As part of the Federal Government’s relief plan, the government announced a wage subsidy equivalent to 10% of wages. The subsidy is not a direct payment to businesses but rather is a reduction in the amount of remittances that the employer must make to revenue Canada. To be eligible for the subsidy the Company must:
- be a Canadian controlled private corporation, not for profit organization or registered charity;
- have an existing business number and payroll account with the Canada Revenue Agency (“CRA”) as of March 18, 2020; and
- must be paying salary, wages, bonuses or other remuneration to an employee.
If these three conditions apply, the employer will be an Eligible Employer.
The subsidy applies to remuneration paid by the employer to employees during the period March 18, 2020 and June 20, 2020. The subsidy is limited to a maximum for the Eligible Employer of $25,000 and is limited to $1,375 per employee.
Eligible Employers calculate the subsidy manually. The calculation is simply 10% of the gross payroll, keeping in mind the per employee limit as well as the employer limit. Once the subsidy is calculated the employer reduces their current remittance of federal, provincial or territorial income tax that they send to the CRA by the amount of the subsidy. If you are an Eligible Employer but choose not to reduce your remittances, you can ask for the subsidy to be paid to you at the end of the year, or transferred to next year’s remittance. The subsidy is considered taxable income for the employer.
The subsidy is a reduction in the amount of federal and provincial or territorial income tax that the employer must remit to the CRA. The subsidy does not reduce the amount of Canada Pension Plan contributions or Employment Insurance Premiums. Employers can start reducing income tax in the first remittance period that includes remuneration in the eligible period (March 18 – June 20, 2020). The subsidy does not change anything for employees. Employers must still take full deductions from the employees’ pay, but rather than remitting the full amount the employer can remit the reduced amount, retaining the subsidized amount. The amount of the subsidy must be reported by the employer as income in 2020.
For employers that are claiming the subsidy, they must keep supporting records including:
- the total remuneration paid between March 18, 2020 and June 20, 2020;
- the amount of federal, provincial, and territorial income tax that was deducted from the remuneration; and
- the number of employees paid between March 18, 2020 and June 20, 2020.
The CRA is in the process of updating reporting requirements for the subsidy. More information can be found on the Government of Canada website.
This update was authored by Rose Keith, QC. Questions? Comments? Concerns? Or looking for more information on developments regarding the evolving COVID-19 pandemic? Contact Rose at email@example.com or anyone else listed on the authors page.