Regulations Amending the Income Tax Regulations (COVID-19 — Twenty-Second Qualifying Period): SOR/2021-240
Canada Gazette, Part II, Volume 155, Number 26
SOR/2021-240 December 10, 2021
INCOME TAX ACT
P.C. 2021-1012 December 9, 2021
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 — Twenty-Second Qualifying Period).
Regulations Amending the Income Tax Regulations (COVID-19 — Twenty-Second Qualifying Period)
1 (1) Section 8901.2 of the Income Tax Regulations footnote 1 is amended by adding the following before subsection (1):
(0.1) The following definitions apply in this section.
- prior year revenue decline,
- of an eligible entity means, the average of all percentages each of which would, if the Act were read without reference to subsection 125.7(9) and section 257, be the revenue reduction percentage of the eligible entity for a qualifying period
- (a) that is any of the first qualifying period to the thirteenth qualifying period (but including only one of the tenth qualifying period or the eleventh qualifying period); and
- (b) throughout which the eligible entity was
- (i) carrying on its ordinary activities, or
- (ii) not carrying on its ordinary activities because of a public health restriction. (réduction du revenu d’une année antérieure)
- qualifying public health restriction,
- of an eligible entity for a qualifying period, means that
- (a) one or more qualifying properties (in this definition having the same meaning as in subsection 125.7(1) of the Act) of the eligible entity — or of one or more specified tenants (within the meaning of the definition public health restriction in subsection 125.7(1) of the Act) of the eligible entity — is subject to a public health restriction for at least seven days in the qualifying period; and
- (b) it is reasonable to conclude that at least approximately 25% of the qualifying revenues of the eligible entity — together with the qualifying revenues of any specified tenants of the eligible entity — for the prior reference period were derived from the restricted activities. (restrictions sanitaires admissibles)
- qualifying tourism or hospitality entity,
- for a qualifying period, means an eligible entity that meets the following conditions:
- (a) the entity has a prior year revenue decline greater than or equal to 40%; and
- (b) the total of all amounts, each of which is the eligible entity’s qualifying revenue for the prior reference period for any of the first qualifying period to the thirteenth qualifying period (but including only one of the tenth qualifying period or the eleventh qualifying period), was earned primarily from carrying on one or more of the following activities:
- (i) operating or managing a facility providing short-term lodging, such as a hotel, a motel, a cottage, a bed and breakfast or a youth hostel,
- (ii) preparing and serving meals, snacks and beverages made to order for immediate consumption on or off the premises,
- (A) such as a restaurant, a food truck, a cafeteria, a caterer, a coffee shop, a food concession, a bar, a pub or a nightclub, and
- (B) for greater certainty, not including the operation of a facility primarily engaged in retailing food or beverage products, such as a supermarket or a convenience store,
- (iii) operating a travel agency or as a tour operator, including:
- (A) acting as an agent for tour operators, transportation companies and short-term lodging establishments in selling travel, tour and accommodation services, or
- (B) arranging, assembling and marketing tours,
- (iv) organizing, promoting, hosting, supporting or participating in events that meet the artistic or cultural interests of their patrons, including live performances or exhibits intended for public viewing,
- (v) preserving and exhibiting objects, sites and natural wonders of historical, cultural or educational value, such as the operation of a museum, a historic and heritage site, a zoo, a botanical garden or a nature park,
- (vi) organizing, promoting or supporting scenic and sightseeing tours, such as sightseeing or dinner cruises, steam train excursions, horse-drawn sightseeing rides, air-boat rides, hot-air balloon rides or charter fishing services,
- (vii) providing charter bus services, if
- (A) the buses do not operate on fixed routes and schedules, and
- (B) the entire vehicle is rented, rather than individual seats,
- (viii) operating or managing an amusement or theme park, which includes
- (A) operating a variety of attractions, such as mechanical rides, water rides, games, shows or theme exhibits, and
- (B) leasing space on a concession basis for these operations,
- (ix) operating or managing a facility or providing a service that enables patrons to participate in recreational activities,
