As part of the Government of Canada’s response and commitment to supporting businesses during the COVID-19 pandemic, a Temporary Wage Subsidy for employers (lasting a period of three months) was announced on March 18, 2020. The details of this subsidy have now been released, but they are subject to legislation being passed by the government in the coming days.
The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).
You are an eligible employer if you:
- are a non-profit organization, registered charity or a Canadian-controlled private corporation (CCPC);
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses or other remuneration to an employee.
CCPCs are only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year – calculated on an associated group basis – is less than $15 million.
How much is the subsidy?
The subsidy is equal to 10 per cent of the remuneration you pay between March 18, 2020 and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer.
Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer. For example, if you have five employees, the maximum subsidy you can receive is $6,875 ($1,375 x five employees), even though the per employer maximum is $25,000.
The subsidy must be calculated manually. For example, if you have five employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10 per cent of $20,500 or $2,050.
How do you receive the subsidy?
Once the subsidy is calculated, the employer can reduce their current remittance of federal, provincial or territorial income tax that is sent to the CRA by the amount of the subsidy.
Important: The employer is not permitted to reduce the remittance of Canada Pension Plan contributions or Employment Insurance premiums.
This Temporary Wage Subsidy for Employers allows eligible employers to reduce remittances made to the CRA only. Remittances made to Revenue Quebec are not eligible for the wage subsidy. For example, if the subsidy is calculated at $2,050, the employer would reduce the current remittance of federal, provincial or territorial income tax by $2,050. They would continue reducing future income tax remittances (up to the maximum of $25,000) for all remuneration paid before June 20, 2020.
What is the applicable time frame?
Employers can start reducing remittances of federal, provincial or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020 and June 20, 2020. For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
What happens if subsidies exceed the remittance?
If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, the employer can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).
For example, if the employer calculates a subsidy of $2,050 on remuneration paid between March 18, 2020 and June 20, 2020, but only deducted $1,050 of federal, provincial or territorial income tax from his or her employees, the employer can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.
The employer will continue deducting income tax, Canada Pension Plan contributions and Employment Insurance premiums from salary, wages, bonuses or other remuneration paid to the employees, as they would normally do. The subsidy is only calculated when the employer remits these amounts to the CRA.
What if the reduction is not taken during the year?
If an eligible employer chooses not to reduce their payroll remittances during the year, the employer can calculate the temporary wage subsidy on remuneration paid between March 18, 2020 and June 20, 2020. They can either choose to ask for the subsidy to be paid at the end of the year or request that it be transferred to the next year’s remittance.
Necessary books and records
An eligible employer will need to keep information to support their subsidy calculation. The required documentation would include:
- the total remuneration paid between March 18, 2020 and June 20, 2020;
- the federal, provincial or territorial income tax that was deducted from that remuneration; and
- the number of employees paid in that period.
The CRA is currently updating the reporting requirements. More information on how to report this subsidy will be released in the near future.
The subsidy will have to be reported as taxable income to the employer in the year in which the subsidy is received.
Unfortunately, if the eligible employer does not pay salary, wages, bonuses or other remuneration to an employee between March 18, 2020 and June 20, 2020, they cannot receive the subsidy, even if they are an eligible employer. This means CCPCs remunerating their shareholders exclusively through dividends would not be factored into the subsidy calculation.
The information provided by the CRA and reported in this Tax Alert is subject to change.