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‘Tis the season of holiday music, breath vapour, and year-end reporting. Earlier this year, the government introduced two unique subsidies to support small businesses during the pandemic — the 10% Temporary Wage Subsidy (TWS) and Canada Emergency Wage Subsidy (CEWS). Now that it’s year-end, what are you supposed to do?
We teamed up with Juliet Aurora, co-founder of AIS Solutions and Kninja Knetwork, to help spell out as much as we can about this alphabet soup and bring everyone up to speed on all things TWS and CEWS.
How is everyone feeling about year-end 2020?
We began the webinar with a quick poll. The results — 74% of you feel like year-end 2020 will be a similar exercise in confusion and persistence. Shockingly, only 20% of you said that you felt like your head was going to explode.
10% Temporary Wage Subsidy (TWS) — An overview.
This program is now over, but you can still claim retroactively as long as the earnings were within the three month period.
The 10% Temporary Wage Subsidy (TWS) was announced in early March to immediately improve cash flow for business owners for a period of three months. The subsidy is equal to 10% of the remuneration paid during the eligible period (from March 18, 2020 to June 18, 2020) up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
Note: The amount is based on the number of employees, not the gross amount on each employee.
How Wagepoint built-in the TWS.
Soon after the subsidy was announced, Wagepoint implemented a function in the app to help eligible users automate the 10% Temporary Wage Subsidy calculations. One of Juliet’s favourite features is the automatic stop — if users hit the maximum threshold, the app automatically stopped calculating.
How big of a deal was this? Juliet had a first-hand account to share:
“Wagepoint built this subsidy while the payroll software providers we use for one of our clients did nothing. We actually had to do the calculations and send them an email to let them know how much the subsidy was. Not only that, they still deducted the subsidy amount and then sent our client a cheque — which defeated the whole purpose of immediate cash flow. So huge shout out to Wagepoint for building this into their software so quickly!”
CEWS 1.0 — An overview.
This program is still in effect. You can continue to claim your subsidies until December 31, 2020.
The first version of the Canada Emergency Wage Subsidy (CEW) program provides a 75% wage subsidy for eligible employers up to a maximum of $847 per week. It covered four pay periods from March 15, 2020 to July 4, 2020. The government also announced a 100% refund for employer-paid contributions to EI and CPP/QPP for employees who weren’t working.
Required decline in revenue
Reference period for eligibility
|1||March 15 to April 11||15%||
March 2020 compared to either:
|2||April 12 to May 9||30%||Eligible for Period 1
April 2020 compared to either:
|3||May 10 to June 6||30%||Eligible for Period 2
May 2020 compared to either:
|4||June 7 to July 4||30%||Eligible for Period 3
June 2020 compared to either:
An employer’s eligibility to the program depended on revenue drop. Employers were considered eligible if they have seen a drop of at least 15% of their revenue in March 2020 and 30% for the following months. The government also introduced a deeming rule to provide some stability to businesses — if you qualified for March (period one), then you would automatically qualify for April (period two), and so forth.
CEWS 2.0 — An overview.
The second phase of CEWS is an extension of the program from July 5, 2020 to November 21, 2020 (periods five to nine) — recently extended to period ten, until December 19, 2020. There is also a proposal to extend CEWS until June 2021 which the government has yet to provide an update on.
|1||March 15 to April 11|
|2||April 12 to May 9|
|3||May 10 to June 6|
|4||June 7 to July 4|
|5||July 5 to August 1|
|6||August 2 to August 29|
|7||August 30 to September 26|
|8||September 27 to October 24|
|9||October 25 to November 21|
|10||November 22 to December 19
(No concrete rules proposed yet for this period)
In CEWS 2.0, eligible employers could receive up to an 85% wage subsidy. The actual amount received ranges from $0 to $960 per week — depending on pay and revenue decline. The greater your revenue drop, the greater your subsidy.
To ensure eligible employers do not receive less under CEWS 2.0 than they would have received under CEWS 1.0, the government introduced the Safe Harbour rule that only applied to periods five and six. For these periods, employers have to calculate the subsidy under both the 1.0 and 2.0 mechanisms — whichever is the larger amount would indicate the subsidy the employer receives per employee.
Tip: You can use the CRA calculators to determine which scenario is more beneficial for you.
CEWS 2.0 — A closer look at the subsidy amount.
CEWS 2.0 has two components — a base subsidy and a top-up subsidy. Both components make up the total subsidy amount a business will receive.
Generally speaking, calculating the CEWS 2.0 subsidy amount is much more complicated than its 1.0 counterpart. It is dependent on three factors:
- Revenue drop
- Claim period
- Average 3-month revenue drop
To receive the maximum subsidy (85%), employers must have experienced a 70% revenue decline. However, unlike the CEWS 1.0, a subsidy is still available to employers who did not experience a 30% revenue decline.
CEWS and furloughed employees.
As of October 25, 2020, CEWS will start to look much more like EI for furloughed employees.