- (A) including
- (I) fitness and recreational sports centres,
- (II) downhill and cross-country ski/snowboard areas, and equipment such as ski lifts and tows (including revenues from equipment rental services and ski/snowboard instruction services provided at the area),
- (III) the operation of docking and storage facilities for pleasure-craft owners, with or without related activities, such as retailing fuel and marine supplies, boat repair and maintenance and rental services,
- (IV) the operation of recreation and amusement facilities and services including establishments primarily engaged in maintaining non-gambling coin-operated amusement devices, in businesses operated by others, and
- (V) other amusement activities, such as amateur sports clubs, teams or leagues, archery or shooting, ballroom dancing, river rafting, curling clubs, mini golf and bowling, and
- (B) excluding
- (I) golf, golf instruction and the ownership or operation of a facility that is a golf course, a golf driving range, or a golf clubhouse,
- (II) country clubs, and
- (III) professional sports clubs, teams or leagues or facilities used primarily by such organizations,
- (A) including
- (x) operating or managing serviced or unserviced sites to accommodate campers and their equipment for tents, tent trailers, travel trailers and recreational vehicles, excluding mobile home sites,
- (xi) operating or managing an overnight recreational camp, such as a children’s camp, a family vacation camp or an outdoor adventure retreat,
- (xii) operating or managing a hunting camp or a fishing camp,
- (xiii) operating or managing a duty-free retail store at a land border crossing where the only exit route is to the United States,
- (xiv) operating or managing a facility that is primarily engaged in exhibiting motion pictures, such as a cinema or a drive-in theatre,
- (xv) operating or managing an amusement arcade, such as a family fun centre, an indoor play area, a pinball arcade or a video game arcade,
- (xvi) operating a facility allowing passengers to board and leave a cruise ship,
- (xvii) operating or managing an airport, including renting hangar space and providing baggage handling, cargo handling and aircraft parking services,
- (xviii) operating or managing a casino,
- (xix) promoting a destination or region in Canada for the purpose of attracting tourism,
- (xx) organizing, planning, promoting, hosting or supporting:
- (A) conventions, trade shows or festivals, or
- (B) weddings, parties or similar events, and
- (xxi) promoting the interests of the members of an industry organization or association, if the members are primarily engaged in activities described in any of subparagraphs (i) to (xx). (entité touristique ou d’accueil admissible)
(2) Subsection 8901.2(4) of the Regulations is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b):
- (c) for the twenty-second qualifying period,
- (i) the lesser of 75% and the eligible entity’s revenue reduction percentage for the qualifying period, if, for the qualifying period,
- (A) the eligible entity’s revenue reduction percentage is greater than or equal to 40%, and
- (B) either of the following conditions is met:
- (I) the eligible entity is a qualifying tourism or hospitality entity, or
- (II) the eligible entity is subject to a qualifying public health restriction,
- (ii) if subparagraph (i) does not apply to the eligible entity, the eligible entity’s revenue reduction percentage for the qualifying period is greater than or equal to 50% and the prior year revenue decline of the eligible entity is greater than or equal to 50%, the lesser of 50% and the percentage determined by the formula
- 1.6 × (A − 50%) + 10%
- is the eligible entity’s revenue reduction percentage for the qualifying period, and
- (iii) in any other case, nil.
- (i) the lesser of 75% and the eligible entity’s revenue reduction percentage for the qualifying period, if, for the qualifying period,
(3) The portion of subsection 8901.2(6) of the Regulations before the formula is replaced by the following:
(6) For the twenty-first qualifying period and the twenty-second qualifying period, the percentage determined for the purposes of paragraph (b) of the definition rent subsidy percentage in subsection 125.7(1) of the Act is the percentage determined by the formula
(4) Subsection 8901.2(7) of the Regulations is replaced by the following:
(7) For the twenty-first qualifying period and the twenty-second qualifying period, the percentage determined for the purposes of the description of A in the definition rent top-up percentage in subsection 125.7(1) of the Act is 25%.
