CRA expands its CEWS Q&A
CRA has expanded its webpage Q&A on the CEWS (wage subsidy) rules. Numerous points made include:
- A non-resident corporation can be an “eligible entity” notwithstanding that it is not subject to Canadian income tax under the terms of the applicable Treaty by virtue of not having a permanent establishment in Canada.
- An “eligible entity” includes an organization prescribed under Reg. 8901.1, which includes a “person or partnership that operates a private school or private college.” CRA states that this includes “for-profit and not-for-profit institutions such as arts schools, language schools, driving schools, flight schools and culinary schools.”
- CRA provides detailed examples of the operation of the “greater of” rule re the current and preceding month in determining whether there has been a sufficient decline in qualifying revenues in claim periods 5 to 9, as well as numerical examples of the computation of the base and top-up wage subsidy.
- CRA repeats the warning in the amalgamation s. 88(1) wind-up continuity rule that it will not apply “if it is reasonable to consider that one of the main purposes for the amalgamation (or the wind-up) was to qualify for the wage subsidy or to increase the amount of the wage subsidy,” without further elaboration.
- A corporation filing its returns using a functional currency would use that currency in measuring its qualifying revenue – but Canadian dollars would be used where the normal accounting practice is to measure in Canadian dollars.
- CRA provides an example of the s. 125.7(4)(d) election being used by Canco, which has a stable income from providing payroll services exclusively to a non-arm’s length non-resident corporation, in order to access the CEWS based on a 25% decline in the non-resident’s qualifying revenues (which could be measured in the applicable foreign currency consistently with the non-resident’s normal accounting practice).
- The business continuity rule in s. 125.7(4.2) (available on an elective basis) is not available where there merely has been an acquisition of a business division which does not represent all or substantially all (in fair market value terms) of the assets of a business.
- In the absence of s. 125.7(4.2) applying, changes to the normalized scale of operations (e.g., a recent expansion or a strike) or in the type of operations are not relevant to determining whether there has been a requisite decline in qualifying revenue.
Neal Armstrong. Additional summaries of Frequently asked questions - Canada emergency wage subsidy (CEWS) CRA Webpage 12 August 2020 under s. 125.7(1) – eligible entity - (a), eligible entity - (f), qualifying entity – (d)(ii), qualifying entity – (c)(ii), s. 125.7(1) - qualifying revenue, s. 125.7(9)(b), s. 87(2)(g.5), s. 125.7(4)(d), s. 125.7(4.1), s. 125.7(1) – eligible remuneration, s. 125.7(1) – top-up percentage, base percentage.