An overview of the government's financial measures to assist individuals and businesses during the COVID-19 pandemic - APRIL 6, 2020

An overview of the government’s financial measures to assist
 individuals and businesses during the COVID-19 pandemic.
                      T E R R Y B A E R G , C PA , C A
                   T R E N T R O B I N S O N , C PA , C A

                        A PR I L 6 , 2 0 2 0

Word of Caution
 Many of the measures described in this presentation have not been passed into law. We
  hope the detailed legislation will follow very shortly. Changes provided for in that
  legislation could materially impact the information provided in this presentation and/or
  have a material impact on individuals and business’ financial situation. Please consult your
  professional advisors before acting on this information.

 Reducing employees hours or laying off employees can have complex implications under
  Saskatchewan labour and employment law and employee benefit programs. We
  encourage you to consult legal counsel and benefit providers with respect to these matters.

Agenda
 Canada Emergency Wage Subsidy - subsidy of 75% of wages paid for small or large employers who have experienced
  at least a 30% decrease in sales due to the COVID-19 crisis.
 Temporary Wage Subsidy - subsidy of 10% of wages paid for certain employers who were registered for a payroll
  account with CRA on March 18, 2020.
 Canada Emergency Response Benefit – benefit of $2,000/month if you cease working due to COVID-19 and
  currently acting as a substitute for EI benefits.
 Canada Emergency Business Account - $40,000 line of credit, interest free, payment free, with $10,000 forgivable
  portion if repaid in full by December 31, 2022. Eligibility criteria discussed below.
 Supplemental Unemployment Benefit Plan (SUB Plan) - this is a pre-existing (pre COVID-19 ) plan that allows
  employers to increase employee’s weekly earnings while on a temporary shortage of work without impacting EI
  benefits. Employers must register for the plan with Service Canada.
 Work Sharing Program – an agreement between employers, employees and Service Canada that allows groups of
  employees to share hours of work during a temporary reduction in business activity (that is beyond the control of
  the employer). The program allows employees to retain more income than regular EI benefits would otherwise
  provide had the employees been laid off.
 Questions
    We will endeavor to add a FAQ section to our website for any questions we cannot attend to on the webinar

Canada Emergency Wage Subsidy - 75% Wage Subsidy
 To help businesses keep and return workers to their payroll through the challenges
  posed by the COVID-19 pandemic, the Prime Minister, proposed the new Canada
  Emergency Wage Subsidy (“the 75% subsidy”). This measure will provide a 75 per cent
  wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.
 The 75% subsidy did not replace the previously announced 10% wage subsidy, but
  rather, is an entirely new program.
 The 75% subsidy aims to prevent further job losses and encourage employers to re-hire
  workers previously laid off as a result of COVID-19, unfortunately, the information
  released by the government to date leaves business owners with many unanswered
  questions.
 We eagerly await the legislation that will provide further details and confirm the
 application of the subsidy. In the interim we hope the following information may
 provide employers some assistance with the difficult decisions they are facing right
 now.

Canada Emergency Wage Subsidy - 75% Wage Subsidy
(continued)
In summary,
eligible remuneration paid by eligible employers who have experienced at least a 30% decline in
revenue (compared to the same month in 2019) during an eligible period will receive a 75% wage
subsidy.
 Eligible Employers include: individuals, corporations, partnerships, NPOs and Charities. Also of note is that Trusts and Joint
 Ventures do not appear to be an eligible employer (further guidance to come in this regard).
 Eligible Periods
  ◦ March 15, 2020 to June 6, 2020
     ◦   Period 1 – March 15 – April 11 (March 2020 over March 2019 sales comparison)
     ◦   Period 2 – April 12 – May 9 (April 2020 over April 2019 sales comparison)
     ◦   Period 3 – May 10 – June 6 (May 2020 over May 2019 sales comparison)