(8) For the twenty-second qualifying period, the percentage determined by regulation for the purposes of the definition recovery wage subsidy rate in subsection 125.7(1) of the Act is 50%.
Coming into Force
2 These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The Canada Emergency Wage Subsidy (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 to those eligible employers (i.e. corporations, unincorporated businesses, registered charities, or non-profit organizations) that are hardest hit by the COVID-19 pandemic.
On October 9, 2020, the Government of Canada announced the introduction of the Canada Emergency Rent Subsidy (CERS) and related Lockdown Support. The CERS is the successor to the Canada Emergency Commercial Rent Assistance program and is available, effective September 27, 2020, to eligible businesses, charities, or non-profit eligible entities with qualifying periods that align with the CEWS.
The CEWS has helped more than 5.3 million Canadians keep their jobs, with over $94 billion in support already paid out through the program to help employers rehire employees and avoid layoffs. The CEWS currently provides eligible employers that have experienced a decline in revenues of at least 10 per cent with a wage subsidy for eligible remuneration paid to their employees, with the amount varying depending on the scale of the employer’s revenue decline.
The CERS and Lockdown Support have helped more than 210 600 organizations with over $6.6 billion in support for rent, mortgage, and other expenses. The CERS provides direct support to tenants and property owners for rent, mortgage interest, and other eligible property expenses, with the amount varying depending on the scale of their revenue decline. In addition, entities with locations that have been significantly affected by a public health order are eligible for the Lockdown Support equal to 25 per cent of eligible costs.
Budget 2021 set the path for a gradual decrease of the rates and scope for the rent and wage subsidies, beginning July 4, 2021, in order to ensure an orderly phase-out of the programs as vaccinations are completed and the economy reopens. The rates for the CEWS and CERS were scheduled to be reduced from 75 per cent and 65 per cent, respectively, on June 6, to 20 per cent on August 29. The CEWS for furloughed employees expired on August 28, 2021.
On July 30, 2021, the Government announced a delay in the scheduled phase-out by extending the subsidies for an additional period until October 23, 2021. The regulations enabling this delay came into effect on August 12, 2021. The maximum subsidy rate for the CEWS and CERS was maintained at 40 per cent between August 29 and September 25, 2021, and set at 20 per cent after that date and until the programs were scheduled to expire on October 23, 2021.
Budget 2021 also introduced the Canada Recovery Hiring Program (CRHP) for eligible employers impacted by the pandemic. Eligible employers can receive a subsidy of up to 50 per cent on the incremental remuneration paid to eligible active employees between June 6, 2021, and November 20, 2021. The subsidy rate is scheduled to be gradually reduced from a maximum of 50 per cent (from July 4 to July 31, 2021), 40 per cent (from August 29, 2021, to September 25, 2021), 30 per cent (September 26, 2021, to October 23, 2021) and to 20 per cent (from October 24 to November 20, 2021).
Eligible employers can claim the higher of the CEWS or the CRHP. The CRHP is intended to allow firms to shift from the wage subsidy to the hiring program as the wage subsidy is phased-out. This provides an alternative support for businesses affected by the pandemic to help them hire more workers as the economy reopens.
Canadians continue to face challenges because of the COVID-19 pandemic, especially with the emergence of a new variant, with some regions of the country being impacted more severely than others. Certain sectors of the economy have been, and continue to be, particularly hard hit. Pockets of weakness remain in certain parts of the economy. To help address this, on October 21, 2021, the Government announced that the COVID-19 subsidy programs would move from the very broad-based support that was appropriate at the height of lockdowns to more targeted measures that will provide ongoing help where it is most needed.
To move the COVID-19 subsidy programs from the very broad-based support that was appropriate at the height of lockdowns to more targeted measures that will provide ongoing help where it is most needed.
