Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies Periods 14 to 16): SOR/2021-56
Canada Gazette, Part II, Volume 155, Number 8
SOR/2021-56 March 29, 2021
INCOME TAX ACT
P.C. 2021-214 March 26, 2021
His Excellency the Administrator of the Government of Canada in Council, on the recommendation of the Minister of Finance, pursuant to section 221 footnote a of the Income Tax Act footnote b, makes the annexed Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies Periods 14 to 16).
Regulations Amending the Income Tax Regulations (COVID-19 — Wage and Rent Subsidies Periods 14 to 16)
1 (1) Subsection 8901.2(1) of the Income Tax Regulations footnote 1 is amended by striking out “and” at the end of paragraph (b) and by adding the following after paragraph (c):
- (d) the period that begins on March 14, 2021 and ends on April 10, 2021;
- (e) the period that begins on April 11, 2021 and ends on May 8, 2021; and
- (f) the period that begins on May 9, 2021 and ends on June 5, 2021.
(2) The portion of subsection 8901.2(2) of the Regulations before paragraph (a) is replaced by the following:
(2) For the purposes of paragraph (g) of the definition base percentage in subsection 125.7(1) of the Act, the percentages determined by regulation in respect of an eligible entity, as defined in that subsection, for each of the qualifying periods referred to in paragraphs (1)(a) to (f) are
(3) Subsection 8901.2(3) of the Regulations is amended by striking out “and” at the end of paragraph (b) and by adding the following after paragraph (c):
- (d) for the qualifying period referred to in paragraph (1)(d), March 2021;
- (e) for the qualifying period referred to in paragraph (1)(e), April 2021; and
- (f) for the qualifying period referred to in paragraph (1)(f), May 2021.
(4) Subsection 8901.2(4) of the Regulations is amended by striking out “and” at the end of paragraph (b) and by adding the following after paragraph (c):
- (d) for the qualifying period referred to in paragraph (1)(d), March 2019;
- (e) for the qualifying period referred to in paragraph (1)(e), April 2019; and
- (f) for the qualifying period referred to in paragraph (1)(f), May 2019.
(5) The portion of subsection 8901.2(5) of the Regulations before paragraph (a) is replaced by the following:
(5) For the purposes of paragraph (b) of the definition rent subsidy percentage in subsection 125.7(1) of the Act, the percentages determined by regulation in respect of an eligible entity, as defined in that subsection, for each of the qualifying periods referred to in paragraphs (1)(a) to (f) are
(6) The portion of subsection 8901.2(6) of the Regulations before the formula is replaced by the following:
(6) For the purposes of the definition top-up percentage in subsection 125.7(1) of the Act, the percentage determined by regulation for the qualifying periods referred to in paragraphs (1)(a) to (f) is the lesser of 35% and the percentage determined by the formula
(7) The portion of paragraph 8901.2(7)(c) of the Regulations before subparagraph (i) is replaced by the following:
- (c) any of paragraphs (1)(a) to (f) is the greater of
Coming into Force
2 These Regulations come into force or are deemed to have come into force on March 14, 2021.
REGULATORY IMPACT ANALYSIS STATEMENT
(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 (the Act) that offers support to those eligible employers that are hardest hit by the COVID-19 pandemic. The CEWS provides a strong incentive for employers to pay employees who have been sent home (i.e. furloughed employees) for health and safety reasons or due to lack of work, while also enabling employers to retain employees (i.e. active employees) who are still on the payroll, and to rehire workers previously laid off.
On October 9, 2020, the Government of Canada announced the extension of the CEWS until June 2021 and the introduction of the Canada Emergency Rent Subsidy (CERS). The CERS is the successor to the Canada Emergency Commercial Rent Assistance program and will also be available until June 2021.
For active employees, the CEWS currently provides a maximum base rate support of 40% of eligible remuneration paid and a top-up subsidy rate of 35%. The amount of the subsidy depends on an employer's decline in qualifying revenue determined by comparing revenues earned during the current reference period and the prior reference period. For furloughed employees, the maximum amount of the subsidy for an eligible employer could reach up to $595 per week. Under the Act, an employer is entitled to a wage subsidy equal to the lesser of an amount paid to a furloughed employee in respect of a week and an amount prescribed by regulation.
The rules for the CERS are in many respects analogous to those of the CEWS. The CERS is available, effective September 27, 2020, to eligible businesses, charities, or non-profit eligible entities, with qualifying periods that align with the CEWS. The CERS currently consists of two components:
- a base rent subsidy that provides support of up to 65% of qualifying rent expenses based on the revenue decline suffered by the applicant; and
- a Lockdown Support of up to 25% of qualifying rent expenses if specified activities must cease for at least one week at one or more of the applicant's locations as a result of a public health order.
