CRA finds that eligible remuneration that is returned to the eligible employer as a capital contribution or shareholder loan adjustment is excluded for CEWS purposes

The CEWS (wage subsidy) is generated based on the amounts of “eligible remuneration paid to the eligible employee.” CRA stated, in the context of an employee who also was the controlling shareholder of the eligible entity, that “where salary and wages are only reflected by journal entry as an expense by the employer with a corresponding credit to a due to shareholder loan account, such salary and wages are not considered eligible remuneration paid to an eligible employee.”

Para. (c) of the eligible remuneration definition excludes “any amount received [by the eligible employee] that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever to … the eligible entity.” CRA indicated that this exclusion would apply where “salary and wages are paid to an eligible employee and returned to the eligible employer with a corresponding increase or credit to a due to shareholder loan account or other shareholder loan account,” or where “salary and wages [are] paid but returned to the corporation by the shareholder/employee as a capital contribution or as an amount re-loaned to the corporation.”

Neal Armstrong. Summaries of 29 March 2021 Internal T.I. 2020-0865791I7 under s. 125.7(2) and s. 125.7(1) – eligible remuneration – (c).