Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
10-320 Queen Street, Tower A
Ottawa, ON K1R 5A3
[Addressee]
Case Number: 209955
[Dear Client]
Subject: [GST/HST Interpretation]
[Public Service Body Rebate – Whether subsidies under certain programs are considered government funding] […]
We are writing in response to your [correspondence] of May 25, 2020, wherein you request that we rule on whether the […][Canada Emergency Wage Subsidy (“CEWS”)] and […][10% Temporary Wage Subsidy for Employers (“TWS”)] programs are considered government funding for purposes of the Public Service Bodies’ (“PSB”) Rebate. We apologize for the delay in our response.
All legislative references are to the Excise Tax Act (ETA), unless otherwise specified.
[STATEMENT OF FACTS]
CEWS:
1. The CEWS is a Government of Canada program that provides a wage subsidy to qualifying eligible entities. The CEWS amount is based in part on the number of eligible employees an employer has and the amount and type of pay they received. The CEWS is currently available for a period of 36 weeks (made up of nine 4 week periods) from March 15, 2020 to November, 21, 2020. On September 23, 2020 the Government of Canada announced that the program will be extended through to summer 2021.
2. For the first sixteen weeks of the CEWS program (from March 15, 2020 to July 4, 2020), eligible entities, such as certain non-profit organizations (“NPOs”), that see a drop of at least 15% of their qualifying revenue in March 2020, 30% for the following months of April, May and June when compared to their qualifying revenue for the same period in 2019 (or the average of January and February 2020, in some circumstances), qualify for the CEWS program. For the following twenty weeks (that is, from July 5, 2020 to November 21, 2020), the wage subsidy has been modified to be available for all eligible entities that qualify and that experience a decline in revenue for a qualifying period (claim period). For additional information on the CEWS program, see the Canada.ca webpage frequently asked questions – Canada emergency wage subsidy (CEWS).
3. There are three ways for eligible entities to apply for the CEWS:
(a) Online via CRA’s My Business Account portal.
(b) Have an authorized representative apply online via the CRA’s Represent a Client service or though the Web Forms application.
(c) Using the online CRA’s Web Forms application.
4. Eligible entities apply for the CEWS by entering the necessary information online such as the payroll program account number, the total number of eligible employees, and total eligible remuneration paid to those employees in respect of a claim period. Each claim period requires a separate application.
5. Pursuant to subsection 125.7(2) of the Income Tax Act (“ITA”), the CEWS takes the form of a deemed overpayment of an eligible entity’s liability under Part I of the ITA, which is then refunded to the entity. However, subsection 125.7(3) of the ITA states that for purposes of the ITA, “and for greater certainty,” the amount of the deemed overpayment is “assistance received by [a qualifying entity] from a government immediately before the end of the qualifying period to which it relates.”
6. According to information on Canada.ca, the purpose of the wage subsidy is to enable entities to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses and other employers to resume normal operations following the crisis.
TWS
7. The TWS is a separate Government of Canada 3-month measure that allows eligible employers to reduce the amount of payroll deductions they need to remit to the CRA. Under the TWS, eligible employers may be entitled to a subsidy in respect of wages paid to eligible employees. The TWSE is equal to 10% of the remuneration paid by the employer from March 18 to June 19, 2020, up to $1,375 for each eligible employee. The maximum total for each eligible employer is $25,000.
8. Employers receive the TWS simply by deducting the subsidy amount from payroll withholdings payable to the Receiver General in respect of federal, provincial or territorial income tax. No application is required. Pursuant to subsection 153(1.02) of the ITA, employers are deemed to have remitted their TWS subsidy amount to the Receiver General.