 Eligible Remuneration (maximum benefit based on $58,700 of annualized remuneration)
  ◦ Consists of most forms of taxable remuneration provided to employees with the exception of severance pay, stock option benefits or
    personal use of a corporate vehicle. Does appear to include bonuses and commissions.
  ◦ Greater of:
     ◦   75% of remuneration paid, up to a maximum benefit of $847 per employee per week; and
  ◦ The lesser of:
         ◦   The amount of remuneration paid (up to a maximum benefit of $847 per week); or
         ◦   75% of the employee’s pre-crisis weekly remuneration (up to a maximum benefit of $847 per week)

Canada Emergency Wage Subsidy - 75% Wage Subsidy
(continued)
Example 1 – Employee receiving maximum monthly earnings of $6,000 pre and post crisis
Greater of:
     ◦ 6,000 * 75% = $4,500, but limited to the monthly maximum of $3,388 ($847 weekly maximum X 4 weeks); and

 The lesser of:
     ◦ 6,000, but limited to a maximum of $3,388 or
     ◦ 75% X 6,000 = $4,500, but limited to a maximum of $3,388

 Because the employee is receiving the same pay (pre and post crisis) at the maximum amount, the employer will receive the maximum
 subsidy. Note the employer retains the burden of 25% of the wage costs plus employer portion of CPP and EI costs.
Example 2 - Employee pre-crisis earnings of pre-crisis earnings of $3,200/month or post-crisis earnings of $2,400/month because the
business is closed during the pandemic
 Greater of:
     ◦ $2,400 X 75% = $1,800; and

 The lesser of:
     ◦ $2,400 or
     ◦ 75% X $3,200 = $2,400

 The employee’s pay was reduced from $3,200 to $2,400, however, because the employer actually paid $2,400 (75% of the pre-crisis
 wages) the employer will be entitled to a subsidy of $2,400. The employer now only has CPP and EI costs, however, the employees wages
 have been reduced.

Canada Emergency Wage Subsidy - 75% Wage Subsidy
(continued)
 At least a 30% decline in Revenues
  ◦ Appears to be a “bright line” test based on current information available (with no “sliding scale”)
  ◦ Defined as Revenue from a business carried on in Canada from arm’s length sources
    ◦ Revenue does NOT include the wage subsidy (which is logical)
    ◦ Normal accounting method/policies previously used by business must be used for comparison
    ◦ Ignore extraordinary items and capital gains
    ◦ Working on details for companies who just started up this year and do not have comparable financial results from the same month
      in the prior year
    ◦ Additional details to come for the not-for-profit sector
  ◦ There are a lot of unanswered questions – discussed under “Key Takeaways” below
  ◦ Business owners should consider gathering and calculating their prior year monthly revenues now
  ◦ Business owners making their own submissions may be troubling given the complexity
    ◦ Consider the availability of their professional advisors over the next 3 weeks
    ◦ Consider interim vs. external financial statements and the application of accounting policy to each
    ◦ Impact of penalty provisions – hopefully CRA will apply some reasonableness, however, they have provided repeated warnings

Canada Emergency Wage Subsidy - 75% Wage Subsidy
(continued)
 Non-arm’s length wages – the current information appears to limit the subsidy to 75% of pre-crisis
 weekly remuneration. This may be of concern to owner managers that compensated themselves with
 dividends previously. There has been acknowledgement by the federal government that a large number
 of business owners compensate themselves with dividends. Hopefully clarification will be provided in
 the legislation with respect to this issue. What policy reason would there be to disqualify an owner
 manager from the wage subsidy when past remuneration was taken in the form of dividends prior
 to COVID-19?
 Amount of Subsidy - no overall limit on the subsidy amount that an eligible employer can claim.
 How to Apply – My Business Account Portal and through a web-based application – coming soon.
 Attestation – employers must attest they are doing everything they can to pay the remaining 25% of the
 workers income. The Finance Minister indicated the system will be flexible. It remains to be seen how this
 will be applied in law.
 6 weeks for funds to become available – early commentary indicates a 6 week waiting period. Business
 owners will need to consider cash flow concerns in regards to bringing workers back on payroll. The
 Canada Emergency Business Account may assist small employers with cash flow in the short term. Why
 has the government not indicated that payroll withholdings can be reduced so that cash can stay with
 employers (as was indicated for the 10% subsidy)?

