Canada Gazette, Part II, Volume 155, Number 18
SOR/2021-206 August 12, 2021
INCOME TAX ACT
P.C. 2021-882 August 11, 2021
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 125.7 footnote a and 221 footnote b of the Income Tax Act footnote c, makes the annexed Regulations Amending the Income Tax Regulations (COVID-19 — Prior Reference Periods for Wage Subsidy, Rent Subsidy and Hiring Program and Subsidies Extension).
1 Section 8901.2 of the Income Tax Regulations footnote 1 is renumbered as subsection 8901.2(1) and is amended by adding the following:
(2) For the purposes of paragraph (c) of the definition prior reference period in subsection 125.7(1) of the Act, the prescribed period for the qualifying periods referred to in subsection (3) is January and February, 2020 if
(3) For the purposes of subsection (2), the periods prescribed under paragraph (d) of the definition qualifying period in subsection 125.7(1) of the Act are the fourteenth qualifying period, the fifteenth qualifying period, the sixteenth qualifying period and the seventeenth qualifying period.
(4) The percentage determined for the purposes of the definition base percentage in subsection 125.7(1) of the Act, in respect of an eligible entity, is
(5) The percentage determined for the purposes of the definition top-up percentage in subsection 125.7(1) of the Act is
(6) For the twenty-first qualifying period, the percentage determined for the purposes of paragraph (b) of the definition rent subsidy percentage in subsection 125.7(1) of the Act is the percentage determined by the formula
(7) For the twenty-first qualifying period, the percentage determined for the purposes of the description of A in the definition rent top-up percentage in subsection 125.7(1) of the Act is 25%.
2 These Regulations come into force on the day on which they are registered.
(This statement is not part of the Regulations.)
The Canada Emergency Wage Subsidy (CEWS) initially received royal assent on April 11, 2020, through the COVID-19 Emergency Response Act, No. 2. It is a wage subsidy provided through the Income Tax Act to those eligible employers (i.e. corporations, unincorporated businesses, registered charities, or non-profit organizations) that have been the hardest hit by the COVID-19 pandemic.
On October 9, 2020, the Government of Canada announced the introduction of the Canada Emergency Rent Subsidy (CERS) and related Lockdown Support. The CERS is the successor to the Canada Emergency Commercial Rent Assistance program and is available, since September 27, 2020, to eligible businesses, charities, or non-profit eligible entities with qualifying periods that align with the CEWS.
In Budget 2021, the Government of Canada announced a new program, the Canada Recovery Hiring Program (CRHP) effective from June 6 to November 20, 2021. This program also uses the current CEWS infrastructure to provide a subsidy based on an eligible employer's incremental remuneration in a four-week qualifying period (to align with same qualifying period used for the CEWS and CERS) relative to a baseline period (i.e. eligible remuneration paid between March 14 to April 10), up to a cap of $1,129 in salary per employee. The employer would claim the higher of the CRHP and the CEWS. An eligible employer for the CRHP in a qualifying period would be a Canadian-controlled private corporation, an unincorporated business, a registered charity, or a non-profit organization that
The CEWS, CERS and Lockdown Support are scheduled to expire on September 25, 2021. The Government of Canada has the legislative authority to extend these programs by regulations until November 2021. The Government of Canada can also change the subsidy rates for these programs by regulations.
An eligible entity's CEWS and base CERS rate in a qualifying period is based on its decline in revenues for that qualifying period. An employer's decline in revenues is determined by one of two following methods:
For periods 1 to 4 (March 15 to July 4, 2020), an employer must use the alternative approach if, on March 1, 2019, the employer was not carrying on a business or its ordinary activities. The alternative approach offers CEWS and CERS access to newly established employers who would not otherwise have a basis of comparison in applying the general approach. Other employers can also elect to use the alternative approach for all four qualifying periods.
For period 5 and beyond (i.e. as of July 5, 2020), an employer can either continue using the same approach as in periods 1 to 4, or switch to the other approach. Once an approach is chosen as of period 5, the employer is required to use the same approach for all subsequent qualifying periods.
For period 14, the calendar months used for the prior reference periods for the general approach were reverted to 2019 to ensure that an employer could continue to calculate its decline in revenues relative to a pre-pandemic month. Consequently, February 2020 was used as the prior reference period for period 13, while March 2019 was used for period 14. As a result, for period 14, a business using the general approach that did not have revenues in March 2019 will suddenly cease to be eligible for both the CEWS and the CERS, as they will be unable to demonstrate a decline in revenues.
