I am releasing a series of videos to help you receive financial help from the Government of Canada due to COVID-19. Most importantly, I hope that you and your family are safe during this difficult time. This video is about the Canada Emergency Wage Subsidy for Canadian Employers.
Wage Subsidy
The Government of Canada is providing a wage subsidy to Canadian employers of up to 75% on the first $58,700 of an employee’s wages. This equates to a maximum wage subsidy of $847 per week per employee.
Let’s look at an example. Kartik Welding Inc. is an Ontario corporation with 4 employees, including the owner. Each employee makes $3,000 per month ($36,000 per year), but Kartik, the owner, is paid a salary of $7,000 per month (or $84,000 per year).
Kartik Welding Inc.’s revenues have declined by 15% in March 2020. What is the amount of the Wage Subsidy that Kartik Welding Inc. can receive?
According to the Table Above, Kartik Welding Inc. will receive a wage subsidy of $10,138 for its 4 employees.
*** Kartik’s salary is over the maximum of $58,700, and so his subsidy is limited to $847 per week or $3,388 for a month.
Special Rule For Owners
As an owner of your own company, you may also be receiving a salary or wages. However, a special rule applies to owners and their family members. Let’s look at an example to better understand this rule.
Kartik of Kartik Welding Inc. was never employed by his company. Instead, he collected dividends each month from his company. However, thinking that his company could collect the Canada Wage Subsidy should he become employed, Kartik Welding Inc. began paying Kartik a weekly salary starting March 15, 2020.
Unfortunately for Kartik, he was not employed prior to March 15, 2020, and so Kartik Welding Inc. is not eligible for a wage subsidy in respect of Kartik’s wages.
Eligibility Criteria
Registered businesses in Canada can apply so long as they can demonstrate their revenues dropped by 15% in March and 30% in subsequent months.
Let’s look at the example of Kartik Welding Inc. Kartik Welding Inc.’s sales declined by 15% in March, and 30% or more in April and May 2020 when compared to the same months in 2019. As a result, Kartik Welding Inc. will qualify for the Wage Subsidy for the months of March, April and May 2020.
The Government of Canada also allows an Alternative Method to calculate revenues. Under the alternative approach, businesses would compare their revenue using an average of their revenue earned in January and February. This approach is more beneficial for high growth companies. Whichever approach a business chooses, they must apply it consistently every month.
For example, assume that the average of January 2020 and February 2020 revenues of Kartik Welding Inc. is $100,000. However, sales took a downturn in March 2020 and dropped to $75,000 in that month. In this case, since revenues declined by more than 15%, Kartik Welding Inc. would be eligible for the Wage Subsidy for the month of March.
How To Apply
The Government of Canada will be creating an online portal for businesses to apply in the next few weeks. Further details on the application process will be announced in the near future.
For more information click HERE to visit the CRA website.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.