This means the subsidy per week for arm’s length employees (or EI-paying non-arm’s length employees) would be:
- The amount of eligible remuneration paid in respect of the week; or,
- If the employee receives remuneration of $500 or more for the week, the great of $500 and 55% of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $573.
Wages cannot change outside of regular business as a way to take advantage of these programs. Juliet explains why:
“If someone was due an annual 2% increase — that’s fine. But you can’t give someone a 40% increase for no reason. If you’re caught taking advantage of this program, you’ll be penalized. Since the program is based on the honour system, the penalties of taking advantage of the programs are likely going to be steep.”
— Juliet Aurora, Co-founder, AIS Solutions and Kninja Knetwork
Pausing for a quick poll.
Before we get into the reporting part of the conversation, let’s find out how you feel about the information overload out there. A good portion of you hard-working folks are diligently figuring it out.
Year-end income reporting.
The TWS and CEWS are considered income for businesses who have received it and they must be reported. Even if you’re retroactively applying for these subsidies but haven’t received it yet, it still needs to be accrued for in the period that it falls within. Additionally, recipients must also report the amounts on their GST and HST returns in Line 101 as income.
Reporting the TWS to the CRA with Form PD27.
Note: This is only a portion of the PD27
Employers must submit Form PD27 10% Temporary Wage Subsidy Self-identification Form for Employers to the CRA. This lets the CRA properly document the reduction in remittances on your payroll program account and reduces your potential of receiving a discrepancy notice at the end of the year.
The PD27 is due ASAP — while there is no definitive date, the CRA has highlighted that you DO NOT have to wait until you file your T4 information to get it done. The government is accepting them now.
To make things easier, you can download a fillable version of this form on the CRA website. As you fill them out, be sure to enter information based on each pay period — in other words, the total across all of your employees.
The PD27 must be filed through the CRA — Wagepoint cannot file the PD27 on your behalf. The easiest way to file this form is by submitting a document through Represent A Client. Please note that although they are due at the end of February, the government is accepting them now.
Reporting the CEWS to the CRA with T4s.
To help the CRA validate payments made under the CEWS, employers will need to report the subsidy amount with corresponding codes in the “Other information” section of the T4.
The four corresponding codes are:
- Code 57: Employment income – March 15 to May 9 — Periods 1 & 2
- Code 58: Employment income – May 10 to July 4 — Periods 3 & 4
- Code 59: Employment income – July 5 to August 29 — Periods 5 & 6
- Code 60: Employment income – August 30 to September 26 — Period 7
Keep in mind, when you are filing or claiming the subsidies, it is based on wages earned. However, reporting is based on wages paid. If it wasn’t already clear, the government sure loves to keep us on our toes!
Note: If you’re a Wagepoint customer and you have run a minimum of two (2) payrolls within the calendar year, we will be filling out these boxes on your behalf.
Be audit you can be — audit-proofing your small business.
An excerpt from the CRA’s 9-page love letter
Audits have already started — and the CRA is sending small business owners 9-page audit letters. Ultimately, what they’re looking for is reassurance that your business practices haven’t changed to qualify for the CEWS.
At this point, it isn’t clear what will trigger an audit — the only thing we can do is be prepared. To help you and your small business clients prepare for the audit, here are a few items they will be asking in their 9-page audit letter:
- Support for revenue calculations to determine CEWS eligibility, including general ledger accounts, bank statements supporting deposits, accounts receivable ledgers, etc.
- Support for the calculation of baseline remuneration and eligible remuneration claimed in each period audited paid including payroll journals, reconciliations of cut-off between period ends for CEWS and payroll cycles and evidence of payment.
- Minute books showing support related to the decision to make the CEWS claims.
- A list of all the entities in the corporate group along with the business number of each entity.
- Various agreements including agreements for inter-company loans and employee contracts.
- Support for various elections made.
For the full list of what you can expect to see once you receive the letter, click here.
5 steps to make payroll year-end smooth.
Huzzah — a gift just for you! 🎁 We compiled a simple, step-by-step checklist to help make sure your year-end runs smoothly (and swiftly) from start to finish.
Speaking of smooth and swift, we want to thank our favourite Kninja, Juliet, for sharing her wisdom and joining our discussion on the TWS and CEWS!
Looking for more resources?
If you prefer to get information straight from the source, you can re-watch the webinar here.
You can also get extra support from Juliet and her Kninja Knetwork co-founder, Steve Loates, through the Kninja Training Program. The program comprises multiple training courses designed to help accountants and bookkeepers at different stages of their career — including firms wanting to move into the Cloud.
On top of getting help from Juliet, you can get support from the accounting and bookkeeping community in the Kninja Knetwork Facebook Group. This group is full of amazing information and members who are always willing to share their knowledge and expertise.
And Juliet has created an amazing list of Covid-19 resources too.
The advice we share on our blog is intended to be informational. It does not replace the expertise of accredited business professionals. Wagepoint assumes no responsibility for errors or omissions in this document. To qualify for complimentary T4s with Wagepoint (included as part of your standard fees) — a business must run a minimum of two payrolls in the current calendar year.