Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1) Whether an eligible entity that is part of a group who prepare consolidated financial statements in accordance with their normal accounting practices would use the consolidated financial statements when determining their “qualifying revenue”.
2) Where there are multiple levels of consolidated financial statements prepared, whether an eligible entity may choose which level of statements are used to determine consolidated qualifying revenue.
Position: 1) Yes.
2) No, the broadest set of consolidated financial statements must be used.
Reasons: see response.
February 14, 2022
Re: Canada Emergency Wage Subsidy (CEWS) - Consolidated Qualifying Revenue
We are writing to you in response to your query regarding calculating qualifying revenue for purposes of the CEWS. We apologize for the delay in our response.
You have asked whether an eligible entity that is part of a group who prepare consolidated financial statements in accordance with their normal accounting practices would use, for purposes of the CEWS, the consolidated financial statements when determining their “qualifying revenue”, as defined in subsection 125.7(1) of the Income Tax Act (the “Act”), pursuant to the preamble of subsection 125.7(4) of the Act. Additionally, you have asked whether a group of eligible entities who prepare consolidated financial statements in accordance with their normal accounting practices can choose to use the consolidated revenue from those statements to determine their qualifying revenue, even if there is a higher level consolidation.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.
In general terms, the CEWS is available to a qualifying entity that experiences a decline in qualifying revenue in a current reference period when compared to a prior reference period. For purposes of the CEWS, qualifying revenue of an eligible entity for a prior reference period or a current reference period, means the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible entity in Canada in a particular period, subject to certain inclusions and exclusions.
Subsection 125.7(4) of the Act provides that for the purposes of the definition qualifying revenue in subsection 125.7(1) of the Act, the qualifying revenue of an eligible entity is determined in accordance with its normal accounting practices, subject to certain choices and elections. As confirmed in Question 9 on the Canada.ca webpage, Frequently asked questions – Canada emergency wage subsidy (CEWS) (footnote 1) , if a group of eligible entities generally prepares consolidated financial statements, each member of the group will determine its qualifying revenue for purposes of the CEWS in accordance with those consolidated statements. No election or choice under subsection 125.7(4) of the Act would be required by the eligible entities for this to apply.
However, when there are multiple levels of consolidated financial statements prepared in accordance with the normal accounting practices of the group, it is our view that when determining qualifying revenue, the broadest level of consolidated financial statements (i.e., the broadest group of eligible entities that normally prepares consolidated financial statements) should be used for determining the qualifying revenue for each member of the group of eligible entities.
We trust our comments will be of assistance.
Amanda Couvrette, CPA, CA
For Division Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained
in the original document are shown below instead:
1 Available at https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-frequently-asked-questions.html
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