Regulations Amending the Income Tax Regulations (COVID-19 — June 7 to July 4, 2020 Qualifying Period): SOR/2020-160
Canada Gazette, Part II, Volume 154, Number 15
SOR/2020-160 June 30, 2020
INCOME TAX ACT
P.C. 2020-516 June 29, 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 — June 7 to July 4, 2020 Qualifying Period).
Regulations Amending the Income Tax Regulations (COVID-19 — June 7 to July 4, 2020 Qualifying Period)
1 The Income Tax Regulations footnote 1 are amended by adding the following after Part LXXXIX.1:
Qualifying Periods Prescribed for COVID-19 Wage Subsidy
8901.2 (1) For the purposes of paragraph (d) of the definition current reference period in subsection 125.7(1) of the Act, in respect of the qualifying period prescribed in subsection (3), the prescribed period is June 2020.
(2) For the purposes of paragraph (c) of the definition prior reference period in subsection 125.7(1) of the Act, in respect of the qualifying period prescribed in subsection (3),
- (a) if the eligible entity has met the condition described in subparagraph (b)(i) of that definition or has made an election under subparagraph (b)(ii) of that definition, January and February 2020 is the prescribed period; and
- (b) in any other case, June 2019 is the prescribed period.
(3) For the purposes of paragraph (d) of the definition qualifying period in subsection 125.7(1) of the Act, the prescribed period is the period that begins on June 7, 2020 and ends on July 4, 2020.
(4) For the purposes of paragraph (c) of the definition specified percentage in subsection 125.7(1) of the Act, in respect of the qualifying period prescribed in subsection (3), the prescribed percentage is 70%.
Coming into Force
2 These Regulations come into force or are deemed to have come into force on June 7, 2020.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The COVID-19 Emergency Response Act, No. 2 received royal assent on April 11, 2020. This legislation introduced the Canada Emergency Wage Subsidy (CEWS), a refundable tax credit provided through the Income Tax Act (the Act). This measure provides support to those eligible employers that are hardest hit by the COVID-19 pandemic by providing a strong incentive for employers to pay employees who have been sent home for health and safety reasons or due to lack of work. It will enable employers to retain employees who are still on the payroll and to rehire workers previously laid off.
The CEWS provides a wage subsidy to the eligible employers for up to 12 weeks, starting March 15, 2020, and ending on June 6, 2020. The CEWS applies at a rate of 75% of the first $58,700 earned by employees, representing a benefit of up to $847 per week. Eligible employers who suffer a drop in gross revenues of at least 15% in March and 30% in April or May would be able to access the subsidy.
On May 15, 2020, the Government of Canada announced that it will extend the CEWS by an additional 12 weeks to August 29, 2020. An amendment to the Income Tax Regulations (the Regulations) is required to enable the extension.
- To provide more support to employers through the CEWS.
Description and rationale
The Regulations are amended to allow eligible employers to continue to benefit from the CEWS for an additional four-week qualifying period, starting on June 7, 2020, and ending on July 4, 2020.
The Government is consulting with business and labour representatives on potential adjustments to the CEWS program to incent jobs and growth, including the 30% revenue decline threshold required to qualify for the CEWS. Any potential changes following the consultation will have the objectives to maximize employment, ensure the CEWS reflects the immediate needs of businesses, and support the post-crisis economic recovery. These potential changes would be applicable during the last eight weeks of the CEWS, beginning on July 5, 2020, and ending on August 29, 2020. Additional qualifying periods up until August 29, 2020, will be prescribed at a later date once the Government has completed its consultation.
The addition of this four-week qualifying period will allow employers to continue paying employees who are still receiving wages or to rehire employees that these businesses were forced to lay off due to drastic drops in business revenues.
The cost to Government of the initial 12-week period of CEWS measure is estimated to be approximately $45 billion. Estimates for the additional extension to be determined, pending outcome of consultations launched by the Department of Finance on May 25. Any additional cost to the Government is equal to the benefits employers and, indirectly, their employees will derive from the wage subsidy. Eligible employers that apply for the CEWS for the newly prescribed qualifying period will encounter minor administrative costs. However, these costs should not outweigh amounts received as a benefit under the CEWS.
Small business lens
Small businesses are not required to apply for the CEWS benefit. Any small businesses that continue to be eligible for the CEWS and apply in respect of the additional qualifying period may encounter minor administrative costs. Nevertheless, these costs should not outweigh amounts received by small businesses as a benefit under the CEWS.
The one-for-one rule applies because any entity that becomes, or continues, to be eligible and applies for the CEWS will encounter minor administrative costs. The amendments address an emergency circumstance 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, and therefore no steps that were taken to coordinate or to align with other regulatory jurisdictions.
The CEWS is administered by the Canada Revenue Agency (CRA). The CRA will apply the amendment in respect of a qualifying period, as defined in the Act, for an additional four weeks starting on June 7, 2020, with respect to the entities that are prescribed eligible entities for the purpose of the CEWS.
The Regulations are subject to the existing reporting and compliance mechanisms available under the Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.
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