UPDATE: The Canada Emergency Wage Subsidy (CEWS) - July 17

UPDATE: The Canada Emergency Wage Subsidy (CEWS) – July 17

This publication is an update to previous publications detailing the April 1, 2020 Federal government announcements and the June 15, 2020 update. This publication is a summary of the new rules that will apply for the CEWS program from July 5 to November 21, 2020 (i.e. Period 5 to Period 9). Although the CEWS program has been extended to December 19, 2020 (Period 10), details of the rules for Period 10 have not been released.

We will focus on the changes and summarize the rules in the same format as in our previous publications.

Starting on July 5, 2020, the CEWS program will no longer offer a fixed 75% wage subsidy to “eligible employers” up to a maximum of $847 per week per employee. Under the new rules, the amount of the wage subsidy will be calculated based on an eligible employer’s revenue decline. There are significant changes in the proposed legislation.

General changes as per the Department of Finance

  • Allow the extension of the CEWS until December 19, 2020, including redesigned program details until November 21, 2020 (Segal note: Even though the rules are meant to apply until December 31, 2020, the specific guidance has only been provided up until November 21, 2020 (Period 9). Presumably, additional legislation will be provided for the final period – November 22, 2020 to December 19, 2020.)
  • Make the subsidy accessible to a broader range of employers by including employers with a revenue decline of less than 30 per cent and providing a gradually decreasing base subsidy to all qualifying employers. This would help many struggling employers with less than a 30-per-cent revenue loss get support to keep and bring back workers, while also ensuring those who have previously benefited could still qualify, even if their revenues recover and no longer meet the 30 per cent revenue decline threshold.
  • Introduce a top-up subsidy of up to an additional 25 per cent for employers that have been most adversely affected by the pandemic. This would be particularly helpful to employers in industries that are recovering more slowly.
  • Provide certainty to employers that have already made business decisions for July and August by ensuring they would not receive a subsidy rate lower than they would have had under the previous rules.
  • Address certain technical issues identified by stakeholders.

Key Changes:

  • There is now a “base” subsidy and a “top-up” subsidy. When added together, the maximum subsidy is now 85% of employees’ remuneration, up to a maximum subsidy of $960 per week in Period 5 (July 5-August 1). By Period 9 (October 25-November 21), the maximum subsidy is 45% of employees’ remuneration, up to a maximum subsidy of $508 per week.
  • These subsidies are based on a decline in revenue. The top-up subsidy entitlement is based on a three-month average revenue drop of more than 50%.
  • The reference periods are being changed so that an eligible employer can compare the current month to the same month in 2019, the previous month in 2020 to the previous month in 2019 or compare the current or previous month in 2020 to the average revenue of January/February 2020. This provides more choice, but the calculations will be much more complicated.
  • If an employer is using the cash method of accounting, they can now elect to use accrual-based accounting to calculate their revenues for purposes of the CEWS. This change will apply as of March 15, 2020. Previously, only employers that used the accrual method could elect to use the cash method for calculating their revenues for purposes of the CEWS. Once an employer makes an election to use either the cash method or accrual method for calculating revenue, it must be used for all subsequent periods.
  • For Periods 5 and 6, an eligible employer would be entitled to a CEWS rate not lower than the rate that they would be entitled to if their entitlement were calculated under the CEWS rules that were in place for Periods 1 to 4. This means that in Periods 5 and 6, an eligible employer with a revenue decline of 30% or more in the relevant reference period would receive a CEWS rate of at least 75% or potentially an even higher CEWS rate using the new rules.
  • Employers who elected to use the alternative approach (i.e. average of January and February 2020 revenue for the prior reference period) for the first 4 periods can maintain that election for Periods 5 to 9 or revert to the general approach. Similarly, employers who have used the general approach (i.e. year over year change in revenue for a particular month) for the first 4 periods can maintain the general approach or elect to use the alternative approach for Periods 5 to 9. Whichever approach an employer chooses will apply for Period 5 and onwards.
  • There are new rules for active arm’s-length employees. The amount of remuneration will be based solely on actual remuneration paid for the eligibility period, without reference to the pre-crisis remuneration concept used for Periods 1 to 4.
  • There is a modified special rule for non-arm’s-length employees. For Periods 5 and subsequent periods, the wage subsidy for these employees will be based on the lesser of their pre-crisis weekly remuneration (before March 16, 2020) and their actual remuneration, up to a maximum of $1,129. These non-arm’s length employees had to have been employed before March 16, 2020.
  • Beginning in Period 5, the government has extended the subsidy to employees that are without remuneration for 14 or more consecutive days in a qualifying period. Previously, these employees were excluded from the CEWS program.
  • The deadline to apply for the subsidy has been extended to January 31, 2021. This means that an eligible employer could apply for the entire CEWS period at any time before February 2021.

