Financial Help for Small Business Owners Due to COVID-19
The Canada Emergency Wage Subsidy (CEWS)
The CEWS will cover 75% of an employee’s wages – up to $847 per week – for employers of all sizes and across all sectors who have suffered a drop in gross revenues of at least 15% in March, and 30% in April and May. The program will be in place for a 12-week period, from March 15 to June 6, 2020 with a possibility of an extension.
Employers can measure their revenue loss by comparing revenues of March, April, and May 2020 to that of the same month of 2019, or to an average of their revenue earned in January and February 2020. In recognition that the time between when revenue is earned and when it is paid could be highly variable in certain sectors of the economy. It is proposed that employers be allowed to measure revenues either on the basis of accrual accounting (as they are earned) or cash accounting (as they are received). Revenue must exclude non-arm’s length transactions. Special rules also exist to address issues for corporate groups and non-arm’s length entities.
For employers that are eligible for financial help from both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the Temporary 10% Wage Subsidy (see below) for remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS in that same period. It should also be noted that the CEWS is considered government assistance and will therefore be taxable.
The Temporary 10% Wage Subsidy
This is a measure that will allow eligible employers to reduce the payroll remittances made to the Canada Revenue Agency (CRA) only, for remuneration paid from March 18, 2020 to June 19, 2020. The amount of reduction is subject to a limit of $1 375 per employee and an overall total of $25 000 per employer. You cannot reduce your CPP and EI contributions.
Financial help is available for eligible employers including those who have a payroll account number with the CRA on March 18th, 2020. This includes individuals, partnerships, non-profit organizations, or Canadian-controlled private corporations eligible for the small business deduction. The 10% wage subsidy will reduce the CEWS if employers apply for that assistance as well. As with the CEWS the 10% wage subsidy is considered government assistance and will be taxable. Contact us for further assistance.
The Canada Emergency Business Account
This initiative for financial help (CEBA) provides interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover non-deferrable operating costs including payroll, rent, utilities, insurance, property tax, suppliers’ bills and regularly scheduled debt payments. It may not be used to refinance existing debt, pay dividends, or fund distributions and increases in management compensation. Repaying the loan on or before December 31, 2022 will result in a loan forgiveness of 25% (up to $10 000).
To qualify, you will need to demonstrate you paid between $20,000 (recently reduced from $50 000) to $1.5 million in total payroll in 2019. At this point in time, new companies that started after 2019 or who do not meet this threshold do not qualify. More specifically, the government is aware that this poses a problem for businesses that pay remuneration only through dividends rather than salary. They have not yet made any official announcement to permit ordinary dividends to qualify.
Business owners can apply for support from the Canada Emergency Business Account through their bank where they have their primary business account. Initially it was not possible to apply through a credit union although some are now authorized, so check with your institution. The government is working on ways to qualify through a bank if your credit union is not authorized.
You can find and stay up to date with more information here. We’re here to support you and your small business needs.