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April 14, 2020

The 75% Canada Emergency Wage Subsidy for Employers

Posted in   Business, COVID19   on  April 14, 2020 by  Admin , Comments:  0  

This article was originally posted on April 6, 2020 and has been updated to include Government announcements as of April 14, 2020.

The Government has introduced 75% wage subsidy for employers whose businesses have been hit by COVID-19, in a bid to encourage them to retain or recall their workers. It would provide a benefit of up to $847 per week per employee over a 12-week period starting March 15, 2020. This relief measure has recently been enacted into a law by the Parliament and is expected to be rolled out soon.

This is how the Canada Emergency Wage Subsidy (CEWS) will work.

1. Who is an eligible employer?

Employers, having an existing business number and payroll program account with CRA as on March 15, 2020 and whose revenue has reduced by at least 15% in March and 30% in April and May, can apply for CEWS if they are one of the following:

  • taxable corporations, irrespective of their size;
  • sole proprietors;
  • partnerships consisting entirely of eligible employers;
  • registered charities;
  • non-profit organizations; and
  • other organizations exempt from Part I tax, such as unions.

Public bodies, including municipalities and local governments, Crown corporations, municipal corporations, public universities, colleges, schools and hospitals, do not qualify for CEWS.

2. Which payments qualify for wage subsidy?

These would be salary, wages, bonuses, or other remuneration paid by an eligible employer to an eligible employee for the period between March 15 and June 6, 2020. Severance pay or items such as stock option benefits or personal use of a corporate vehicle are not included.

3. Who is an eligible employee?

An eligible employee is an individual who is employed in Canada and who has not been without remuneration for 14 or more consecutive days in the claiming period, i.e., from March 15 to April 11, from April 12 to May 9, and from May 10 to June 6.

4. Given that eligibility for CEWS is based on revenue fluctuation, what should revenue comprise of?

Revenue, for the purpose of CEWS, is:

  • the revenue from an employer’s business carried on in Canada and earned from arm’s-length sources (special rules have been provided for group businesses trading among each other);
  • calculated using the employer’s normal accounting method – this could be accrual method or cash method but not a combination of both;
  • exclusive of extraordinary items and amounts received on sale of capital assets; and
  • exclusive of 10% temporary wage subsidy or the CEWS received by the employer in a given month.

Employers will calculate revenues using the cash method or the accrual method when first applying for CEWS and will be required to use that method for the entire duration of the program.

Rules for group businesses: Affiliated entities may jointly elect to calculate revenue on a consolidated basis and use the fluctuation in consolidated revenue for determining each entity’s eligibility for CEWS. Another special rule has been provided where an eligible employer derives its revenue from sale of output to a related company that in turn sells to third party, arm’s length customers.  In such a situation, the employer may apply revenue test to arm’s length revenue earned by the related company.

Rules for NFPs and charities: Revenue, for the purposes of CEWS, will include most forms of contributions and receipts, but will exclude revenue from non-arm’s length persons. It will be up to these organizations to include revenue from government sources as part of the calculation. Once chosen, the same approach will apply over the entire period of the program.

5. How is the 15% or 30% drop in revenue calculated?

To qualify for CEWS, revenue of eligible employers must have dropped by at least 15% in March 2020 and 30% in April and May 2020 (eligible periods).

The table below summarizes the calculation of revenue fluctuation, with details to follow.


Once an employer has been found eligible for CEWS for a specific period, it would automatically qualify for the next period.  For example, if an employer has experienced a revenue reduction of more than 15% in March, it would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9.

The reduction in revenue can be determined using one of the following two methods:

  • Method I: Calculating change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began. For example:
  • If revenue in March 2020 is 20% lower compared to March 2019, the employer would be allowed to claim CEWS for the first and second claiming periods.
  • If revenue for April 2020 is down 35% compared to April 2019, the 30% threshold is met and CEWS can be claimed on remuneration for the second and third claiming periods, regardless of revenue fluctuation in May.
  • Method II: Comparing monthly revenue of an eligible employer to the average of its revenue earned in January and February 2020. For example:
  • A corporation that started its operations in October 2019 and reported revenues of $100,000 in January and $140,000 in February (for a monthly average of $120,000) can claim CEWS for the first and second claiming periods if its revenue in March is lower than $102,000 (i.e. reduction of 15%).
  • If its revenue in April 2020 dropped to $80,000, this is 33% lower than average monthly revenue of $120,000 and the employer will continue to be eligible for CEWS for the third claiming period.

