S. 125.7(4)(b) CEWS consolidation rule may produce odd results where there is a multinational group or where there are year-over-year changes in the affiliated group

S. 125.7(4)(b) provides that each member of an affiliated group of eligible entities may jointly elect so as to result in each entity using the consolidated revenues as a proxy for stand-alone qualifying revenue when calculating its eligibility for the CEWS (wage subsidy).

It is suggested that on a literal interpretation of this rule, all companies in a multinational group would be required to participate in the joint election, and that a “CEWS claimant would need to take account of the qualifying revenue of all of the corporations worldwide in order to determine whether the decrease-in-revenue threshold is met.”

A second interpretive oddity is what to do where, say, four entities meet the definition of an affiliated group in March 2020, but one of the entities was newly incorporated in 2020.

[W]ould the affiliated group be composed of the four entities, which would then calculate revenue on a consolidated basis and compare it to the consolidated revenue of the three entities that existed during the comparative [2019] period? Or would the newly incorporated entity be excluded from this calculation?

David Carolin and Manu Kakkar, “The Canada Emergency Wage Subsidy: Affiliated Group Issues,” COVID-19 and Canadian Tax for the Owner-Manager/Canadian Tax Focus (Canadian Tax Foundation), July 2020, p. 1 under s. 125.7(4)(b).