9. Remittances of CPP contributions and EI premiums cannot be reduced by the TWS.
10. A Canada.ca webpage notes that employers are required to report the total amount of the TWS as income in the year the subsidy is received. (Footnote 1)
[INTERPRETATION REQUESTED]
[Are the Canada Emergency Wage Subsidy (“CEWS”) and the 10% Temporary Wage subsidy for Employers (“TWS”) considered government funding for purposes of the Public Service Bodies’ (“PSB”) Rebate]
[INTERPRETATION GIVEN]
[…]
For purposes of the PSB rebate, “government funding” is defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations as
(a) an amount of money (including a forgivable loan but not including any other loan or a refund, rebate or remission of, or credit in respect of, taxes, duties or fees imposed under any statute) that is readily ascertainable and is paid or payable to the particular person by a grantor
i. for the purpose of financially assisting the particular person in carrying out the purposes of the particular person and not as consideration for supplies made by the particular person, or
ii. as consideration for making property or services available for consumption or use by other persons (other than the grantor, individuals who are officers, employees, shareholders or members of the grantor, or persons related to the grantor or to such individuals), where supplies of the property or services made by the particular person to such other persons are exempt supplies, and
(b) an amount of money paid or payable to the particular person by an organization (in this paragraph referred to as the "intermediary") that received the amount from a grantor or by another organization that received the amount from an intermediary, where
i. in the case of an amount that, after 1990, becomes payable or is paid to the particular person, the intermediary or the other organization, as the case may be, provides to the particular person, at the time the amount is paid to the particular person, a certificate in a form prescribed by the Minister certifying that the amount is government funding, and
ii. the amount would be government funding of the particular person because of paragraph (a) if the amount were paid by the grantor directly to the particular person for the same purpose as it was paid to the particular person by the intermediary or the other organization, as the case may be, and if the reference to "grantor" in subparagraph (a)(ii) included a reference to that intermediary or other organization, as the case may be.
For the CEWS and TWS to meet the definition of government funding, the CEWS and TWS would have to be paid or payable for the purpose of financially assisting the NPO to carry out its purpose and not be a refund, rebate or remission of, or credit in respect of, taxes.
We can analyze the CEWS and TWS separately:
[…][Whether CEWS is Government Funding]
The purpose of the CEWS is to enable businesses to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses to resume normal operations following the crisis.
The CEWS may assist any eligible entity in carrying out its purpose, regardless of whether the entity is an NPO or not. Although it may happen coincidentally, the CEWS is not paid for the purpose of financially assisting NPOs in carrying out their purpose. The CEWS cannot meet the definition of “government funding” as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations because the CEWS is not for the purpose of financially assisting NPOs in carrying out their purpose.
Furthermore, under the ITA, the CEWS takes the form of a deemed overpayment of liability under Part I of the ITA by an eligible entity, which is then refunded to the eligible entity. The Minister of National Revenue has statutory authority under the ITA to refund the deemed overpayment. Therefore, the CEWS is a refund of taxes imposed under the ITA and excluded from the definition of government funding.
Although the CEWS is considered government assistance for income tax purposes and must be included in computing taxable income, the CEWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
[…][Whether TWS is Government Funding]
The purpose of the TWS is to enable businesses to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses to resume normal operations following the crisis.
The TWS may assist any eligible employer in carrying out its purpose, regardless of whether the eligible employer is an NPO or not. Although it may happen coincidentally, the TWS is not paid for the purpose of financially assisting NPOs in carrying out their purpose.
Under the ITA, an employer is ordinarily obligated to withhold and remit payroll deductions to the Receiver General on behalf of their employees. The TWS allows the eligible employer to reduce their payroll remittances by the amount of the TWS. The ITA deems an employer to have remitted the amount of the TWS to the Receiver General. If the amount of the TWS exceeds the total payroll remittances owing, an employer can reduce its future remittances, including amounts that are due after the subsidy period ends. Therefore, the TWS is a credit in respect of taxes imposed under the ITA.
Although the TWS is considered government assistance for income tax purposes and must be included in computing taxable income, the TWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
A refund, rebate or remission of, or credit in respect of taxes, duties or fees imposed under any statute is excluded from the definition of government funding. Since the TWS provides a credit in respect of taxes imposed under the ITA, the TWS is excluded from the definition of government funding.
Furthermore, an eligible employer does not reduce its deductions from its employees’ pay and remits less to the Receiver General. The difference (i.e., the amount of the TWS) is effectively money kept in the eligible employer’s pocket. Therefore, the TWS cannot be considered an amount of money that is paid or payable to the particular person (the eligible employer) by a grantor.
Conclusion:
The CEWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations for the following reasons:
- the CEWS is a refund in respect of income taxes imposed under the ITA; and
- the CEWS is not paid for the purpose of financially assisting the NPO in carrying out the purposes of the NPO.
The TWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations for the following reasons:
- the TWS is not an amount of money that is paid or payable to the NPO by a grantor;
- the TWS is a deemed remittance on account of the Eligible Employer’s withholding income tax liability under the ITA; and
- the TWS is not paid for the purpose of financially assisting the NPO in carrying out the purposes of the NPO.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, are not a ruling and do not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.]
Yours truly,
Lucas Ghosn, CPA
Rulings Officer
Public Service Bodies and Rebates Unit
Public Service Bodies and Governments Division
FOOTNOTES
1 https://www.canada.ca/en/revenue-agency/services/subsidy/temporary-wage-subsidy/tws-reporting.html#reporting
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