Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies): SOR/2020-284

Canada Gazette, Part II, Volume 155, Number 1

Registration

SOR/2020-284 December 18, 2020

INCOME TAX ACT

P.C. 2020-1124 December 18, 2020

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 footnote a of the Income Tax Act footnote b, makes the annexed Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies).

Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies)

Amendments

1 The heading of Part LXXXIX.1 of the Income Tax Regulations footnote 1 is replaced by the following:

COVID-19 Wage and Rent Subsidies

2 Section 8901.2 of the Regulations is replaced by the following:

8901.2 (1) For the purposes of paragraph (d) of the definition qualifying period in subsection 125.7(1) of the Act, the prescribed periods are

(2) For the purposes of paragraph (g) of the definition base percentage in subsection 125.7(1) of the Act, the percentages determined by regulation in respect of an eligible entity (as defined in subsection 125.7(1) of the Act) for each of the qualifying periods referred to in paragraphs (1)(a), (b) and (c) are

(3) For the purposes of paragraph (d) of the definition current reference period in subsection 125.7(1) of the Act, the prescribed current reference periods are

(4) For the purposes of paragraph (c) of the definition prior reference period in subsection 125.7(1) of the Act, the prescribed prior reference periods are

(5) For the purposes of paragraph (b) of the definition rent subsidy percentage in subsection 125.7(1) of the Act, the percentages determined by regulation in respect of an eligible entity (as defined in subsection 125.7(1) of the Act) for each of the qualifying periods referred to in paragraphs (1)(a), (b) and (c) are

(6) For the purposes of the definition top-up percentage in subsection 125.7(1) of the Act, the percentage determined by regulation for the qualifying periods referred to in paragraphs (1)(a), (b) and (c) is the lesser of 35% and the percentage determined by the formula

1.75 × (A − 50%)
where
A
is the entity’s top-up revenue reduction percentage (as defined in subsection 125.7(1) of the Act) for the qualifying period.

(7) The amount determined by regulation in respect of a qualifying entity (as defined in subsection 125.7(1) of the Act) for the purposes of clause (b)(iv)(B) of the description of A in subsection 125.7(2) of the Act for a week in a qualifying period described in

Coming into Force

3 These Regulations come into force or are deemed to have come into force on December 20, 2020.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

On October 9, 2020, the Government of Canada announced the extension of the Canada Emergency Wage Subsidy (CEWS) until June 2021 and the introduction of the Canada Emergency Rent Subsidy (CERS). The CERS is the successor to the Canada Emergency Commercial Rent Assistance program and will also be available until June 2021.

The legislation relating to the extension of the CEWS and the introduction of the CERS are set out in An Act to amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy) [S.C. 2020, c. 13], which received royal assent on November 19, 2020. It provides the parameters for the CEWS and CERS until December 19, 2020.

The CEWS initially received royal assent on April 11, 2020, through the COVID-19 Emergency Response Act, No. 2. It is a wage subsidy provided through the Income Tax Act (the Act) that offers support to those eligible employers that are hardest hit by the COVID-19 pandemic. The CEWS provides a strong incentive for employers to pay employees who have been sent home (i.e. furloughed employees) for health and safety reasons or due to lack of work while also enabling employers to retain employees (i.e. active employees) who are still on the payroll and to rehire workers previously laid off.

For active employees, the CEWS currently provides a maximum base rate support of 40% of eligible remuneration paid and a top-up subsidy rate of 25%. The amount of the subsidy depends on an employer’s decline in qualifying revenue determined by comparing revenues earned during the current reference period and the prior reference period. For furloughed employees, the maximum amount of the subsidy for an eligible employer could reach up to $573 per week. This measure is aligned with the maximum weekly benefit provided through Employment Insurance (EI). In September 2020, it was announced that effective for 2021, the maximum weekly EI benefit would be increased from $573 to $595. Under the Act, an employer is entitled to a wage subsidy equal to the lesser of an amount paid to a furloughed employee in respect of a week and an amount prescribed by regulation.

The rules for the CERS are in many respects analogous to those of the CEWS. The CERS is available, effective September 27, 2020, to eligible businesses, charities, or non-profit eligible entities, with qualifying periods that align with the CEWS. The CERS consists of two components:

On November 30, 2020, in its Fall Economic Statement, the Government announced its proposed program details for the CEWS and CERS from December 20, 2020, to March 13, 2021. Amendments to the Income Tax Regulations (the Regulations) are required to give effect to these program parameters.

Objective

Description and rationale

The Regulations are amended to prescribe three additional four-week periods under which eligible organizations can receive continued support through the CEWS and CERS: from December 20, 2020, to January 16, 2021 (Period 11); from January 17, 2021, to February 13, 2021 (Period 12); and from February 14, 2021 to March 13, 2021 (Period 13).

The top-up rate available under the CEWS for Periods 11, 12 and 13 in respect of active employees is increased from 25% to 35% of eligible remuneration for eligible entities with a revenue drop of 70% or more. The base rate of 40% will continue to apply for the three periods, providing a maximum subsidy rate in respect of active employees of up to 75%. This increase in the total maximum subsidy rate reflects the exceptional circumstances of the COVID-19 pandemic, and the extension of the CEWS will provide continued support to businesses and other organizations as the country weathers a second wave of COVID-19 cases.