Canada Emergency Wage Subsidy - 75% Wage Subsidy
(continued)
 Severe consequences for abuse – the Minister of Finance indicated that severe penalties will be
 legislated for employers abusing the wage subsidy. The information indicated that ministry is considering
 legislating additional criminal penalties for those who abuse this subsidy. Given the circumstances these
 repeated threats may be inappropriate. Consider that a lot of taxpayers are intimidated by the CRA and
 may not take advantage of programs that they legitimately qualify for.
 Employers must re-apply each month – employers may need to consider the risk of not incurring a 30%
 decline in sales in an eligible period subsequent to re-hiring employees. For example an employer re-hires
 employees in Period 1 and receives the wage subsidy but only incurs a 27% decline in sales in Period 2
 and does not receive the wage subsidy and may now be faced with laying off employees and paying the
 cost of those employees for the period they were employed. Further complicated by the eligible period
 straddling the revenue comparison period.
 Employer is not eligible for the subsidy (in respect of a particular employee) in a week that falls within
 a 4 week period in respect of which the employee is claiming the Canada Emergency Response Benefit.
 Likely most applicable in the initial 4 week period.
 Wage subsidy is taxable income of the employer.
 Interaction with 10% Wage Subsidy (discussed below) - Amounts claimed under 10% wage subsidy in a
 period reduce the 75% wage subsidy in the same period.

Key Takeaways
 The 30% revenue reduction criteria is troubling at best. Due to the claim period straddling
  the reference period, how can employers be sure they will meet the 30% revenue
  reduction?
  This is problematic. The April 12 to May 9th reference period is based on April sales. The
  employer will be taking a risk that they will have a 30% decline in sales for April while paying
  their employees. Consider it will likely take most employers until at least May 9th to
  calculate their April sales under the existing rules.
 Does the 30% decline in revenue need to be due to COVID-19?
  Does not appear to. Perhaps an unlikely circumstance in the current environment and this
  matter may be clarified in the legislation.
 Is Revenue net of bad debts?
  This is an important question for many businesses. Likely depends on the business’ past
  method of accounting for bad debts. For most businesses bad debt is treated as an expense
  and not a reduction of revenue and is determined in hindsight.

Key Takeaways (continued)
 What does revenue from arm’s length sources mean?
  Presumably follows the definition provided in the Income Tax Act including someone “Related” to
  the employer. This could be problematic and impractical for employers to track and report on in a
  reasonable time frame. Consider that most employers interim statements to do not clearly
  categorize this information.
  Additionally, it is not uncommon for corporate groups to have a single corporation that provides
  payroll services to a related group of companies and only earns revenue from Related
  corporations. This type of situation may be problematic unless addressed in the legislation.
  What about incidental non-arm’s length revenue?
 What does extraordinary item mean?
  Generally includes gains or losses from events that were infrequent or unusual. However this
  term was not defined in releases to date. What if the business had a very successful April last
  year due to a one time revenue source – does that amount have to be removed this year in
  determining whether a 30% reduction in revenue has occurred?

Temporary Wage Subsidy for Employers – 10% Wage Subsidy
The subsidy is equal to 10% of the remuneration paid to an eligible employee during the eligible period,
up to $1,375 per employee and to a maximum of $25,000 total per eligible employer.
Eligible employee means an individual who is employed in Canada.
Eligible period means the period beginning on March 18, 2020, and that ends on June 19, 2020.

Eligible employer means a person or partnership that:
 ◦ Employs one or more eligible employees
 ◦ has, on March 18, 2020 a payroll account established with CRA
 ◦ is any of
     1. a Canadian-controlled private corporation that has more than $0 of small business limit (ignoring the passive income grind) in its last
          taxation year (taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, must be less
          than 15 million dollars)
     2.   an individual
     3.   a partnership, all of the members of which are described in 1, 2, 3 or 5
     4.   non-profit organization
     5.   registered charity