On March 3, 2021, the Government of Canada announced the parameters of both the CEWS and the CERS from March 14, 2021, to June 5, 2021. Amendments to the Income Tax Regulations (the “Regulations”) are required to give effect to these program parameters.
- To provide rules required for the operation of the CEWS and CERS for March 14, 2021, to June 5, 2021.
Description and rationale
The Income Tax Regulations (the Regulations) are amended to prescribe three additional four-week periods under which eligible organizations can receive continued support through the CEWS and CERS: from March 14, 2021, to April 10, 2021 (Period 14); from April 11, 2021, to May 8, 2021 (Period 15); and from May 9, 2021, to June 5, 2021 (Period 16).
The top-up rate available under the CEWS for periods 14, 15 and 16 in respect of active employees remains the same at 35% of eligible remuneration for eligible entities with a revenue drop of 70% or more. The base rate of 40% will also continue to apply for the three periods, providing a maximum subsidy rate in respect of active employees of up to 75%. This total maximum subsidy rate reflects the exceptional circumstances of the COVID-19 pandemic, and the extension of the CEWS will provide continued support to businesses and other organizations as the country weathers a second wave of COVID-19 cases.
The Regulations are also amended for new prescribed periods 14, 15 and 16 to provide that the prescribed amount in respect of furloughed employees will continue to be equal to the greater of two amounts:
- (i) $500, and
- (ii) the lesser of
- (A) 55% of baseline remuneration in respect of the eligible employee determined for that week, and
- (B) $595.
This treatment for furloughed employees under the CEWS continues the alignment with benefits provided through Employment Insurance (EI) for periods 14, 15 and 16, and will continue to promote the maintenance of the relationship between employers and employees, especially where employers are partly shutdown or facing decreased demands for their goods or services. It will also ensure that employers have the certainty they require to quickly rehire the workers they need through the pandemic recovery, and it could also relieve pressure on the EI system in the coming months.
The CERS rate structures that apply for periods 11, 12 and 13 will also apply for periods 14, 15 and 16. As a result, the maximum CERS base subsidy will remain at 65% of qualifying expenses and the maximum Lockdown Support available will remain 25% of qualifying expenses.
Finally, the rates of subsidy available for eligible organizations for both the CEWS and the CERS are determined by an organization's decline in revenues. To determine those declines, the revenues for a current reference period must be compared to the revenues for a prior reference period (i.e. before the start of the pandemic). For the three new prescribed qualifying periods (periods 14, 15 and 16), the new current and default prior reference periods must also be prescribed. For Period 14 (from March 14, 2021, to April 10, 2021), the prescribed current reference period is March 2021 and the prescribed prior reference period is March 2019. A default prior reference period of March 2020 for Period 14 would not reflect pre-pandemic revenues and so, March 2019 is more appropriate. Similarly, for Period 15 (from April 11, 2021, to May 8, 2021), the prescribed current and prior reference periods are April 2021 and April 2019, respectively. For Period 16 (from May 9, 2021, to June 5, 2021), the prescribed current and prior reference periods are May 2021 and May 2019, respectively.
Employers that have elected to use an alternative prior reference period, as set out in the Act, would continue to do so. This approach compares the change in the employer's current reference period revenues to the average of its January 2020 and February 2020 revenues.
Through town halls, round tables, online surveys and correspondence, the Government is continuously consulting with public stakeholders regarding potential adjustments to the measures implemented to support businesses 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 the CEWS and CERS.
All the measures implemented for periods 14, 15 and 16 continue to meet the Government's commitment to ensuring 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. These measures will also contribute to preserving the employee-employer relationship in situations where employers were ordered to shut down, or are facing decreased demand, while maintaining the incentive to work.
The estimated cost for the CEWS from March 14 to June 5, 2021, is $13.9 billion in 2021 – 2022 and the estimated cost for the CERS, including the Lockdown Support, from March 14 to June 5, 2021, is $2.1 billion in 2021 – 2022.
Eligible entities and employers applying for the CEWS and the CERS for these three four-week qualifying periods for their eligible expenses and employees will likely encounter some administrative costs through the process. However, these costs would not outweigh amounts received as benefits under these programs.
Small business lens
Small businesses may, but are not required to, apply for the CEWS or the CERS. Any small business that does 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 one-for-one rule applies because any business or other eligible organization that becomes eligible, or continues to be eligible, and applies for the CEWS or CERS 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.
Regulatory cooperation and alignment
Due to the urgency and specificity of these measures, there were no requirements regarding the CEWS and CERS regulations, and therefore no steps were taken to coordinate or to align them with other regulatory jurisdictions.
Implementation, compliance and enforcement, and service standards
The Canada Revenue Agency (CRA) administers the CEWS and the CERS. The CRA will apply the amendments in respect of a qualifying period, as defined in the Income Tax Act, for the three additional four-week periods, with respect to eligible businesses or other organizations.
The 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.
Income Tax Legislation
Tax Policy Branch
Finance Legal Services