The Regulations are amended to provide that the prescribed amount in respect of furloughed employees for Periods 11, 12 and 13 is equal to the greater of two amounts:

This treatment for furloughed employees under the CEWS continues the alignment with benefits provided through EI for periods 11, 12 and 13, and will continue to promote the maintenance of the relationship between employers and employees, especially where employers are partly shutdown or facing decreased demands for their goods or services. It will also ensure that employers have the certainty they require to quickly rehire the workers they need through the pandemic recovery and could also relieve pressure on the EI system in the coming months.

The CERS rate structures that apply for November 22 to December 19, 2020 (i.e. Period 10) will also apply for Periods 11, 12 and 13. As a result, the maximum CERS base subsidy will remain 65% of qualifying expenses and the maximum Lockdown Support available will remain 25% of qualifying expenses.

Finally, the rates of subsidy available for eligible organizations for both the CEWS and the CERS are determined by an organization’s drop in revenues. To determine those drops, the revenues for a current reference period must be compared to the revenues for a prior reference period (i.e. before the start of the pandemic). For the three new prescribed qualifying periods, periods 11, 12 and 13, the new current and prior reference periods must also be prescribed for employers using the “general approach.” For period 11 (from December 20, 2020, to January 16, 2021), the prescribed current reference period is December 2020 and the prescribed prior reference period is December 2019. Similarly, for period 12 (from January 17, 2021, to February 13, 2021), the prescribed current and prior reference periods are January 2021 and January 2020, respectively. For period 13 (from February 14, 2021, to March 13, 2021), the prescribed current and prior reference periods are February 2021 and February 2020, respectively.

These current reference periods and prior reference periods take into account the fact that CEWS and CERS claim periods are four-weeks long (not based on a calendar month) while reference periods are based on calendar months to simplify calculations for eligible entities. In particular, this amendment to the Regulations addresses the timing mismatch that has been developing between claim periods (which correspond to fixed 28-day intervals) and reference periods (which correspond to calendar months), which, if left unaddressed, would both result in reference periods being less economically relevant to the related claim period and require eligible entities to wait longer to establish their change in monthly revenues to make a claim. For example, Period 10 ends on December 19, 2020, but requires the applicant to know its revenues for the month of December before making a claim.

To address this issue, the Regulations provide that the reference periods for Period 11 are the same as the ones for Period 10. As a consequence, an eligible entity will need to know its December 2020 revenues to apply for the CEWS or CERS for the claim period that ends January 16, 2021 (i.e. Period 11).

Employers who have been using the “alternative approach,” set out in the Act, would continue to do so. It compares the change in the employer’s monthly revenues relative to the average of its January 2020 and February 2020 revenues.

Consultation

Through town halls, round tables, online surveys and correspondence, the Government is continuously consulting with public stakeholders regarding potential adjustments to the measures implemented to support business and other eligible entities and their workers as they transition back to work through the recovery phase of the pandemic.

These regulatory amendments incorporate many stakeholders’ views with respect to the CEWS and CERS.

Cost-benefit analysis

All the measures implemented for Periods 11, 12 and 13 continue to meet the Government’s commitment to ensuring that Canadians have the support they need to weather the COVID-19 crisis. These measures will provide businesses and other eligible entities with needed certainty regarding the assistance they will receive. These measures will also contribute to preserving the employee-employer relationship in situations where employers were ordered to shut down, or are facing decreased demand, while maintaining the incentive to work. Finally, changes to the reference periods used to calculate the CERS and CEWS subsidy rates will make these programs easier to access for eligible entities.

The cost to Government of the CEWS measures is estimated to be approximately $14.79 billion for Periods 11, 12 and 13. This total cost includes $10.68 billion for extending the same base rate structure, $2.685 billion for the increase of the top-up rate, and $1.425 billion for the continued alignment of the CEWS with EI for furloughed employees. However, any additional cost to the Government under the CEWS for furloughed employees is equivalent to the benefits they would have derived from EI.

The revised cost to Government for extending the CERS for these three periods is estimated to be approximately $2.18 billion.

Eligible entities and employers applying for the CEWS and the CERS for these three four-week qualifying periods for their eligible expenses and employees will likely encounter some administrative costs through the process. However, these costs would not outweigh amounts received as benefits under these programs.

Small business lens

Small businesses may, but are not required to, apply for the CEWS or the CERS. Any small business that does may encounter some administrative costs to apply for these benefits. Nevertheless, these costs should not outweigh amounts received by small businesses as a subsidy under either program. Small businesses may benefit from these measures, if eligible, as the CEWS helps to subsidize employee costs while preserving the employee-employer relationship and the CERS is intended to supplement rental or property expenses during this period of reduced economic activity.

One-for-one rule

The one-for-one rule applies because any business or other eligible organization that becomes, or continues, to be eligible and applies for the CEWS or CERS will encounter some administrative costs. The amendments address emergency circumstances and are exempt from the requirement to offset administrative burden under the one-for-one rule.

Regulatory cooperation and alignment

Due to the urgency and specificity of these measures, there were no requirements regarding the CEWS and CERS regulations, and therefore no steps were taken to coordinate or to align them with other regulatory jurisdictions.

Implementation

The Canada Revenue Agency (CRA) administers the CEWS and the CERS. The CRA will apply the amendments in respect of a qualifying period, as defined in the Income Tax Act, for the three additional four-week periods, with respect to eligible businesses or other organizations.

The Regulations are subject to the existing reporting and compliance mechanisms available under the Income Tax Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contacts

Lori Merrigan
Income Tax Legislation
Tax Policy Branch
Telephone: 343‑542‑6855
Email: lori.merrigan@canada.ca

Dominique D’Allaire
Finance Legal Services
Telephone: 613‑668‑6650
Email: dominique.dallaire2@canada.ca