Temporary Wage Subsidy for Employers – 10% Wage Subsidy
(continued)
Key Takeaways:
  The impact and magnitude of this benefit is much smaller
  Arguably this program is not a consideration for businesses looking at laying off workers as
   they likely meet the criteria for the 75% wage subsidy. None the less, it is a welcome surprise
   that the government is retaining this program.
  The recent legislation has added individuals and partnerships to the list of eligible employers.
   A welcome and logical addition.
  Joint ventures and trusts may have some uncertainty with respect to claiming the wage
   subsidy as they do not appear to be an eligible employer. Discuss with your advisors.
  The $25,000 limit is on a corporation by corporation basis (not an associated group basis).
  Employers can benefit from this program immediately by reducing their source deductions
   remitted to the CRA without any application. Presumably details about the wage subsidy will
   need to be provided when completing the T4 summary in early 2021.

CEWS (75% wage subsidy) vs. 10% wage subsidy
Key Takeaways:
  75% subsidy is available to employers of all sizes and sectors
  10% subsidy is only available to Canadian Controlled Private Corporations with
   more than $nil small business limit
  75% subsidy requires at least a 30% reduction in sales (compared to the same
   month in the prior year). As mentioned this metric may be troubling in a lot of
   circumstances.
  10% wage subsidy does not have a requirement with respect to reduced sales
  The claim periods are different for each program

Canada Emergency Response Benefit
  Who is eligible?
  An individual that ceases working for reasons related to COVID-19 for at least 14 consecutive days within a four-week period and the
   individual does not receive, in respect of the 14 days, income from employment, self-employment, or EI.
  Today, the Prime Minister indicated there will be adjustments to the program in the coming days to include people such as
   rig workers, dentists, contractors and volunteer firefighters who work 10 or fewer hours per week. He also said there would be
   support for those who continue to work but are making less than they would through CERB, such as home care workers or
   people caring for vulnerable seniors in long-term care facilities.
  Today, the government released FAQs which clarified that non-eligible dividends qualify towards the $5,000 income
   requirement discussed below.
  Will provide a benefit of $2,000 for every 4 week period.
  An individual can receive this benefit a maximum of 4 times and then would need to apply for EI benefits (if applicable).
  The benefit will be paid for periods beginning Sunday, March 15, 2020, and end on or before Saturday, October 3, 2020.
  The benefit is based upon rolling week-by-week periods, beginning Sunday – it appears the individual can choose the beginning
   period.

Canada Emergency Response Benefit (continued)
  The benefit is an all-or-nothing benefit, an individual either qualifies for an entire 4 week
   period or does not qualify at all. This point is the subject of much debate given self-employed
   individuals who have lost substantially all (but not all) of their income are currently not eligible.
  The individual must meet the following requirements at the time of the application
     ◦ At least 15 years of age
     ◦ Is a resident of Canada
     ◦ Earned at least $5,000 from employment, self-employment, maternity or paternity EI benefits or
       similar provincial benefits:
     ◦ This $5,000 of income was earned in the calendar year 2019, or in the 12 months preceding the
       application

  People who quit voluntarily are not eligible.
  It is unclear if income means gross revenue before expenses, or net income after expenses.
  Individuals can apply through CRA My Account or over the Automated Phone Service

Canada Emergency Response Benefit (Eligibility)
Based on CRA’s CERB attestation as of today the outline the following requirements:
For your first CERB application: you have stopped or will stop working due to reasons related to
COVID-19 and, for at least 14 consecutive days of the four week period for which you are
applying, you will not be receiving:
 ◦ employment income;
 ◦ self-employment income; or
 ◦ provincial or federal benefits related to maternity or paternity leave.
For your subsequent CERB applications: you continue to not be working due to reasons related
to COVID-19 and, for the four week period for which you are applying, you will not be receiving:
 ◦ employment income;
 ◦ self-employment income; or
 ◦ provincial or federal benefits related to maternity or paternity leave.
Key Takeaway – this language may not align with the current legislation. Will this be clarified by
future legislation?

