Overview
As a follow up to our communication last week, the federal government announced changes to the expanded CEWS program. The new CEWS rules extend the program to December 19 (from a previous extension to August 29), and make the subsidy proportional to revenue declines. The maximum pay used to calculate the per-employee subsidy will be $1,129 per week.
Employers were previously subject to a 30% revenue decline test, which made them eligible for a payroll subsidy of 75% (to a weekly maximum of $847).
The CEWS now consists of two parts (effective for the current CEWS period):
- a base subsidy available to all eligible employers experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
- a top-up subsidy of up to an additional 25% for employers most adversely affected by COVID-19 (those with more than a 50% revenue drop).
For example, for businesses with a revenue decline of less than 50%, the base subsidy rate will be 1.2 times revenue drop. Revenue drops of 50% or more will receive a 60% top-up. These rates will be gradually reduced starting in Period 7 (August 30 to September 26).
For the current period (July 5 to August 1) and the next one (August 2 to August 29), a safe harbour provision allows for a business that would have been better off under the prior rules (i.e., 75% wage top-up for revenue declines of 30% or more) to receive that prior subsidy amount.
Given that the subsidy rate declines as the CEWS periods pass, the maximum weekly benefit per employee is set to fall from $960 in the current period to $508 in the final one (October 25 to November 21).
Excluding the top-up, the maximums are $677 in the current period and $226 in the final one.
Base Subsidy
Effective July 5, 2020 (Period 5 and subsequent periods), all employers that have been effected by the COVID-19 pandemic would be eligible for a base CEWS amount for active employees. This base CEWS will be a specified rate, applied to the remuneration paid to each employee on payroll for the eligibility period. The specified rate would be determined based on the change in an eligible employer’s monthly revenues, as outlined in the below table provided by the Department of Finance. The base CEWS rate would apply to remuneration of up to $1,129 per week. The maximum base CEWS rate would be provided to employers with a revenue drop of 50 per cent or more.
| Timing | Period 5*: July 5 – August 1 | Period 6*: August 2 – August 29 | Period 7: August 30 – September 26 | Period 8: September 27 – October 24 | Period 9: October 25 – November 21 |
|---|---|---|---|---|---|
| Maximum weekly benefit per employee | Up to $677 | Up to $677 | Up to $565 | Up to $452 | Up to $226 |
| Revenue drop | |||||
| 50% and over | 60% | 60% | 50% | 40% | 20% |
| 0% to 49% | 1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate) | 1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate) | 1.0 x revenue drop (e.g., 1.0 x 20% revenue drop = 20% base CEWS rate) | 0.8 x revenue drop (e.g., 0.8 x 20% revenue drop = 16% base CEWS rate) | 0.4 x revenue drop (e.g., 0.4 x 20% revenue drop = 8% base CEWS rate) |
Source: Department of Finance Canada
Top-up Subsidy
A top-up CEWS would be available to employers that experienced a 3-month average revenue drop of more than 50 per cent. The top up rate would be equivalent to 1.25 times the average revenue drop that exceeds 50 per cent, up to a maximum top-up CEWS rate of 25 per cent, which is attained at a 70 per cent revenue decline. The top-up CEWS rate would apply to remuneration of up to $1,129 per week.
| 3-month average revenue drop | Top-up CEWS rate | Top-up calculation = 1.25 x (3 month revenue drop – 50%) |
|---|---|---|
| 70% and over | 25% | 1.25 x (70%-50%) = 25% |
| 65% | 18.75% | 1.25 x (65%-50%) = 18.75% |
| 60% | 12.5% | 1.25 x (60%-50%) = 12.5% |
| 55% | 6.25% | 1.25 x (55%-50%) = 6.25% |
| 50% and under | 0.0% | 1.25 x (50%-50%) = 0.0% |
Source: Department of Finance Canada
Reference Periods for the Drop-in-Revenue Test
Base CEWS
For the base CEWS, eligibility would be determined by the change in in an eligible employer’s monthly revenues, year-over-year, for the applicable calendar month. For Period 5 and all subsequent periods, an eligible employer would be able to use the greater of its percentage revenue decline in the current period and that in the previous period for the purpose of determining its qualification for the base CEWS and its base CEWS rate in the current period. Employers that have elected to use the alternative approach for the first 4 periods would be able to either maintain that election for Period 5 and onward or revert to the general approach.
| Claim Period | General Approach | Alternative Approach | |
|---|---|---|---|
| Period 5 | July 5 to August 1, 2020 | July 2020 over July 2019 or June 2020 over June 2019 | July 2020 or June 2020 over average of January and February 2020 |
| Period 6 | August 2 to August 29, 2020 | August 2020 over August 2019 or July 2020 over July 2019 | August 2020 or July 2020 over average of January and February 2020 |
| Period 7 | August 30 to September 26, 2020 | September 2020 over September 2019 or August 2020 over August 2019 | September 2020 or August 2020 over average of January and February 2020 |
| Period 8 | September 27 to October 24, 2020 | October 2020 over October 2019 or September 2020 over September 2019 | October 2020 or September 2020 over average of January and February 2020 |
| Period 9 | October 25 to November 21, 2020 | November 2020 over November 2019 or October 2020 over October 2019 | November 2020 or October 2020 over average of January and February 2020 |
Source: Department of Finance Canada
Top-up CEWS
For the top-up CEWS, eligibility would generally be determined by the change in an eligible employer’s revenues for a 3-month period. The table below from the Department of Finance outlines each claim period and the relevant period for determining an eligible employer’s average change in revenue.
| Claim Period | General Approach | Alternative Approach | |
|---|---|---|---|
| Period 5 | July 5 to August 1, 2020 | April to June 2020 over April to June 2019 | April to June 2020 average over January and February 2020 average* |
| Period 6 | August 2 to August 29, 2020 | May to July 2020 over May to July 2019 | May to July 2020 average over January and February 2020 average* |
| Period 7 | August 30 to September 26, 2020 | June to August 2020 over June to August 2019 | June to August 2020 average over January and February 2020 average* |
| Period 8 | September 27 to October 24, 2020 | July to September 2020 over July to September 2019 | July to September 2020 average over January and February 2020 average* |
| Period 9 | October 25 to November 21, 2020 | August to October 2020 over August to October 2019 | August to October 2020 average over January and February 2020 average* |
Source: Department of Finance Canada