There have been a number of changes and announcements related to various government programs. Some of this email is repetitive but I do want to draw your attention to three items:
- Increased eligibility to the Canada Emergency Response Benefit (CERB) program
- New Canada Emergency Student Benefit (CESB) program
- Canada Emergency Commercial Rent Assistance (CECRA) program
I have been quite pleased that governments have been fairly quick to react and provide support to individuals and businesses. These programs are not perfect but will assist Canadians in recovering from the financial impact of Covid-19. But you will see that my comments on the new CECRA program are not supportive.
The CERB (Canada Emergency Response Benefit) is now in place and some people have received payments. While this program will help millions of Canadians it does have criteria. But there is a major change. Details are here:
The key points of this program are:
- Must be at least 15 years old (so many students will qualify)
- You must have stopped working or reduced earnings due to Covid-19. It is not available if someone just does not have a job or cannot get a job.
- Recipients are now allowed to earn $1,000 in each four week eligibility period
- The $1,00o that is permitted includes employment and self-employment income. Employment income is easy to define. No guidance has been given if self-employment “income” is gross sales or net income after expenses.
- You must have had $5,000 of earned income (employed or self-employed) in 2019 or in the 12 months before you apply.
The Canada Emergency Student Benefit (CESB) was announce to provide students/recent students with $1,250 or $1,750 of benefits per four week period. Implementation requires new legislation and this has not yet been released or passed. Details will follow later when available.
CEBC (Canada Emergency Business Account)
The Canada Emergency Business Account is an interest-free loan of $40,000 for qualifying businesses. Up to $10,000 of that amount will be eligible for complete forgiveness if $30,000 is fully repaid on or before December 31, 2022. This program is now available and you must apply online through your normal business bank. This program is active and many businesses have now received funding. Key requirements for this program are that a business must have had between $20,000 and $1,500,000 of wages paid to employees in 2019. If your business does not meet this basic criteria you cannot apply. This range of allowable payroll has been increased from the previous amounts so more businesses qualify.
CEWS (Canada Emergency Wage Subsidy) – 75% Subsidy
Legislation was passed on Saturday to allow for this program. Key features of this program are:
- Sales must decrease 15% in March, and 30% in April or May. There are four different ways to calculate the drop in revenue.
- There are three eligibility periods that are not calendar months. The dated run from March 15th to June 6th.
- Support is generally 75% of wages paid up to a maximum grant of $847 per employee per week. There is no limit to the subsidy.
- Support may be up to 100% of wages if employers pay an amount that is at least 75% of pre-crisis earnings but less than $847 per week.
- There are anti-avoidance rules for payments made to non-arms length employees.
The calculations are very complex. CRA has released an excel template to calculate the subsidy amount. I have decided we will use CRA’s tool. CRA’s spreadsheet requires businesses to calculate themselves whether they are eligible and pre-crisis earnings. So to help clients we developed a CEWS Eligibiity Calculator in excel that will soon be available on my website under resources (downloads). Anyone needing assistance with these calculations are encouraged to contact our office.
Temporary Wage Subsidy – 10% Subsidy
For the three months (March 18th to June 20th) there will be a 10% wage subsidy. This is to a maximum of $1,375 per employee and $25,000 per business. There will not be any actual money from the government. Employers will simple reduce withholding tax remittances. How this works in practice is unknown. Hopefully, by April 15th we will learn how to actually do this. The government has said to manually calculate this and reduce you payroll remittance by the subsidy. You can only reduce tax withheld, not CPP or EI premiums. Also, if the subsidy exceeds the tax withheld you can reduce a future remittance. Those clients that use a payroll provider (ADP, Wagepoint etc.) nothing changes until the detailed rules are announced by CRA. For those clients that do not have immediate cash flow problems I encourage you to wait until the detailed rules are announced before claiming your subsidy. We all want to reduce the future complexity when T4s need to be filed next year.
These two programs are complex and can interact. Every situation is different and we will assist all our clients as we work through this. We also note that the periods are different for the two programs. So while the 75% program ends June 6th, the 10% program continues until June 20th. This creates a very complex reporting requirements and I cannot help but think that the federal government will simplify this soon.
CECRA (Canada Emergency Commercial Rent Assistance)
This was announced last week by the federal and provincial governments. It suggests that businesses will get a rent reduction of 75% for April May and June. To qualify:
- Revenue must be down 70%
- Landlord has to agree to a 25% reduction in their rental income and have no rental profit for three months.
- Tenant has to pay 25% of the rent
- 50% of the rent will be paid by way of a forgivable loan from the Canada Mortgage and Housing Corporation (CMHC)
- The funds from CMHC go directly to the mortgage holder.
Details have not been released on how this will actually work. Here are the challenges I see with this program:
- Requires the landlord to participate. If they do not, there is no assistance.
- Requires amended lease agreements between the landlord and tenant.
- Requires amended agreements between landlord and mortgage holder.
- Required revenue data of the tenant to be disclosed to the landlord.
- Significant risk that after all the work done tenant will not qualify and in the meantime little rent is paid.
- Does not preclude landlords from evicting tenants for non-payment of rent.
- Funding does not go to the tenant who cannot pay but to the mortgage holder (if any) and creates this complicated process to assist the tenant whose business is shut down.
This is a program doomed for failure from Day 1. It is complex and almost unworkable. I can only see large landlords like publicly traded REITS even considering this. The centre of this is CMHC. As of writing, the most recent announcement on the CMHC website is dated March 26th and there is no mention of this program. I try not to be political. But this is a sham program that will help few businesses. I predict it will be amended within days to something more useful.
Our office is open for clients that need to drop off paperwork. But we do encourage you to send up information electronically. We have a table at the front door to leave documents. All documents are being “aged” so we will not be handling paperwork immediately after we receive it. We are not meeting anyone and anything we have to return to clients will be mailed or emailed. My staff are mostly working remotely from home so there will be some delays as we continue to help you.