This article was originally posted on March 23, 2020 and has been updated to include Government announcements as of April 24, 2020.
The Government has introduced a temporary wage subsidy for eligible employers to reduce their payroll cost over a three-month period during the ongoing economic downturn induced by COVID-19. Let’s call it the 10% wage subsidy (to distinguish it from the 75% wage subsidy also announced by the Government).
This is how the 10% wage subsidy will work.
1. Who is an eligible employer?
Only the following employers having an existing business number and payroll program account with CRA as on March 18, 2020 are eligible to claim the 10% wage subsidy:
- a non-profit organization,
- a registered charity,
- a sole proprietor;
- a partnership; or
- a corporation that has a business limit greater than nil (and determined without reference to passive income business limit reduction) for small business deduction for its last taxation year that ended before March 18, 2020.
Partnerships are only eligible for the subsidy if their members consist entirely of individuals (excluding trusts), registered charities, other partnerships eligible for the wage subsidy, or CCPCs eligible for small business deduction.
2. Which payments qualify for 10% wage subsidy?
These would be salary, wages, bonuses, or other remuneration paid by an eligible employer to an eligible employee (i.e. an individual employed in Canada) between March 18, 2020 and June 19, 2020.
If no remuneration has been paid between March 18, 2020, and June 19, 2020 – for example, if employees have been dismissed or they are on unpaid leave over this period – there is no entitlement to wage subsidy, even if the employer otherwise qualifies as an eligible employer.
3. How much subsidy can be claimed by an eligible employer?
The subsidy is equal to 10% of remuneration paid by an employer over a three-month period starting March 18, 2020, up to $1,375 per eligible employee and with an overall cap of $25,000 per employer. The calculation is based on the total number of eligible employees employed at any time during the three-month period.
Eligible employers that are associated CCPCs do not share the maximum limit of $25,000. In other words, each employer is entitled to a maximum of $25,000 in wage subsidy regardless of whether or not it is an associated CCPC.
4. How can an employer receive the 10% wage subsidy?
To claim the subsidy, eligible employers will reduce the amount of payroll deductions required to be remitted to CRA by the amount of subsidy they have calculated. Only the income tax portion of payroll tax remittance can be reduced, but not the CPP contributions or the EI premiums.
The 10% wage subsidy can only be claimed against payroll tax remittances to CRA, and not against those made to Revenu Québec by QC-based employers.
5. When can the 10% wage subsidy be claimed?
Eligible employers can reduce payroll tax remittance by the amount of subsidy in the first remittance period for salary paid between March 18, 2020, and June 19, 2020. For example, a regular remitter can claim subsidy against payroll tax remittance due to CRA by April 15, 2020.
Alternatively, an eligible employer that does not reduce its payroll tax remittance to CRA in 2020 may ask CRA that 10% wage subsidy on remuneration paid between March 18, 2020, and June 19, 2020 be paid to the employer at the year-end or transferred to its payroll account for 2021. CRA will require eligible employers to fill out a self-identification form, that will be published in the coming months, to credit their payroll program account by the amount of the subsidy.
6. Can an eligible employer reduce payroll tax remittance to CRA for salary paid after June 19, 2020?
Yes, this is possible if the income tax remittance for salary paid between March 18, 2020, and June 19, 2020 is not adequate to cover the amount of 10% wage subsidy which the employer is entitled to claim. For example, if you have calculated a subsidy of $5,000 on remuneration paid between March 18, 2020, and June 19, 2020, but have only deducted income tax of $3,250 from salaries paid to employees, you can reduce future income tax remittance by $1,750 even though such remittance is in respect of salary paid after June 19, 2020.
7. Does 10% wage subsidy affect net salary calculation for employees?
No, it doesn’t. An eligible employer will continue to deduct income tax, CPP contributions, and EI premiums from gross salary earned by employees in the same manner as before. It’s only when these deductions are to be remitted to CRA that the employer may reduce the income tax portion by the amount of subsidy and remit the balance to CRA.
8. Can an employer paying tax-exempt remuneration claim the 10% wage subsidy?
Yes, wage subsidy is available for remuneration paid from March 18, 2020 to June 19, 2020, even if all or part of this remuneration is tax-exempt. The eligible employer will, in this case, ask CRA to pay the amount of subsidy at the end of 2020.
9. How does the 10% wage subsidy affect an employer’s claim for the 75% Canada Emergency Wage Subsidy (CEWS)?
Employers who qualify for both subsidies will reduce the amount available to be claimed under CEWS by the amount of 10% temporary wage subsidy that they are eligible to claim, whether or not they have taken advantage of the 10% wage subsidy. CEWS and the 10% wage subsidy are intended to provide total support of up to 75%, not 75% + 10%. This means that the maximum benefit for an eligible employer cannot exceed its entitlement under CEWS.
10. Is the 10% wage subsidy considered taxable income?
Yes, an eligible employer will report the subsidy as income in the year in which it has been received.
11. What recordkeeping should eligible employers maintain?
Employers will need to keep information to support subsidy calculation. This includes:
- the total remuneration paid from March 18, 2020 to June 19, 2020;
- the income tax that was deducted from that remuneration; and
- the number of eligible employees employed in that period.
CRA is currently updating reporting requirements and will provide more information on how to report this subsidy.
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