Understanding CEWS and CRHP Subsidy Calculations

Introduction

During the COVID-19 pandemic, the Canadian government introduced several economic support measures to help businesses and organizations retain employees and continue operations. Two of the most significant programs were the Canada Emergency Wage Subsidy (CEWS) and the Canada Recovery Hiring Program (CRHP). This guide provides detailed information about how these subsidies are calculated, including eligibility requirements, calculation methodologies, and practical examples.

Canada Emergency Wage Subsidy (CEWS)

Overview

The Canada Emergency Wage Subsidy (CEWS) provided financial support to eligible employers to help them cover part of their employees' wages. The program was designed to prevent layoffs and encourage businesses to rehire workers who had been laid off due to the pandemic.

Eligibility Requirements

To qualify for CEWS, an organization had to meet the following criteria:

• Be an eligible employer, including corporations, individuals (sole proprietors), partnerships, registered charities, non-profit organizations, and certain Indigenous organizations
• Have a business number issued by the CRA
• Have experienced a decline in revenue compared to a prior reference period

Revenue Decline Calculation

The revenue decline is determined by comparing total revenue for the current claim period to total revenue for a relevant reference period:

For periods 1-4 (March 15 to July 4, 2020), businesses could use a simple month-over-month comparison or an alternative method comparing the monthly average for July 2019 through February 2020 to the claim period month. For later periods, the revenue decline calculation evolved to include other comparison methods.

CEWS Subsidy Rate

The subsidy rate for CEWS fluctuated throughout the program based on the magnitude of revenue decline:

For periods 1-5 (March 15 to August 29, 2020):

For periods 14-19 (June 20 to November 20, 2021) and onwards:

CEWS Subsidy Calculation

The CEWS subsidy is calculated based on eligible remuneration paid to eligible employees:

Eligible Remuneration: This includes salaries, wages, benefits, and other compensation paid to arm's length employees. For non-arm's length employees, eligible remuneration is caped at a maximum weekly amount.

Example Calculation

Scenario: ABC Inc. had a revenue decline of 45% during claim period 17 and paid $100,000 in eligible remuneration to arm's length employees.

Calculation:

1. Determine subsidy rate: With a 45% revenue decline, the subsidy rate is 40% (from the table above for periods 14-19)
2. Calculate subsidy: $100,000 40% = $40,000

Result: ABC Inc. would be eligible for a CEWS subsidy of $40,000 for that period.

Canada Recovery Hiring Program (CRHP)

Overview

The Canada Recovery Hiring Program (CRHP) was introduced to support businesses that were experiencing a recovery in revenue but still needed help with hiring new employees or increasing hours for existing staff. It operated from June 6, 2021, to November 20, 2021, overlapping with the later periods of CEWS.

Eligibility Requirements

To qualify for CRHP:

• The business had to be eligible for CEWS for periods 17-20
• Have a business number issued by the CRA
• Meet the specific remuneration and revenue decline requirements for CRHP

Revenue Decline Threshold

For CRHP eligibility, the business needed to demonstrate a revenue decline in the current claim period compared to a prior reference period:

The revenue decline threshold for CRHP eligibility varied by period:

• Periods 17-18: At least 10% decline
• Period 19: At least 10% decline (or 5% for tourism and hospitality businesses)
• Period 20: At least 10% decline

CRHP Subsidy Rate

The CRHP subsidy rate was calculated based on both revenue decline and payroll increase:

CRHP Subsidy Calculation Method

The CRHP subsidy calculation considered the increase in eligible remuneration (payroll) compared to a baseline period:

The subsidy was then calculated as:

The baseline eligible remuneration was generally determined as the average eligible remuneration paid during periods 1-3 of CEWS (March 15 to May 9, 2020), with adjustments for seasonal businesses.

Example Calculation

Scenario: XYZ Ltd. had revenue declines of 25% during claim period 18 and 30% during claim period 19. Their baseline eligible remuneration was $50,000 per period. During period 18, they paid $65,000 in eligible remuneration, and during period 19, they paid $80,000.

Calculation for Period 18:

1. Determine subsidy rate: With a 25% revenue decline, the maximum subsidy rate is 55%
2. Calculate payroll increase: $65,000 - $50,000 = $15,000
3. Calculate subsidy: $15,000 55% = $8,250

Calculation for Period 19:

1. Determine subsidy rate: With a 30% revenue decline, the maximum subsidy rate is 60%
2. Calculate payroll increase: $80,000 - $50,000 = $30,000
3. Calculate subsidy: $30,000 60% = $18,000

Comparison of CEWS and CRHP

Calculation Considerations and Complexities

Non-Arm's Length Employees

For both CEWS and CRHP, special rules apply to non-arm's length employees (typically owners, their family members, and others closely related to the business):

• Eligible remuneration is capped at the maximum weekly insurable earnings amount under the Employment Insurance Act
• Any remuneration paid to a non-arm's length employee that exceeds this cap is not eligible for the subsidy

Affiliated Entities

For businesses that were part of a corporate group or had affiliate relationships:

• Revenue declines generally had to be calculated on an affiliated basis
• Affiliated entities had to make a joint election for certain calculation methods
• Special rules applied to determine which entities could claim the subsidy

Remuneration Limits

Both programs had special rules regarding maximum eligible remuneration:

• For arm's length employees, there was generally no specific limit on eligible remuneration
• For non-arm's length employees, eligible remuneration was capped at the maximum weekly insurable earnings
• Special rules also applied to remuneration paid during leaves of absence

Interaction with Other Programs

Businesses needed to consider how CEWS and CRHP interacted with other support measures:

• Canada Emergency Business Account (CEBA): Did not affect CEWS/CRHP calculations
• Canada Emergency Rent Subsidy (CERS): Could be claimed alongside CEWS/CRHP
• Work-Sharing program: Special rules applied when claiming CEWS for employees on work-sharing
• Other wage subsidies: Generally could not claim CEWS/CRHP for the same remuneration

Application Process

To apply for CEWS or CRHP subsidies:

1. Calculate Revenue Decline: Determine your eligibility by calculating your revenue decline for each period.
2. Calculate Subsidy Amount: Determine the subsidy amount you're eligible for using the appropriate calculation method.
3. Apply Online: Submit your application through the CRA's My Business Account portal or through the Represent a Client service.
4. Maintain Records: Keep detailed records of your calculations and supporting documentation in case of audit.

Applications for both programs had specific deadlines, typically 180 days after the end of the claim period.

Conclusion

Understanding the calculation methodology for CEWS and CRHP was essential for businesses accessing these critical support programs during the pandemic. While both programs aimed to support employers and employees, they had different focus areas and calculation methods. CEWS primarily subsidized wages based on revenue declines, while CRHP incentivized hiring and increased hours based on both revenue and payroll growth.

For the most accurate calculation, businesses should consult with a tax professional and use official CRA resources and calculators. Proper documentation and record-keeping were essential to support claims and ensure compliance with program requirements.