2019. An eligible employer may elect the alternative baseline period because, for example, an eligible employee was on leave through the duration of the regular baseline remuneration period.

Under proposed new rules, employers would be given greater flexibility to claim the wage subsidy in respect of employees returning from maternity leave, parental leave, caregiver leave or long-term sick leave. An eligible employer would be able to elect for each qualifying period from Periods 5 to 10 (July 5 to December 19, 2020), a special baseline remuneration period in respect of an eligible employee returning from a continuous maternity, parental, caregiver, or long-term sick leave that began before July 1, 2019 and ended after March 15, 2020. The special remuneration period would be the 90-day period ending immediately before the beginning of the employee’s leave period.

The proposed new baseline remuneration periods for Periods 5 to 10 (July 5 to December 19, 2020) are summarized in table 5 below:

* Available for eligible employees returning from a continuous maternity, parental, caregiver, or long-term sick leave that began before July 1, 2019 and ended after March 15, 2020.

Application Period

Currently, to qualify for the wage subsidy for a qualifying period, an eligible employer must make an application for the qualifying period, in a prescribed form and manner, no later than January 31, 2021.

With the extension of the wage subsidy, to ensure that employers have sufficient time to make their wage subsidy applications, the proposed new deadline to make an application for a qualifying period would be the later of January 31, 2021 or 180 days after the end of the qualifying period.

Asset Purchases

The wage subsidy has a relieving rule that applies when an entity purchases all or substantially all of business assets of a seller. If the purchaser and seller jointly elect, the purchaser can use the prior reference period revenues associated with those assets for the purpose of computing its revenue decline.

This rule would be expanded to allow it to be used when an entity purchases the assets of a business, or of a distinct part of a business, of an arm’s length seller and the purchaser uses those assets to carry on a business. As with the existing rule, the purchaser and seller would need to make a joint election.

Eligible Employees

Eligible employees are employees for whom the wage subsidy can be claimed. An amendment to the definition “eligible employee” would ensure that only employees of an eligible entity employed primarily in Canada throughout a qualifying period (or portion of a qualifying period during which the employee was employed by the eligible entity) would be considered eligible employees for the purpose of the wage subsidy.