To enhance the subsidy under the Canada Hiring Recovery Program as the economy shifts into the recovery phase from the COVID-19 pandemic.
Description and rationale
Extending and enhancing the CEWS and CERS
The CEWS, CERS and Lockdown Support are being extended and enhanced for tourism, hospitality and other hard-hit businesses from October 24, 2021, until November 20, 2021. The Government of Canada has the legislative authority under the Income Tax Act to extend these programs by regulations until November 30, 2021. Any extension beyond November of 2021 would require a legislative amendment.
The CEWS and CERS extensions and enhancements are offered through two new programs:
- The Tourism and Hospitality Recovery Program.
- The Hardest-Hit Business Recovery Program
Tourism and Hospitality Recovery Program
This program targets support to organizations in selected sectors of the tourism and hospitality industry that have been deeply affected since the outset of the pandemic and that continue to struggle. To qualify for this program as a “qualifying tourism or hospitality entity”, an eligible entity must have primarily earned its qualifying revenues in the prior reference periods for the first 13 qualifying periods from one or more prescribed tourism or hospitality businesses for example, hotels, tour operators, travel agencies, and restaurants.
A qualifying tourism or hospitality entity would be eligible for the extended and enhanced supports under this program if it meets a two-part eligibility test with respect to its declines in qualifying revenues. Eligibility is restricted to qualifying tourism or hospitality entities with
- an average monthly revenue reduction of at least 40 per cent over the first 13 qualifying periods for the Canada Emergency Wage Subsidy; and
- a current reference period versus prior reference period revenue decline of at least 40 per cent (compared to the 10 per cent now required).
The extended and enhanced support also allows employers that have had one or more locations temporarily closed, or have had their activities significantly restricted for a week or longer due to a COVID-19–related public health order, to qualify for the CEWS, CERS and Lockdown Support even if they are not a qualifying tourism or hospitality entity and/or do not meet the 13 qualifying period revenue decline test. These employers still have to meet the second part of the two-part eligibility test (current reference period versus prior reference period revenue decline of at least 40 per cent) to qualify for support. Specifically,
- the public health order would be issued under the laws of Canada, a province or territory, and require an organization or its non-arm’s-length tenant that has a business at the qualifying property(ies) to stop some or all of its regular business activities (such as ceasing indoor dining at a restaurant) at the qualifying property(ies) while the order is in place; and
- the activities that are stopped would need to account for approximately 25 per cent or more of the total revenues of the entity during the prior reference period. An order that restricts or reduces activities but does not require a location to close or stop certain activities would not qualify, as per the existing rules for Lockdown Support.
The new maximum subsidy rate under the Tourism and Hospitality Recovery Program is being set at 75 per cent. The actual CEWS and CERS rate will be determined based on current reference period revenue declines compared to those of a prior reference period, as under existing rules. Lockdown Support will continue to be provided at the fixed rate of 25 per cent and pro-rated based on the number of days the location was affected by a lockdown.
|Period 22 revenue reduction percentage||Subsidy Rate|
|75% and above||75%|
|40% to 75%||revenue decline
e.g. 60% revenue decline = 60% subsidy rate
|0% to 39%||0%|
Hardest Hit Business Recovery Program
This program targets support to hard-hit organizations that do not qualify for the Tourism and Hospitality Recovery Program and that have been deeply affected since the outset of the pandemic. Eligible entities qualify for rent and wage support under the Hardest-Hit Business Recovery Program, provided they meet the following two eligibility requirements:
- an average monthly revenue reduction of at least 50 per cent over the first 13 qualifying periods for the Canada Emergency Wage Subsidy; and
- a current reference period versus prior reference period revenue decline of at least 50 per cent (compared to the 10 per cent now required).