Base subsidy for all employers impacted by the crisis

Effective July 5, 2020, the base CEWS would be a specified rate, applied to the amount of remuneration paid to the employee for the eligibility period, on remuneration of up to $1,129 per week. The rate of the base CEWS would now vary depending on the level of revenue decline, and its application would be extended to employers with a revenue decline of less than 30%. This expansion would mean that all eligible employers with any revenue decline would now qualify for CEWS support.

The specified rate would be determined based on the change in an eligible employer’s monthly revenues.

The maximum base CEWS rate would be provided to employers with a revenue drop of 50% or more. Employers with a revenue drop of less than 50% would be eligible for a lower base CEWS rate.

The maximum base CEWS rate would be gradually reduced from 60% in Periods 5 and 6 (July 5 to August 29) to 20% in Period 9 (October 25 to November 21).

Rate structure of the base CEWS

Top-up subsidy for the most adversely affected employers

A top-up CEWS of up to 25% would be available to employers that were the most adversely impacted by the pandemic. Generally, an eligible employer’s top-up CEWS would be determined based on the revenue drop experienced when comparing revenues in the preceding 3 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 CEWS would be determined based on the revenue drop experienced when comparing average monthly revenue in the preceding 3 months to the average monthly revenue in January and February 2020.

  • For example, if an employer had $600,000 in revenue between April 1 and June 30, 2019, and $210,000 in revenue between April 1 and June 30, 2020, the employer would have a 3-month revenue drop of 65%.
  • Under the alternative approach, if an employer had $400,000 in revenue between January 1 and February 29, 2020 (average monthly revenue of $200,000), and $210,000 in revenue between April 1 and June 30, 2020 (average monthly revenue of $70,000), the employer would have a 3-month revenue drop of 65%.


Employers that have experienced a 3-month average revenue drop of more than 50% would receive a top-up CEWS rate equal to 1.25 times the average revenue drop that exceeds 50%, up to a maximum top-up CEWS rate of 25%, which is attained at a 70% revenue decline. As with the base CEWS rate, the top-up CEWS rate would apply to remuneration of up to $1,129 per week. The top-up CEWS rate for selected average revenue drop levels is illustrated below.


Top-up CEWS rates for selected levels of average revenue drop over the preceding three months

Rate structure of the combined base CEWS and the top-up CEWS for the most affected employers

* In Periods 5 and 6, employers who would have been better off in the CEWS design in Periods 1 to 4 would be eligible for a 75% wage subsidy if they have a revenue decline of 30% or more.

CEWS for Furloughed Employees

For Periods 5 and 6, the subsidy calculation for a furloughed employee would remain the same as for Periods 1 to 4. It would be the greater of:

  • For arm’s-length employees, 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
  • 75% of the employee’s pre-crisis weekly remuneration up to a maximum benefit of $847 per week or the amount of remuneration paid, whichever is less.

Beginning in Period 7, CEWS support for furloughed employees would be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI). This would ensure equitable treatment of employees on furlough between both programs, provide greater clarity to workers as to their compensation as compared to a changing subsidy rate based on their employer’s revenue in a given month and, when combined with draft legislative changes to the interaction with the CERB (i.e., the elimination of the 14-days rule, as discussed below), make it easier to transition employees on to CEWS so that they are reconnected with their employer.