Canada Emergency Response Benefit (continued)
 Example 1:
 Self-employed individual
   An individual who was a self-employed person and needed to shut down their business on March 27, 2020, would be eligible for the
    benefit for the period from March 15 to April 11, because the individual has at least 14 consecutive days during the period (March 28 –
    April 11) during which they had ceased working. They would continue to be eligible for the benefit every four-week period as long as
    their business remained shut down. Consider whether they have “ceased working for reasons related to COVID-19” given business
    owners never really cease working even thought their business is closed. Perhaps addressed by the Prime Minister’s comments today.
Example 2:
Salary from controlled corporation
     An individual owns 100% of the shares of a corporation which operates a business in Canada.
     The business was forced to close down on March 20, 2020 and the individual’s only source of income historically was from dividends
      paid to the individual from the company.
     The individual paid themselves a wage of $5,000 on March 20, 2020. Generally the payroll withholdings in respect of this wage would
      be due April 15.
     As the individual has ceased working as of March 21, 2020, and has not received any income in respect of their work after March 21,
      2020, they would have 14 consecutive days during which they had ceased working prior to April 11, 2020.
     The individual should be eligible for the $2,000 income support for the period March 15 –
      April 11, 2020

Canada Emergency Response Benefit (continued)
Key Takeaways:
 If a business owner that historically remunerated themselves through dividends is required to
  close their business due to COVID-19, they must pay themselves a salary of at least $5,000
  before they are eligible to claim this benefit. We understand the federal government may
  revisit this criteria recognizing that many owners remunerate themselves with dividends.
 To claim the credit an individual first chooses a consecutive four-week period beginning on
  Sunday, and then the individual must be able to identify 14 consecutive days within the 4 week
  period that they have ceased working (and have not received income with respect to this
  period). It is irrelevant whether or not the individual is working the other days within the 4
  week period. Consider the attestation required on the CERB application.
 EI applications for individuals ceasing work on or after March 15, 2020 will be directed through
  the CERB program. If the individual is still unemployed after receiving the maximum benefit
  from the CERB program they would be eligible to apply for EI. The individual must use the CERB
  program even if the benefit under EI would be higher than the benefit under CERB.

Canada Emergency Business Account
$40,000 line of credit
 ◦ No minimum monthly payments until December 31, 2022
 ◦ 0% interest rate
 ◦ Principal repayments at any time

$10,000 loan forgiveness is available provided the outstanding balance is fully paid on or before December 31, 2022
Eligibility
 ◦ The organization is an operating business (i.e. not a holding company) in operation on March 1, 2020. It appears that the operating business must
   also have a bank account opened with their financial institution prior to March 1, 2020.
 ◦ The organization’s payroll expense in 2019 calendar year was between $50,000 and $1 million.
 ◦ Business agrees to use the funds to pay for operating costs that cannot be deferred (includes rent, salaries, utilities, debt service, insurance,
   property taxes and presumably other operating costs). Presumably the business can draw against the line of credit as these expenses are incurred
   and can no longer be deferred.
 ◦ Can only apply for the loan from a single financial institution.
 ◦ We anticipate severe penalties for abuse of this program.

Financial institutions will make the application for this benefit available in the coming weeks. Financial institutions have been sending emails
preparing people for the application process for this program.
It appears the applications for this program are wholly online through your financial institution. There does not appear to be a significant amount
of discretionary review of eligibility.

Canada Emergency Business Account – RBC Example
What can I do today to prepare for the launch of the CEBA enrollment?
Visit rbc.com/businessrelief and read the CEBA FAQ to learn more about the relief solution.
Update your email and contact details on your RBC Online Banking for Business profile.We will
need this information to notify you of the CEBA enrollment process. If you’re not enrolled in
Online Banking for Business, you can sign up now by clicking here.
Locate your 2019 T4 Summary of Remuneration Paid statement.You can also contact the Canada
Revenue Agency to have them re-issue your 2019 statement. Information on this document will
be required for the enrollment process.
Please ensure that the person enrolling your organization for CEBA has the authority to attest
on behalf of the organization and bind the organization to the terms of the CEBA loan agreement.

