CEWS Extension: No New Info, But Business Bears Burden of Proof

Beth Graddon

Between a rock and a hard place. That could well describe how Canada’s suffering business owners feel about the complete lack of direction that followed Monday’s announcement that the Canada Emergency Wage Subsidy (CEWS) has been extended until December 2020. It’s meant to help restart the nation’s economy, but you won’t find a single reference to this on CRA’s website as of today. Here’s why that’s a very big deal:

Canada’s business owners will be subject to vigorous auditing and potentially heavy fines in the future if they get their applications for the CEWS wrong, discussed below. This is all that’s available now to help business owners understand their claim rights:

1. Applications for the current claim period, June 7 to July 4, didn’t open until July 8. Eligibility criteria has not changed for this period.  One might rely on prior rules.  That is, that if you qualified in a previous period, you appear to qualify for the next one*. 

2. What happens after July 8?  According to the CRA (remember, this is as of July 16) any potential changes would commence as of the July 5 to August 1 period and/or the August 2 to August 29 period. But the CEWS website has not posted any updates to address this issue either for the August 29th extension or the new extension to December 31.   

*One notable early change with the CEWS was the requirement to submit a new application for each claim period. What has remained the same is automatic eligibility for the next period for any business that qualified for the prior one based on the 30% income reduction rule. The wording that the government has used is confusing as they’ve indicated in this case businesses “automatically qualify”. What they actually mean is that an application must be submitted, but the business is eligible to receive the CEWS the next month even if the 30% income reduction calculation for that month was not met. But that’s only true for that single subsequent month.

Calculations to determine eligibility must be done using one revenue baseline, and this same method of calculation must always be used when applying for the program. There are two options for calculating baseline revenue:

  • The revenue you earned in the corresponding month in 2019
  • The average of the revenue you earned in January and February 2020

Example:

Period 1: March 15 to April 11 (15% revenue reduction required)

Example 3 - Period 1: March 15 to April 11 (15% revenue reduction required): Revenue

Jan 2020

Feb 2020

Mar 2020

Baseline (compare to Mar 2020)

$100,000

$140,000

$110,000

  • March 2019: $140,000 (21.4% reduction)
  • Jan/Feb 2020 average: $120,000 (8.3% reduction)

CEWS eligibility : Qualifies for period 1; Baseline chosen: Corresponding month in 2019

Note: Whatever baseline you initially choose, it must remain the same for each of the following periods

Period 2: April 12 to May 9 (30% revenue reduction required)

Example 3 - Period 2: April 12 to May 9 (30% revenue reduction required): Revenue

Jan 2020

Feb 2020

April 2020

Baseline (compare to Apr 2020)

$100,000

$140,000

$120,000

  • April 2019: $160,000 (25% reduction)
  • Jan/Feb 2020 average: $120,000 (0% reduction)

Although the employer's revenue has not met the 30% reduction for period 2, because they qualified for period 1, they automatically qualify for the following claim period.  

This is the rule business owners have had to rely on given the lack of new information for the two extension periods. 

CEWS eligibility: Qualifies for period 2.  Baseline chosen: Corresponding month in 2019

Although the employer's revenue has not met the 30% reduction for period 2, because they qualified for period 1, they automatically qualify for the following claim period. 

This is the rule business owners have had to rely on given the lack of new information for the two extension periods.

Remaining Audit-Proof.  Good record keeping is clearly important, as the onus of proof remains on business owners! The CRA has provided the guidelines for record keeping here. Of course, this taxable CEWS must also be included on your Annual Return of Income. There will be penalties and fines for “fraudulent” claims.  For example, the penalty for artificially reducing your revenue for the purpose of claiming the CEWS, for example, is 25% of the total value of subsidies received plus the repayment of the subsidy itself.

Early Corrections are Critical.  The government has also opened up an option to return full or partial payments received where eligibility requirements were not met. You may need to return all or part of the subsidy you received if you:

  • Send the CRA any amendments to a previous application
  • Made a calculation or data entry error for a claim period
  • Find out you do not qualify for the subsidy after you receive a payment
  • Receive a notice from the CRA that, following a review, your claim has been reduced or denied

It’s important to review and understand the criteria when accessing the CEWS to avoid penalties. Knowledge Bureau Report will keep you up to date as new information about the extension and eligibility is released and will provide a Tax Audit Defence session at the Virtual CE Summits on September 30, to drill down on the detail advisors need to address when helping their clients. 

Additional educational resources: Businesses navigating the tax and financial consequence of the pandemic and government support programs need the help of qualified professionals. Become an MFA™-Business Services Specialist today.

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