As an illustrative example, consider a restaurant that opened in July 2019. When the CEWS was introduced, the business was required to use the alternative approach for periods 1 to 4 (as it was not carrying on business on March 1, 2019). Even if it had had the option to use the general approach, it would not have chosen to do so, as the business did not have revenues in the prior reference periods under the general approach for periods 1 to 4 (March 2019, April 2019, May 2019, and June 2019 respectively). In period 5, the business determined that it was better off under the general approach going forward and switched from the alternative approach. Its current and prior reference periods for periods 1 to 5 were as follows:
|Period||Approach||Current reference period||Prior reference period|
|1||Alternative||March 2020||Average of January 2020 and February 2020|
|2||Alternative||April 2020||Average of January 2020 and February 2020|
|3||Alternative||May 2020||Average of January 2020 and February 2020|
|4||Alternative||June 2020||Average of January 2020 and February 2020|
|5||General||July 2020||July 2019|
For period 13 and beyond, the restaurant continues to experience decreased revenues relative to before the pandemic. Because the business chose to use the general approach in period 5, it must continue to use it now. Under the general approach, its revenue decline is 50%; under the alternative approach, it would be 30%. The table below shows its CEWS rate for active employees for periods 13 to 20, as well as its theoretical subsidy rate it would be entitled to if it were allowed to use the alternative approach.
|Period||Prior reference period (general)||CEWS rate (general)||CEWS rate (alternative)|
The restaurant is ineligible for the CEWS from periods 14 to 17 (March 14 to July 3, 2021) because it had no revenues from March 2019 to June 2019. In contrast, had it been allowed to elect to use the alternative approach for those qualifying periods, it would have been eligible for a subsidy rate of 24%. For period 17, an entity must have a revenue reduction of greater than zero. As such, the restaurant would also be ineligible for the CRHP in period 17.
At the time that employers chose an approach for revenue calculation in period 5, they had no way of knowing how the pandemic would evolve over the coming year or that the CEWS program (and subsequent CERS program) would last as long as it has. When the rules for period 5 and beyond were announced in July 2020, the government indicated that the program would be phased out by December 2020. Given the current length of the business support programs, the requirement to maintain the approach chosen as of period 5 may produce outcomes that are not consistent with the intent of the programs, as in the example above.
In order to support recovery, Budget 2021 extended the CEWS, CERS and Lockdown Support until September 25, 2021.
Budget 2021 set the path for a gradual decrease of the rates and scope for the rent and wage subsidy, beginning July 4, 2021, in order to ensure an orderly phase-out of the programs, as vaccinations are completed and the economy reopens. In particular, the rates for the CEWS and CERS are gradually reduced from 75% and 65%, respectively, in period 17 (June 6 to July 3) to 20% in period 20 (August 29 to September 25). The rate structure for the rent subsidy is aligned with that of the wage subsidy beginning in period 18 (July 4 to July 31, 2021), when the subsidy rates begin to decrease.
Organizations eligible for the rent subsidy can also receive the additional Lockdown Support of 25% from June 6 to September 25, 2021, for locations that are significantly restricted by a public health order.
While third wave restrictions slowed the recovery this spring, an effective vaccination campaign and reopening plans are expected to drive increased business activity and job creation over the summer.
Nonetheless, some pockets of uneven economic reopening are likely across regions and sectors.
To ensure a strong recovery, the CEWS, CERS and Lockdown Support will be extended by one period, i.e. until October 23, 2021. There will also be an increase in the CEWS and CERS rates in period 20 (i.e. from August 29 to September 25, 2021).
The Lockdown Support would be maintained at the current rate of 25% until October 23, 2021.
The maximum wage and rent subsidy rates over the phase-out would be 40/40/20 starting in period 19 (i.e. as of August 1), instead of 40/20/0 as announced in Budget 2021. This approach would increase the maximum subsidy rate from 20% to 40% in period 20 (August 29 to September 25), and the programs would be extended by one additional period so that the maximum rates would be 20% in period 21 (September 26 to October 23).
