Tax Insights: Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy – Extended to June 2021

Issue 2021-04

In brief

On March 3, 2021, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, announced the extension of the Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS) and Lockdown Support programs to the following periods:

• Period 14 — March 14 to April 10, 2021
• Period 15 — April 11 to May 8, 2021
• Period 16 — May 9 to June 5, 2021

The federal government announced regulations and proposed legislation that will:

• maintain the existing rate structure for Periods 14 to 16
• modify the reference periods for the drop-in-revenues test (so that they continue to be based on pre‑pandemic revenues)
• introduce an additional elective alternative baseline remuneration computation

This Tax Insights discusses these changes and provides a summary table of the existing rate structure. 

In detail

Rate structure for the CEWS, CERS and Lockdown Support programs

The current rate structure for the CEWS for active employees, the CERS and the Lockdown Support will be extended to Periods 14 to 16, as summarized in Table 1 below.

Table 1 – Rate structure that applies for Periods 14 to 16

CEWS for furloughed employees

The current wage subsidy rate structure for employees furloughed for at least one full week will also be extended to Periods 14 to 16. As a result, the weekly wage subsidy for such employees continues to be the lesser of:

• the amount of eligible remuneration paid in respect of the week
• the greater of:
  • $500 
  • 55% of the employee’s pre-crisis weekly remuneration (“baseline remuneration”), up to a maximum subsidy of $595

Employers can continue to claim their portion of Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan contributions for employees furloughed for at least one full week.

Reference periods for drop-in-revenues test for CEWS and CERS

Starting with Period 14 (March 14 to April 10, 2021), the prior reference period used for the general (year-over-year) approach will be based on calendar months from 2019 (instead of from 2020). This is to ensure that the general approach continues to calculate an organization’s decline in revenues relative to a pre-pandemic month. The reference periods for the drop-in-revenues test are summarized in Table 2 below.

Table 2: Reference periods for drop-in-revenues test for CEWS and CERS

CEWS alternative baseline remuneration periods

An eligible employer's entitlement to the wage subsidy for a furloughed employee or an active non-arm's length employee is determined using a calculation that takes into account both the employee's current and baseline remuneration. Baseline remuneration is the average weekly eligible remuneration paid to an eligible employee by an eligible employer during the period January 1, 2020 to March 15, 2020. For Periods 5 to 13 (July 5, 2020 to March 13, 2021), an employer may elect to use an alternative baseline remuneration period of July 1, 2019 to December 31, 2019 to calculate baseline remuneration.

An additional elective alternative baseline remuneration computation will be available for Periods 14 to 16 (March 14 to June 5, 2021). For Periods 14 to 16, an eligible employer may calculate baseline remuneration using a baseline period of:

• January 1, 2020 to March 15, 2020 (the default period)
• March 1, 2019 to June 30, 2019 (the proposed new alternative period), or
•  July 1, 2019 to December 31, 2019 (the existing alternative period)

The takeaway

The extension of the current CEWS, CERS and Lockdown Support programs means that many businesses and organizations that have been negatively impacted by the COVID-19 pandemic will continue to receive government funding through to June 2021. This is welcome relief for companies struggling to pay their employees’ remuneration, office rent or mortgage payments.