CRA indicates that where there has been a s. 125.7(4.1)(e) election, the asset purchaser picks up all rather than part of the seller’s qualifying revenues for the prior reference period

On October 11, 2020, i.e., part-way through the September 27 to October 24, qualifying period, there is an arm’s length purchase by an acquiror of the assets (along with employees) of an operation of the seller. They jointly elect under s. 125.7(4.1)(e), and meet all other conditions to qualify for the CEWS (wage subsidy).

CRA rejected the suggestion that, in determining the acquiror’s qualifying revenue for the previous prior reference period (October 2019), the qualifying revenue attributable to the assets for that prior reference period (the “assigned revenue”) should be pro-rated, based on the number of days in the current reference period for which the acquiror (21 days) and the seller (10 days) used the acquired assets in carrying on business, for purposes of computing the revenue reduction percentage. Instead, “the assigned revenue described in paragraph 125.7(4.2)(a) … refers to the qualifying revenue of the seller for the entire prior reference period that is reasonably attributable to the acquired assets.”

As for the current reference period, in determining its qualifying revenue for that period, the acquirer would include the assigned revenue of the seller, which amount would be subtracted from the seller’s qualifying revenue for that period.

Both the seller and acquiror could potentially make CEWS claims for the current qualifying period based on “their” respective weeks falling before or after the acquisition time.

Neal Armstrong. Summary of 28 January 2021 External T.I. 2020-0870981E5 under s. 125.7(4.2).