The Federal Government's 75% Wage Subsidy Proposal

• Published date: 13 May 2020
• Author: Mr Paul Carenza, Laura Gheorghiu and P.A. Neena Gupta
• Subject Matter: Employment and HR, Tax, Coronavirus (COVID-19), Employee Benefits & Compensation, Income Tax, Government Measures, Employment and Workforce Wellbeing
• Law Firm: Gowling WLG

The economic consequences of the COVID-19 pandemic are hitting both employees and employers hard across the country. The federal government's proposal of a 75 per cent wage subsidy aims to assist employers in keeping employees on the payroll and reduce the burden on other government support programs.

Our leading authorities from various regions can help you navigate this difficult time by offering guidance and clarity on a range of issues. They will discuss subsidy eligibility, amounts, particular employer scenarios and strategies for businesses in the short and long term.

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Transcript

75% WAGE SUBSIDY WEBINAR

Paul: Good afternoon everyone and welcome to the Gowling WLG webinar on the Federal government 's 75% wage subsidy. My name is Paul Carenza. I 'm a tax partner at Gowling, practicing primarily out of the Toronto office. I 'm joined today by Laura Gheorghiu, a tax partner in our Montreal office, as well as by Neena Gupta, a partner in our employment group based out of the Waterloo office, and also by Shannon Wadsworth from our marketing group, who 's efforts made this a reality and who 's technical expertise of putting this together far surpassed mine. A few notes about the Zoom protocol. The chat function is disabled simply because it 's unworkable with the number of people we understand have subscribed to this. We do have the Q&A function enabled. We will attempt to answer questions at the end of the webinar. We have allotted some time for that. We suspect we won 't get to all of the questions but we will address them after the webinar and post the Q&A to our website and likely email each of you a link to that Q&A. The agenda we have for today is as follows. First off, we 're going to do an overview of the subsidy program and talk a bit about the gaps and difficulties that we 've identified from speaking with likely many of you. We 'll move on to the mechanics of computing a subsidy, including the lack of some detail in accurately computing remuneration in particular instances, for particular employees and the manner in which they are compensated. We 'll touch on the mechanics of applying for the subsidy based on what we know today and last, but not least, talk a bit about the interaction with other support measures that the government has, vis a vis employees, based on the employment law side. Supplementary employment benefit plans, work sharing programs, EI, of course, and the CERB or the emergency response benefit.

About 2 weeks ago, if you recall, the House of Commons reconvened and passed the COVID-19 Emergency Response Act which contain about amendments to about 15 to 20 different statutes, including the Income Tax Act. That 's where the earlier announced 10% wage subsidy was contained. That statute received Royal Assent on Wednesday, March 25^th, and as you recall 2 days later at a press conference on the 27^th, it was announced that a broader wage subsidy would be brought in. Following that Friday announcement we had Minister Morneau release two press releases on April 1^st and pretty much that 's what we 're going to be talking about today. We 're not talking about draft legislation, let alone legislation, we 're talking about whatever detail was contained in two press releases. It makes it a bit difficult.

The policy that 's been put forth by the government for this wage subsidy, in our view, is important to keep in mind. The policy is to maintain employment relationships, and avoiding layoffs, and to reduce the strain on the EI system on the CERB benefit. Those two overriding policy features ought to be kept in mind, certainly have been kept in mind by us, in going through what we know today based on the press releases and announcements. We hope also kept in mind by the drafters as they 're drafting and the legislature as it comes to adopt. Some of you may have heard that there was a recent announcement just today, again a press release, pardon me, a news conference, not a press release. I believe now it 's been followed up with a press release. In any event, so many people have said this situation is moving so quickly, changing day by day. We 're in the same boat with this because we 're dealing with press announcements that release details in drabs. Sometimes not enough detail and it leaves us guessing. All to say I hope the policy goals are followed through.

One point about the notion of bail out, and I 've heard from some of our clients, multi-national clients, that were looking at what they had heard through the news about this subsidy in relation to what they know of the US Care Act. I 'm not an expert by any stretch on the US legislation but I understand there are some restrictions on corporate actions that can be taken by a recipient of assistance under those US rules. For instance, they couldn 't do a share buy back, they couldn 't pay a dividend, do those kinds of things. Based on what we know right now there are absolutely no ties between taking advantage of this wage subsidy as there are with the US rules. That makes sense because this wage subsidy is not a grant, it 's not a forgivable loan, as we 'll get to later in this presentation, it represents temporary funding which is fully taxable to the employer/recipient and eventually tax will be paid on it. This bail out notion should not be a concern

As I think I said a moment ago, this program is a cash subsidy to employers for 3 separate periods. The employer will have to apply for the assistance in each of those 3 periods. We have on this slide setting out the 3 periods; the claiming period and the reference period and the percentage revenue drop out. We 're going to get to this gating issue of revenue reduction in a couple of slides from now and that, obviously, is a key issue for many of our clients and I 'm sure many of you.

Just to be clear this is in addition to the 10% subsidy that was enacted 2 weeks ago and fairly radically different from that earlier subsidy. That subsidy was a reduction in payroll remittances whereas the current 75% is a cash in flow from the government. Covered slightly different periods as well. March 18 versus March 15, up to June 19 versus June 6. Generally the same period but slightly different starting and end dates. It was a much more modest program, of course. The maximums were nowhere near what we anticipate the maximums will be under this one. The maximum was $1,375.00 per employee and $25,000.00 per employer under that more modest program. The biggest difference was who could claim the benefit of it, the eligible employers. Clearly at that point in time, giving the government credit, they had not yet perhaps solely appreciated the extent of the economic impact of the virus. That earlier program was limited to, think of them as small businesses, so eligible employers that were individuals, Canadian controlled private corporations that had a taxable capital under $15 million dollars. Again, fairly small, Canadian controlled private corporations. Non-profit and charities were eligible. Partnerships comprised of any of the foregoing were eligible. The big one, of course, was any employer in Canada but having to be part of a multi-national group, or controlled by a multi-national group, they were excluded. Full stop. Because the two programs are different, we understand that the draft legislation that we 'll be seeing, hopefully shortly, on the 75% subsidy will make it absolutely clear that employers can claim the benefit of the two programs, assuming they are eligible for the two. Again, no foreign owned corporations under the earlier, more modest program. If assistance is claimed by an eligible employer under both, the assistance received under the more modest program is deducted, if you will, from the assistance that can be received under the 75% program. The eligible employers, in contrast to the more modest program, this one is available to, as I stated, any type of employer in Canada. Whether an individual, partnership, corporation, non-profit or charity. The key for many of our clients is that foreign ownership is irrelevant.

We have this gating issue of the gross revenue reduction. Up until late yesterday, and certainly confirmed in the press conference of Mr. Trudeau today, it had been a 30% revenue reduction, month over month, March 2020 to March 2019, February 2020, February, pardon me, March, April, May going forward, that was changed through announcement today. We will get to that in a couple of slides because that gating issue is one of the most significant issues of this program. So available to all employers but it does exclude some. Interestingly, in the two press releases from April 1^st, it referred to some of the exclusions differently. In the element it said public bodies were excluded. In another one it said public sector entities were excluded and it went on to describe those as such as municipalities, crown corporations, public universities, colleges, schools and hospitals. It 's not entirely clear at this point how broad that exclusion is intended to be. It seems clear that they 're not going after all tax exempt entities, pardon me, excluding all tax exempt entities because non-profits...