CRA provides FAQ on Canada emergency wage subsidy

Points made by CRA in its new FAQ webpage on the Canada emergency wage subsidy (CEWS) include:

• Under the s. 125.7(9) rule , if an eligible employer has determined that it has experienced the required 15% reduction in qualifying revenue for the March 15 to April 11, 2020 claim period, it is automatically considered to have experienced the required 30% reduction in revenue for the immediately following claim period (April 12 to May 9, 2020). CRA confirmed:

In a situation where the eligible employer, subsequently determines that it actually experienced the required reduction in revenue, without applying the deeming rule, for the second claim period - April 12 to May 9, 2020, the eligible employer will be considered to have experienced the required reduction in revenue for that third claim period because of the deeming rule that can now be applied to the third period … .

• CRA provides a simple example of the operation of the special rule in s. 127.5(4) for computing changes in qualifying revenue where the eligible entity has revenue from persons or partnerships with which it does not deal at arm’s length: the eligible employer derives all its revenues from the provision of management services to a related corporation, and they elect such that its qualifying revenue for the current reference period is determined by reference to the required reduction in qualifying revenue for the related corporation in that reference period. CRA then goes through a more intricate example where there are two related corporations.
• CRA also provides a simple example of the election under s. 127.5(4)(a) to measure qualifying revenues on an unconsolidated basis: the consolidated financials of the parent show a decline in the qualifying revenues for it and its subsidiary of 10% for the first period, so that neither is eligible for the subsidy. However, given that the unconsolidated qualifying revenues of the subsidiary have declined by 20%, they can make the election, so that the subsidiary can qualify.
• CRA seems to consider that if the above election is not made, then each member of a group that prepares consolidated financial statements determines its qualifying revenues using those financials. What then is the point of the election under s. 127.5(4)(b) to elect to use consolidated financials? CRA provides an example of two silos making the election, e.g., two corporations each owned 100% by a spouse, with one having no percentage reduction, but on a consolidated basis there being a 25% drop in qualifying revenue.
• The “CEWS” wage subsidy is reduced by the full amount of the 10% temporary wage subsidy that may be claimed rather than the amount of the latter that is actually claimed (e.g., where it has not yet been fully claimed through available reductions in source deduction remittances).

Summaries of Frequently asked questions - Canada emergency wage subsidy (CEWS) CRA Webpage 23 April 2020 under s. 125.7(9), s. 125.7(1) – qualifying entity – (c)(ii), eligible employee, eligible remuneration, s. 125.7(4)(d), s. 125.7(4)(a), s. 125.7(4)(b) and s. 125.7(2) – B.