Mini CEWS Update: Cost-Sharing Arrangements and CRA Audits16-Oct-20
A detailed review of the Canada Emergency Wage Subsidy (“CEWS”) can be found in our updated detailed review of the Federal Economic Measures here.
However, there have recently been two new announcements that we believe are worth an extra alert.
First, the CRA has finally indicated that the CEWS is available in cost-sharing arrangements (“CSA”).
In many CSAs (often used by doctors and other professionals), there is more than one employer since there are several employers in the arrangement to share the payroll costs and, often, an entity (e.g. clinic) is used to split the costs. Prior to the July 2020 changes to CEWS, the employers could not qualify for CEWS because they did not have a payroll account as of March 15, 2020, only the entity/clinic did. However, often the entity/clinic could not show the necessary drop in revenues, even if the corporations sharing costs did have the necessary drop in revenue.
Luckily, the requirements were recently expanded to include employers who used third parties to manage their payroll, called “payroll service providers”. The CRA has confirmed this allows the employers in a CSA to meet the requirement for a payroll account. Employers/participants may now apply for the CEWS for future and prior periods. In order to apply, they must each register for a payroll account. The amount of CEWS that each employer is entitled in a CSA is in portion to the eligible remuneration that each paid.
Overall, each employer in a CSA may qualify for the CEWS if:
- The participant in a CSA has an agency-principal relationship with the entity used to shares costs, making the participant an employer of the employees in the entity; and
- The entity/clinic had a payroll account on March 15, 2020; and
- The employer meets all other eligibility requirements to qualify for the CEWS (such as the necessary drop in revenue); and
- The employer now registers for a payroll account and applies for the CEWS through their own account.
The second piece of news we want to highlight is that the CRA has begun to audit CEWS claims. These audits are initiated by sending out an information request letter which requires the claimant to provide information such as:
- corporate documents from the minute books, including agreements, shareholder registers, governance documents;
- supporting documentation on 2019 and 2020 revenue and for the calculations for the decline in revenue;
- payroll information.
The claimant will have 15-21 days to respond with the requested information. This is not a lot of time therefore it is more important than ever to ensure that claimants are maintaining organized, complete and thorough documentation as they go.
For a full discussion on the CEWS, see our Federal Economic Measures article here.
For the CRA’s FAQ page on CEWS, see here.