The rate structures for the wage subsidy (active employees) and the rent subsidy would continue to be harmonized throughout the proposed phase-out and only organizations that experienced a revenue decline of more than 10% would be eligible for the programs during these periods (as per Budget 2021).
These changes are described in the table below.
Period 17 (as per Budget 2021) table 3 note *
June 6 to July 3, 2021
Period 18 (as per Budget 2021)
July 4 to July 31, 2021
Period 19 (as per Budget 2021)
August 1 to August 28, 2021
Period 20 (proposed change)
August 29 to September 25, 2021
Period 21 (new)
September 26 to October 23, 2021
|Revenue decline||CEWS||CERS||CEWS and CERS||CEWS and CERS||CEWS and CERS||CEWS and CERS|
|70% and over||75%||65%||60%||40%||40%||20%|
|50–69%||40% + (revenue decline – 50%) × 1.75||40% + (revenue decline – 50%) × 1.25||35% + (revenue decline – 50%) × 1.25||25% + (revenue decline – 50%) × 0.75||25% + (revenue decline – 50%) × 0.75||10% + (revenue decline – 50%) × 0.5|
|11–49%||Revenue decline × 0.8||Revenue decline × 0.8||(Revenue decline – 10%) × 0.875||(Revenue decline – 10%) × 0.625||(Revenue decline – 10%) × 0.625||(Revenue decline – 10%) × 0.25|
|1–10%||Revenue decline × 0.8||Revenue decline × 0.8||0%||0%||0%||0%|
Table 3 note(s)
The Income Tax Regulations are amended to allow eligible entities that were not carrying on their business or ordinary activities on March 1, 2019, and that chose to apply the general approach after period 4, to elect to choose the alternative approach for periods 14 to 17.
The Income Tax Regulations are amended to extend the CEWS, CERS and Lockdown Support for an additional period (September 26, 2021, to October 23, 2021) and to increase the subsidy rates for the CEWS and CERS for the 20th qualifying period (August 29, 2021, to September 25, 2021).
Through town halls, round tables, online surveys and correspondence, the Government of Canada is continuously consulting with public stakeholders regarding potential adjustments to the measures implemented to support business and other eligible entities and their workers as they transition back to work through the recovery phase of the pandemic.
These regulatory amendments incorporate many stakeholders' views with respect to these business support subsidies.
All the measures implemented continue to meet the Government of Canada's commitment to ensure that Canadians have the support they need to weather the COVID-19 crisis. These measures will provide businesses and other eligible entities with needed certainty regarding the assistance they will receive.
The estimated cost for the amendment to allow flexibility in determining an eligible entity's revenue decline is minimal. The amendment will allow a small number of more recently established businesses to continue to be eligible for the CEWS and CERS in line with the policy intent of the CEWS and CERS.
The estimated cost to extend the CEWS, CERS and Lockdown Support for an additional period and to increase the CEWS and CERS rates for the 20th qualifying period is approximately $1 billion.
Eligible entities and employers now able to apply for the CEWS, CERS and the CRHP for periods 14 to 17 will likely encounter some administrative costs through the process. Eligible entities that would be able to apply for the CEWS, CERS and the Lockdown Support for period 21 will also likely encounter some administrative costs. However, these costs would not outweigh amounts received as benefits under these programs.
Small businesses may, but are not required to, apply for the CEWS, CERS or the CRHP. Any small business may encounter some administrative costs to apply for these benefits. Nevertheless, these costs should not outweigh amounts received by small businesses as a subsidy under either program. Small businesses will benefit from these measures, if eligible, as the CEWS helps to subsidize employee costs while preserving the employee-employer relationship and the CERS is intended to supplement rental or property expenses during this period of reduced economic activity. The CRHP will assist employers to hire and rehire employees as the recovery process begins.
The one-for-one rule applies because any business or other eligible organization that becomes, or continues, to be eligible and applies for the CEWS, CERS or CRHP will encounter some administrative costs. The amendments address emergency circumstances and are exempt from the requirement to offset administrative burden under the one-for-one rule.
Due to the urgency and specificity of these measures, no steps were taken to coordinate or to align them with other regulatory jurisdictions.
The Canada Revenue Agency (CRA) administers the CEWS, CERS and the CRHP and will apply the amendments accordingly.
The Income Tax Regulations are subject to the existing reporting and compliance mechanisms available under the Income Tax Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.
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