Supplemental Unemployment Benefit Program
 Pre-existing (pre COVID-19) plan that allows employers to increase employee’s weekly
  earnings without impacting EI benefits where the following has occurred:
     o Temporary stoppage of work
     o Illness, injury or quarantine

 Employee ceases work completely and the employer wishes to “top up” their earnings.
 What is the benefit? Employee can receive 95% of their normal weekly earnings where EI
  pays 55% of the weekly earnings up to approximately $54,200 (annualized) and the
  employer pays the balance.
 If the employer is eligible for the 75% subsidy, it will generally be advantageous to claim the
  wage subsidy. Consider the CPP and EI costs still required under the wage subsidy as well.
 SUB Plan may become more relevant after the wage subsidy ends.

Supplemental Unemployment Benefit Program (continued)
Employer must register the SUB Plan with Service Canada
Key steps to registration include:
  ◦ Meet the Plan Requirements – i.e. Prepare a SUB Plan based on the example at this link: Sample SUB
    Plan
  ◦ Fill out the SUB Plan Registration Form located here: SUB Plan Registration Form
  ◦ Additional documents – some companies may need to submit additional documents as described
    here: Additional Documents - SUB Plan
  ◦ ROE – to be filled out as required by the SUB Plan. See the following link - ROE for SUB Plan
  ◦ Note:
   ◦ Registration date is the date the plan is submitted to Service Canada
   ◦ Any amounts paid to an employee that is on EI prior to the registration date will be treated as earnings and would likely reduce
     the employee’s EI benefits

CERB and SUB Plan Interaction – we presume that the ROE indicating the SUB Plan would allow
the employee’s application to still be processed through EI (and not the CERB program).

Work Sharing Program
   An agreement between employers, employees and Service Canada that allows groups of employees to share hours of work
    during a temporary reduction in business activity (that is beyond the control of the employer).
   Consider that if the company was eligible for the Canada Emergency Wage Subsidy, it may be possible to achieve even better
    results.
   The program allows employees to retain more income than regular EI benefits would otherwise provide had the employees been
    laid off.
   Must have been in business for 2 years.
   Demonstrate a temporary shortage of work.
   Submit and implement a recovery plan for workers to return to full time employment.
   Individual employees who have the same job description cannot participate in work-sharing while others continue to work normal
    hours. As work increases, the additional hours of work must be shared equally.
   Must be able to demonstrate a 10% decrease in sales within the last 6 months.
   The reduction in work hours (10-60%) must correspond to the number of anticipated temporary layoffs for the whole section of
    employees affected by the shortage of work.
   Application is submitted at the time the job sharing is agreed to.

Work Sharing Program (continued)
Example:
Receiving Employment Insurance Work-Sharing benefits
 Samantha works as a full-time employee and earns $40,000 per year (weekly earnings of $769). Due to the
  COVID-19 crisis, the firm faces significant reduction in workload because of decline in sales, and the possibility
  of laying off a quarter of its employees. The firm decides to enter into a Work-Sharing agreement with Service
  Canada, where all eligible employees in Samantha’s work unit agree to reduce their work hours per week by
  35% and receive EI Work-Sharing benefits for days where they do not work as a result of the agreement.
 If Samantha and her co-workers did not agree to voluntarily reduce their work hours to participate in the
  Work-Sharing program and were laid off, each of them would have been entitled to receive 55% of their
  weekly income ($423), by applying for EI regular benefits. By participating in the Work-Sharing program,
  Samantha and her co-workers receive 35% less of their regular weekly income (earning $500 per week); and
  collect EI benefits for that 35% of their average hours worked per week (equal to 55% of the value of the
  insurable earnings she would have received from the firm ($423), which is $148).
 By participating in the Work-Sharing program, Samantha and her co-workers are able to earn a total of $648
  per week ($500 worth of income from working at the firm plus $148 from Work-Sharing benefits),
  compared to $423 if they had been on EI regular benefits following a layoff. By participating in the Work-
  Sharing program, Samantha and her co-workers are able to earn more and keep their jobs, and keep their
  skills up to date. At the same time, the firm is able to retain its skilled and experienced workforce.

Contact Information
         Terry Baerg, CPA, CA
         tbaerg@bbllp.ca
         306-657-8962

         Trent Robinson, CPA, CA
         trobinson@bbllp.ca
         306-657-8967