COVID-19: CEBA, CEWS and CERB Changes
Listen to Mike Pinkus, co-founder of ConnectCPA, on the Caravel Law Podcast, discussing the COVID-19 situation. You can listen to it HERE.
CEBA, CEWS and CERB CHANGES
CEBA
As mentioned in a previous update, the Canada Emergency Business Account (CEBA) will provide interest-free loans of up to $40,000 (with $10,000 possibly being forgiven) to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced.
Previously, to qualify, organizations were required to demonstrate that they paid between $50,000 to $1 million in total payroll in 2019. Recently, this range was updated to be $20,000 to $1.5 million in total payroll in 2019. This is great news as it ensures more businesses are included in the program. For more details, refer to our earlier post.
September 2020 Update:
Companies that do not meet the payroll thresholds noted, can now apply for the CEBA if they are able to demonstrate that during the January to December 2020 calendar year, they will incur $40,000 in eligible non-deferrable expenses. These expenses are costs such lease agreements, business dues and fees.
The deadline for applications is extended to October 31st, 2020 instead of August 31st, 2020.
CEWS
Over the weekend, Canada's Parliament met to debate and subsequently pass legislation related to the Canada Emergency Wage Subsidy (CEWS).
The bill implements the 75% wage subsidy program for companies with payroll. The goal of the program is to have employers keep their staff and the Government will subsidize their payroll cost, up to a maximum amount. For official literature, please visit the Government of Canada's website. Here is a summary of the program:
From March 15 to June 6, 2020
Includes Corporations, Partnerships, Individuals (i.e. sole proprietors) and charities/not-for-profit entities
To qualify, you must meet a revenue test showing that you had a 15% drop in revenues in March 2020 compared to:
March 2019 or;
Average of January and February 2020
If you don't meet the 15% revenue drop test in March, you can still qualify for April and May, but you need to show a 30% revenue drop compared to the same month in the previous year or to an average of revenues in January and February 2020.
Subsidy amount: 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week (i.e. $44,044 of a maximum of $58,725 in salary).
Starts in 2 to 5 weeks.
September 2020 Update:
On July 27, 2020 the CEWS program was significantly changed. The following is a summary of the changes as well as other recent changes:
New 4-week periods ending November 21st (9 four-week periods from March 15 to November 21) plus a period that could be added by way of regulation not to exceed December 31, 2020.
The subsidy for Periods 5 to 9 is based on the percentage decline in revenue. There is a base subsidy for entities with a decline greater than 0% but less than 50%. There’s a top-up subsidy where the decline is greater than 50%. This top-up is based on a rolling three-month average and tops out at 70%.
Generally, the amount of subsidy is declining. However, the subsidy will apply to more entities since the new rules only require some decline in revenue to qualify (instead of the bright line 30% decline in revenue test).
The maximum subsidy per employee per week has changed starting Period 5 and Period 7, depending on revenue drop.
The “deeming rule” continues to apply in the same manner for periods 1 to 3 (qualify for the subsequent period). A new “deeming rule” is introduced for periods 5 to 9 that looks at the current and immediate prior claim period and the entity uses the higher “revenue reduction percentage” of the two periods for the purposes of the current claim period.
For periods 5 to 9 the employer may elect to use a different prior reference period than they did for periods 1 to 4 (for the purposes of the decline in revenue test). This allows for a “fresh start” opportunity to use the same month in 2019 or the average revenue in January/February 2020.
The election to use the cash method applies to all periods, i.e. there is no “fresh start” for this election.
There is a special “safe harbour” rule for periods 5 and 6 where the decline in revenue is at least 30% the employer can utilize the original subsidy calculation (from periods 1 to 4), otherwise the employer will fall under the new subsidy calculation. This allows for a higher subsidy during periods 5 and 6 and appears to be meant to assist with some certainty in the transition as the new rules were introduced at the end of period 5.
There is now the ability to amend claims. This can be used when it is discovered you could have received greater amounts of subsidies, make different choices, file elections, etc.
The deadline for applications is extended to January 31st, 2021 instead of September 30th, 2020.
The proposed changes have expanded the application of the CEWS program to new entities that otherwise didn’t qualify. There are significant more complexities in the computation of the subsidy.
We recommend you reach out to a member of our accounting team to provide you with guidance.
Confused yet? Let us know and we can help.
CERB
The Canada Emergency Response Benefit (CERB) provides $2,000 to individuals whose incomes have been affected by COVID-19. Previously, an individual had to earn $0 to qualify.
This has been changed to: individuals can now earn up to $1,000 per month while collecting the CERB. This is great news since more individuals can now qualify for the program.
We will continue to update you as more information becomes available. If you have questions or need help, please let us know.
Stay healthy and safe,
The ConnectCPA Team