For Period 5 and subsequent periods, the CEWS for furloughed employees would be available to eligible employers that qualify for either the base rate or the top-up for active employees in the relevant period.

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

Eligible Remuneration

No changes are proposed to the definition of eligible remuneration. Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.

For active arm’s-length employees, the amount of remuneration would be based solely on actual remuneration paid for the eligibility period, without reference to the pre-crisis remuneration concept used for earlier CEWS periods.

A modified special rule would apply to active employees that do not deal at arm’s length with the employer. For Period 5 and subsequent periods, the wage subsidy for such employees would be based on the employee’s weekly eligible remuneration or pre-crisis remuneration, whichever is less, up to a maximum of $1,129. The subsidy would only be available in respect of non-arm’s-length employees that were employed prior to March 16, 2020.

For Period 4, the pre-crisis remuneration of an employee would be based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020; from March 1, 2019 to May 31, 2019; or from March 1, 2019 to June 30, 2019. For Period 5 and subsequent periods, the pre-crisis remuneration of an employee would be based on the average weekly remuneration paid to the employee from January 1 to March 15, 2020 or from July 1, 2019 to December 31, 2019. In all cases, the calculation of average weekly remuneration would exclude any period of 7 or more consecutive days without remuneration. Employers can choose which period to use on an employee-by-employee basis.

Reference Periods for the Drop-in-Revenues Test

For the purpose of the base CEWS, eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the applicable calendar month. The table below outlines each claiming period and the relevant period for determining an eligible employer’s change in revenue. 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. This would provide certainty and be a continuation of the rules for Periods 1 to 4 that allowed an employer that met the revenue test in one period to automatically qualify for the following 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. Similarly, employers that have used the general approach for the first 4 periods would be able to either continue with the general approach or elect to use the alternative approach for Period 5 and onward. Whichever approach they choose would apply for Period 5 and onward and would apply to the calculation of the base CEWS and the top-up CEWS. This would provide flexibility for employers to adjust their approach in light of new circumstances they may be experiencing as the CEWS is extended.

Reference periods for the base CEWS

Reference periods for the top-up CEWS

For the purpose of 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 outlines each claiming period and the relevant period for determining an eligible employer’s average change in revenue.

* The calculation would equal the average monthly revenue over the 3 months of the reference period divided by the average revenue for the months of January and February 2020.

Legislative Amendments

The government has shared draft legislative proposals to make the changes to the CEWS. These proposed changes, which would generally apply as of March 15, 2020, include:

  • providing an appeal process based on the existing procedure for notices of determination that allows for an appeal to the Tax Court of Canada.
  • providing continuity rules for the calculation of an employer’s drop in revenues in certain circumstances where the employer purchased all or substantially all the assets used in carrying on business by the seller.
  • allowing prescribed organizations that are registered charities or non-profit organizations to choose whether to include government-source revenue for the purpose of computing their reductions in qualifying revenue; and
  • allowing entities that use the cash method of accounting to elect to use accrual-based accounting to compute their revenues for the purpose of the CEWS.


The government is also proposing to move forward with previously released legislative changes, including relieving changes for calculating pre-crisis “baseline” remuneration, for corporations that have amalgamated and for eligible entities that use payroll service providers. The government is also proposing to move forward with the amendment that would align the treatment of trusts and corporations for the purposes of the CEWS

Taxation of Subsidy

The subsidy is fully taxable. From a cash perspective, the tax cost of obtaining the subsidy will not be due until the eligible employer’s tax filing due date. For a CCPC with a December 31, 2020 year end, the taxes on the subsidy would not be due until March 31, 2021. In Ontario, the tax due would be 12.2% if eligible for the small business deduction or 26.5% if not eligible for the small business deduction.

Ensuring Compliance

If the employer does not meet the eligibility requirements and has incorrectly received the subsidy, the employer would be required to repay amounts received under the Canada Emergency Wage Subsidy.

Penalties may apply in cases of fraudulent claims.

Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 per cent of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.

Segal LLP is available to assist you through the process once the government finalizes the methodology and the web access.

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