Eligible employers will select one of the two methods when first applying for CEWS and will be required to use the same method for the entire duration of the program

6. How much subsidy can be claimed by an eligible employer?

There is no overall cap on the subsidy that an eligible employer may claim. Instead, CEWS limits are defined per employee.

As such, subsidy for a given employee on remuneration paid for the period between March 15 and June 6, 2020 is the greater of:

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

The pre-crisis remuneration for a given employee is the average weekly remuneration paid between January 1 and March 15 inclusive, excluding any seven-day periods in respect of which the employee did not receive remuneration.

In effect, employers may be eligible to fully claim the first 75% of pre-crisis salaries (of up to $58,700 per annum) for existing employees under CEWS. The employers are expected, where possible, to top up the remaining 25% to provide existing employees their pre-crisis salary amounts.

7. Can subsidy be claimed under CEWS for new employees?

Yes, employers will also be eligible for a subsidy of up to 75% of salaries paid to new employees.

8. Is CEWS available for salaries paid to owner-employees?

Yes, provided such employees who do not deal at arm’s length with the employer (including owner-employees and their spouses) have been employed prior to March 15, 2020.

For such employees, subsidy will be limited to remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less.

9. Is there any other benefit attached to CEWS?

The Government has expanded CEWS so that:

  • eligible employers may receive 100% refund for their contributions to Employment Insurance, Canada Pension Plan, Quebec Pension Plan, and Quebec Parental Insurance Plan, paid in respect of eligible employees who are on leave with pay; and
  • there is no overall cap or maximum limit per employee on the refund that an eligible employer may claim.

The refund would cover 100% of employer’s contributions for each week throughout which employees are on leave with pay and over which period the employer is eligible to claim CEWS for those employees. This refund would not be available for employees who are on leave with pay for only a portion of a week.

The refund will not affect how employers collect and remit employer and employee contributions. The contributions will be remitted to CRA as usual, but eligible employers will apply for a refund at the same time that they apply for CEWS.

10. How can an employer receive CEWS?

Eligible employers will be able to apply through CRA’s My Business Account as well as using a web-based application. Employers will be required to attest to the decline in revenue at the time of application.

More details about the application process will be made available by the government.

11. Is CEWS considered taxable income?

Yes, an eligible employer will report the subsidy as income in the year in which it has been received.

12. Can an employer eligible to receive CEWS claim the 10% temporary wage subsidy as well?

Eligible employers who qualify for both subsidies will reduce the amount available to be claimed under CEWS by the amount of 10% temporary wage subsidy claimed by them in the same period. This means that the maximum benefit for an eligible employer cannot exceed its entitlement under CEWS.

13. Does Canada Emergency Response Benefit affect CEWS claim?

The Government has been encouraging eligible employers to rehire employees and apply for CEWS, so that those employees do not need to apply for Canada Emergency Response Benefit. To achieve this end, the Government may consider implementing a process to limit duplication, such as by allowing individuals rehired by their employer during the same eligibility period to cancel CERB claim and repay that amount to the Government.

14. How does Work Sharing Program affect CEWS claim?

For employers and employees that are participating in a Work-Sharing program, Employment Insurance benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under CEWS.

15. What recordkeeping should eligible employers maintain?

Employers will need to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees. CRA will specify its requirements in this regard.

16. What will happen if CEWS has been incorrectly claimed?

Employers would be required to repay amounts received under CEWS if they do not meet the eligibility requirements. Penalties (including fines or even imprisonment) may apply in cases of fraudulent claims.

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


We are a CPA firm in downtown Toronto that provides tax, accounting, corporate and advisory services to businesses. We would be happy to answer any questions that you may have.

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