22 December 2022 External T.I. 2021-0911271E5 - CEWS - ECRA - Timing of status as a publicly traded corporation

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: For the purpose of the ECRA definition in subsection 125.7(1) of the Act, when must an eligible entity be a publicly traded corporation (or be controlled by a publicly traded corporation)?

Position: The ECRA definition is relevant to an eligible entity for a qualifying period in which it is a publicly traded corporation (or is controlled by a publicly traded corporation).

Reasons: Text, context and purpose of the ECRA and subsections 125.7(14) and (14.1) of the Act.

XXXXXXXXXX
							2021-091127
							Matthew Ross, CPA, CA

December 22, 2022

Dear XXXXXXXXXX:

Re: Executive compensation repayment amount – Timing of status as a publicly traded corporation

We are writing in response to your question concerning the determination of the “executive compensation repayment amount” (“ECRA”) for a particular “eligible entity”, as those terms are defined in subsection 125.7(1) of the Income Tax Act (“the Act”) for the purposes of the wage subsidy provided by subsection 125.7(2) of the Act (“the wage subsidy”).

In particular, you have asked for our views regarding when an eligible entity’s shares must be listed or traded on a stock exchange or other public market (i.e., when it must be a “publicly traded corporation”) or be controlled by such a corporation for the purposes of the ECRA definition in subsection 125.7(1) of the Act.

As an example, consider the following situation:

• PubCo is a publicly traded corporation at all relevant times.
• PubCo and ACo are each an eligible entity for the purposes of the wage subsidy.
• PubCo and ACo each received a wage subsidy amount of $100 for each of the seventeenth “qualifying period” (footnote 1) to the twenty-third qualifying period, for a total of $700 each.
• On October 1, 2021 (i.e., in the twenty-first qualifying period), all of the shares of ACo were acquired by PubCo. Prior to this time, ACo was not a publicly traded corporation nor was it controlled by such a corporation.

Our Comments

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.

The ECRA of an eligible entity is defined in subsection 125.7(1) of the Act. Paragraph (a) of the definition provides that, in order for an eligible entity to have an ECRA, its shares must be listed or traded on a stock exchange or other public market or it must be controlled by a corporation the shares of which are listed or traded on a stock exchange or other public market.

Paragraph (b) of the ECRA definition in subsection 125.7(1) of the Act provides the calculation of the ECRA for a particular eligible entity as the formula A x B.

Variable A is primarily relevant to certain groups and provides the allocation of the amount determined under Variable B to each member of the group. For the purposes of the ECRA, the relevant group is defined in clause (i)(A) of the description of Variable A for the seventeenth qualifying period to the twenty-third qualifying period (“Period A”) and in clause (i.1)(A) for the twenty-fourth qualifying period and any subsequent qualifying period (“Period B”). For each of these relevant periods, the group is comprised of:

• The particular eligible entity,
• A publicly traded corporation that controls the eligible entity (the “public parent corporation”) if it received a wage subsidy in respect of any of the seventeenth qualifying period to the twenty-third qualifying period (or in respect of the twenty-fourth qualifying period or any subsequent qualifying period),
• Each other eligible entity that received a wage subsidy in respect of any of the seventeenth qualifying period to the twenty-third qualifying period (or in respect of the twenty-fourth qualifying period or any subsequent qualifying period) and was controlled in that period by the eligible entity or the public parent corporation.

Thus, for the purposes of the ECRA, a group is identified for each of the relevant periods (Period A and Period B). For each of these relevant periods, an amount for Variable B is determined for the group and that amount is allocated to the members of the group under an agreement, as provided in subparagraphs (i) and (i.1) of the description of Variable A. The amount so allocated is that group member’s ECRA for the relevant period.

Variable B is determined as the lesser of two amounts. The first amount (in clause (i)(A) of the description of Variable B for Period A and in clause (ii)(A) of the description of Variable B for Period B) is the total of all amounts of the wage subsidy received for employees who were not on leave with pay by each of the eligible entities described in clauses (i)(A) or (i.1)(A) of the description of Variable A for the particular relevant period.

In our view, an eligible entity is contemplated by the ECRA definition for Period A or Period B if it received a wage subsidy amount in respect of a qualifying period within that relevant period while being, in that qualifying period, a publicly traded corporation, or controlled by such a corporation. Furthermore, only wage subsidy amounts received by an eligible entity in respect of a qualifying period in which it is a publicly traded corporation (or is controlled by such a corporation) are included in the determination of the amount set out in clauses (i)(A) and (ii)(A) of the description of Variable B.

In the example, therefore, PubCo is contemplated by the ECRA definition for Period A as, in the seventeenth qualifying period to the twenty-third qualifying period, it was a publicly traded company and it received a wage subsidy amount in respect of those qualifying periods. ACo is also contemplated by the ECRA definition for Period A because ACo was controlled by PubCo in the twenty-first qualifying period to the twenty-third qualifying period and it received a wage subsidy in respect of those qualifying periods. Thus, PubCo and ACo will be party to the agreement specified in subparagraph (i) of the description of Variable A.

For the purpose of determining the amount specified in clause (i)(A) of the description of Variable B, PubCo is an eligible entity described in clause (i)(A) of the description of Variable A for the seventeenth qualifying period to the twenty-third qualifying period. However, ACo is so described for only the twenty-first qualifying period to the twenty-third qualifying period. Therefore, the amount determined under clause (i)(A) of the description of Variable B will include ACo’s wage subsidy amount received for only the twenty-first qualifying period to the twenty-third qualifying period. Accordingly, for the group consisting of PubCo and ACo, the amount determined under clause (i)(A) of the description of Variable B is $700 (PubCo) + $300 (ACo) = $1,000.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette CPA, CA
Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 As defined by subsection 125.7(1) of the Act.