DFK Tax Newsletter
COVID-19 Recovery Subsidies for Businesses
The general Federal COVID-19 support programs available to Canadian businesses are greatly reduced as of October 23, 2021 upon the conclusion of period 21 of the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”). Although subsidy programs continue to exist, they are more targeted programs that are designed to assist businesses that have seen the largest loss of revenue or have been subject to a qualifying public health restriction. These programs are to be in effect for periods 22 to 28, which end on May 7, 2022. In addition, the Canada Recovery Hiring Program (“CRHP”) that has been in existence since period 17 continues to be available though period 28.
The CEWS and CERS programs are replaced by the Tourism and Hospitality Recovery Program (“THRP”), the Hardest-Hit Business Recovery Program (“HHBRP”), and the Local Lockdown Program ("LLP”), which is a subsidy for businesses that have been subject to a qualifying public health restriction. Although these programs are identified by the Canadian government as separate programs, they are essentially a targeted extension of the CEWS and CERS. The legislation for these programs is written into the fabric of the existing CEWS and CERS legislation and thus to qualify for these programs, businesses must meet the basic criteria of the CEWS and CERS.
Tourism and Hospitality Recovery Program
The THRP is a targeted program to help organizations in the tourism and hospitality sector that have been deeply affected since the outset of the pandemic and continue to struggle. This program operates much like the CEWS and CERS by providing subsidies as a percentage of wages and rent in the same manner as the CEWS and CERS. To qualify for THRP, the eligible entity must have a revenue drop of 40% for the claim period and must be a qualifying tourism or hospitality entity. A qualifying tourism or hospitality entity must:
- Have a prior year revenue decline of at least 40%. The prior year revenue decline is the average of the revenue declines of the entity for the first 13 periods, excluding one of periods 10 and 11, of the CEWS program throughout which the entity was carrying on its ordinary activities or was not carrying on its ordinary activities due to a health restriction, and
- The total of its qualifying revenues for the first 13 periods must be earned primarily (more than 50%) from hospitality business sources that are prescribed by regulation and include hotels, restaurants, bars, festivals, travel agencies, tour operators and many other similar businesses.
It is important to note that in determining the prior year revenue decline, it is the actual revenue decline (or increase) percentage for each period that is averaged and not the total revenue for the 12-month period. As a result of this calculation methodology, months with increases can have a significant impact on the overall average and if there are months where for some reason there is no revenue in the prior reference period, but there is in the current period, the revenue decline for that month is a positive infinite percentage and the entity will not qualify.
If an entity meets the above conditions, it will be eligible for both a wage and rent subsidy. The subsidy rate for periods 22 to 26 is equal to the revenue decline percentage, to a maximum of 75%. This subsidy rate is applied to the amount of eligible remuneration and qualifying rent expense as per the CEWS and CERS program. This rate is reduced by half for periods 27 and 28.
Hardest-Hit Business Recovery Program
If an entity is not in the hospitality business, but has experienced significant revenue declines, it may qualify for the HHBRP. This program is available to entities in all industries who have a prior year revenue decline, as described above, of at least 50% and have a claim period revenue drop of at least 50%. The subsidy rate is much lower under this program than the THRP and is computed as 10% + (revenue decline for the period – 50%) * 1.6. Under this formula a revenue decline of 60% results in a 26% subsidy. The maximum subsidy allowed is 50% and this occurs when the eligible entity has experienced a 75% revenue decline. Like the THRP, this subsidy rate is applied to the amount of eligible remuneration and qualifying rent expense as per the CEWS and CERS program and the rate is reduced by half for periods 27 and 28.
Local Lockdown Program
Even if an eligible entity is not in the tourism business or does otherwise not meet the requirements of the THRP or the HHBRP, it may be eligible for wage and rent subsidies under the THRP if it has been subject to a qualifying health restriction in the claim period. The rules for this program vary by claim period.
For periods 22, 23, 27 and 28, the eligible entity must be subject to a qualifying public health restriction and have a claim period revenue drop of at least 40%.
For periods 24, 25 and 26, which cover December 19, 2021 to March 12, 2022, during the height of the Omicron wave, the eligible entity is expanded to include those entities subject to a qualifying public health restriction, or a qualifying partial (capacity limiting) public health restriction and the required claim period revenue drop is reduced to 25%.
Both a qualifying public health restriction and a qualifying partial (capacity limiting) public health restriction must meet the following conditions:
- be based on an order or decision issued by a federal, provincial, or municipal government, or a local health authority in response to the COVID-19 pandemic
- be limited in scope based on one or more factors such as:
- geographical boundaries
- type of business or other activity
- risks associated with a particular location
- result in sanctions or be an offence if you do not comply
A qualifying public health restriction requires an eligible entity to stop some or all its regular activities for at least 7 days in a row and these activities that were stopped must account for approximately 25% of the eligible revenue earned during the prior reference period from or in connection with the affected qualifying property.
The much wider qualifying partial (capacity limiting) public health restriction only requires the eligible entity to reduce some or all its activities, due to capacity or similar restrictions, by at least 50% at the qualifying property for at least 7 days in a row.
If the eligible entity meets one of these tests, it is entitled to a wage and rent subsidy equal to its revenue decline percentage, to a maximum of 75%, multiplied by the eligible remuneration and qualifying rent expense in respect of the period.
Canada Recovery Hiring Program
The CRHP is available to eligible entities that have a revenue reduction percentage of at least 10% for the claim period. Eligible entities include sole prorpietors, Canadian-controlled private corporations that are not exempt from income tax, trusts that are not exempt from income tax, certain registered charities and non-profit organizations, and partnerships where all members are eligible entities. For periods 22 to 28 the CRHP provides for a subsidy equal to 50% of the incremental remuneration of a claim period relative to the remuneration paid in the base period of March 14th to April 10th, 2021. In determining the eligible remuneration for the claim period and base period, the limits of the CEWS program apply. Entities eligible for the CRHP claim, that are also eligible for the THRP or the HHBRP, claim the amount under the program that provides for the largest subsidy and not both programs.
Claims for all the subsidy claims must be filed before 180 days after the end of each qualifying period.