The new maximum subsidy rate under the Hardest-Hit Business Recovery Program is being set at 50 per cent. The actual CEWS and CERS rate will be determined based on current reference period revenue declines compared to those of a prior reference period, as under existing rules. Lockdown Support will continue to be provided at the fixed rate of 25 per cent and pro-rated based on the number of days the location was affected by a lockdown.
|Period 22 revenue reduction percentage||Subsidy Rate|
|75% and above||50%|
|50% to 75%||10% + (revenue decline – 50%) x 1.6
e.g. 10% + (60% revenue decline – 50%) x 1.6 = 26% subsidy rate
|0% to 49%||0%|
Enhancing the CRHP
The CRHP is being enhanced for eligible employers with a current period revenue decline above 10 per cent. Specifically, the subsidy rate is being increased back to 50 per cent from October 24, 2021, to November 20, 2021 (i.e. to reverse the phase-out to 20 per cent currently taking place). The existing baseline period of March 14, 2021, to April 10, 2021, will continue to be used to calculate incremental remuneration.
The CRHP will not be subject to the new 12-month revenue-decline test applicable for the CEWS and CERS. However, eligibility will continue to be restricted to Canadian-controlled private corporations (including cooperative corporations that are eligible for the small business deduction), individuals, registered charities, non-profit organizations and certain partnerships as under existing rules.
It will be particularly useful for impacted employers with lower levels of revenue decline to have access to the CRHP as they rehire and grow. The 50 per cent subsidy rate will provide a generous incentive for employers impacted by the pandemic to continue hiring.
Through regular communication with stakeholders, including direct contact 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 these business support subsidies.
The amendments directly support the Government of Canada’s response to COVID-19 and the analytical requirements for cost-benefit analysis have been adjusted to permit a timely and effective response.
All the measures implemented 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. The amendments will provide extended and enhanced CEWS, CERS and CRHP benefits for the employers that continue to be hardest hit by the COVID-19 pandemic, benefiting approximately 50 000 employers.
The estimated cost of the amendments for the Government of Canada is $950 million, which includes funds provided to entities and employers, and the implementation cost for the government.
Eligible entities and employers able to apply for the extended CEWS and CERS for the period of October 24, 2021, to November 20, 2021, will likely encounter some administrative costs through the process. However, these costs will not outweigh amounts received as benefits under these programs.
Small business lens
Analysis under the small business lens determined that the amendments will impact small businesses in Canada. Small businesses may, but are not required to, apply for the CEWS, CERS or the CRHP. 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 will 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. The CRHP will assist employers to hire and rehire employees as the recovery process begins.
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, CERS or CRHP 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
These measures are a continuation of the respective subsidy programs that were launched on an urgent basis at the beginning of the COVID-19 pandemic. Due to the urgency and specificity of these measures, no steps were taken to coordinate or to align them with other regulatory jurisdictions.
The Canada Revenue Agency (CRA) administers the CEWS, CERS and the CRHP and will apply the amendments accordingly.
The Income Tax 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.
Gender-based analysis plus (GBA+)
The new targeted support measures for deeply affected businesses are expected to directly benefit hospitality and tourism employers as well as other hard-hit employers and those subject to local lockdown. Women represent half of the jobs in the tourism sector while youth make up a third. Indigenous peoples are also slightly more likely to work in the tourism industry. According to historical Canada Emergency Wage Subsidy data, the hard-hit industries with the largest number of employees covered by the wage subsidy are accommodation and food services, followed by manufacturing. Similarly, the hardest-hit employers receiving the largest share of support from the Canada Emergency Rent Subsidy and Lockdown Support are in accommodation and food services, followed by retail trade. Women represent 56% of employees in accommodation and food services and 52% of those in retail trade, while men represent 72% of those employed in manufacturing. Employees in all three hard-hit industries received lower than average hourly wages in October 2021, with employees in accommodation and food services receiving the lowest hourly wage across all industries. In 2019, about 14% of those employed were between the ages of 15 and 24 years, but this age group was heavily overrepresented in some of the hardest-hit industries, including accommodation and food services (42%), arts, entertainment and recreation (32%), and retail trade (30%).
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