On April 11, the Canada Emergency Wage Subsidy (CEWS) became law. The subsidy is intended to assist employers in continuing to employ their staff during the economic downturn caused by COVID-19. By retaining staff, employers can better prepare for the eventual recovery by having staff that are trained and in place. An example of this is the way that Air Canada has used the CEWS to rehire 16,500 of their employees that they had previously laid off.

What follows is an overview of the Canada Emergency Wage Subsidy program.

Are you a Qualifying Entity?

The CEWS can be claimed by qualified employers, which includes those who are:

  • Individuals
  • Partnerships
  • Corporations
  • Non-Profit Organizations
  • Charities
  • Agricultural Associations
  • Boards of Trade/Chamber of Commerce
  • Labour Organizations

To simplify our discussion, we will refer to Qualified Employers as employers throughout the remainder of this article.

Do you qualify for the Canada Emergency Wage Subsidy?

Whether an employer qualifies for the CEWS depends on the percentage reduction in the employer’s revenues between the calendar month associated with the Claim Period and the employer’s revenue in the Reference Period.

Revenue Reduction Test

For each Claim Period, an employer will compare its qualifying revenue in a particular calendar month (i.e. March, April and May) with the Reference Period that it chose to use for purposes of the CEWS calculation.

To qualify for the CEWS in Claim Period 1, the employer must have experienced a 15% decline in its eligible revenue as compared to its chosen Reference Period. To qualify for the CEWS in Claim Periods 2 and 3, the employer must have experienced a 30% decline in its eligible revenue as compared to its Reference Period.

Claim Periods

The determination of whether an employer qualifies for the CEWS, the employer must determine the percentage decline in its qualifying revenue in a Claim Period. There are currently three Claim Periods during which an employer may be entitled to receive the wage subsidy:

Claim Period 1: March 15, 2020 to April 11, 2020

Claim Period 2: April 12, 2020 to May 9, 2020

Claim Period 3: May 10, 2020 to June 6, 2020

Reference Periods

In order to determine the percentage by which an employer’s revenue declined in a particular Claim Period, the employer must compare their qualifying revenue for a given month in 2020 to one of the following Reference Periods:

  1. The same month in 2019
  2. The average monthly revenue in the months of January and February 2020

Note that the employer must perform the Revenue Reduction Test for each Claim Period. Also, once you have elected to use either (a) or (b) as your Reference Period you are required to continue to use the same Reference Period when making subsequent claims for the CEWS.

How is Qualifying Revenue Calculated for businesses?

For the purpose of the CEWS calculations, qualifying revenue includes revenue in Canada earned from arm’s-length sources. Revenue is to be calculated using the employer’s normal accounting method, and will exclude revenues from extraordinary items and gains/losses from the disposition of capital assets.

It’s important to note that employers are permitted to use the accrual method of accounting or the cash method of accounting in calculating their revenue changes for purposes of the CEWS. Employers must select an accounting method (accrual or cash) in the first Claim Period that they apply for the CEWS and are required to use that method for the entire duration of the program.

Simply put, the cash method of accounting recognizes revenue and expenses only when money changes hands. The accrual method of accounting recognizes revenue when it is earned and expenses when they are billed.

While the cash method of accounting is not acceptable for accounting or tax purposes (except for farmers or fishers) it does reflect the collections issues encountered my many businesses as a result of COVID-19. Your business may have experienced a dramatic increase in its unpaid accounts, despite not having a decline in the amount that it invoices its customers. As a result, the cash method may be a more appropriate measure of the effects of the COVID-19 pandemic on their revenues.

Calculating Qualifying Revenue for Charities and Non-Profit Organizations

Charities will calculate their monthly revenue for March, April and May in 2020 and in the Reference Period by including donations, revenue from related businesses and other amounts received in the course of the charities’ ordinary activities. Non-profit organizations will include membership fees and other amounts received in the course of their ordinary activities.

Charities and NPO’s also have the choice as to whether they include revenue from government sources; however, once they have made this decision, they must consistently use the same approach in subsequent periods. Charities and NPO’s, like other employers, also have the choice to use the accrual or cash based method of calculating revenues.

Automatic Eligibility in the Following Claim Period

If an employer qualifies for the CEWS in a Claim Period, it automatically qualifies in the immediately following claim period.

What amount of CEWS are you entitled to in the Claim Period?

Your revenue declined, now what? If you determine that the employer’s qualifying revenue has declined, using the methodology described above, the next step is to calculate the amount of subsidy that the employer is entitled to claim. This calculation depends on whether or not the employees were employees at any time between January 1, 2020 and March 1, 2020. We refer to these employees as Existing Employees. Note that the CEWS is not available for employees that were without remuneration for 14 days during the claim period.

The CEWS amount is calculated for each of the weeks in the Claim Period as follows:

  1. For Existing Employees – The CEWS amount for each week in the Claim Period will be equal to the least of the following amounts:
  1. 100% of the eligible remuneration paid to the eligible employee for the week
  2. 75% of the average weekly remuneration received by the employee between January 1, 2020 and March 15, 2020
  3. $847

Note non-arm’s length employees must have been employed prior to March 15, 2020 in order to qualify for the CEWS. Examples of a non-arm’s length employee would include a shareholder that controls the employer corporation and their family members.

  1. For New Hires – For employees hired after March 15, 2020 the CEWS amount for each week in the Claim Period will be equal to the least of the following:
  1. 75% of the eligible remuneration paid to the eligible employee for the week.
  2. $847

Additional Adjustments to the CEWS Claim Amount

Once you have calculated the CEWS claim amount in the previous step, there are additional adjustments to the CEWS as follows:

  1. The CEWS is reduced by any amounts claimed under the Temporary Emergency Wage Subsidy Program for the same Claim Period. This is the 10% wage subsidy that is claimed by reducing income tax withholding amounts remitted to the CRA by the employer.
  2. The CEWS is also reduced by any amount that the employees receive in the same Claim Period as a benefit from the Employment Insurance work-sharing benefit.
  3. If the employer has given employees leave with pay during a Claim Period, the employer may increase their CEWS amount by the amount of the employer’s share of the CPP and EI contributions for the Claim Period.

Application Process

Once the CEWS program is available for applications the eligible employer may apply for the subsidy for a particular claim period using their CRA My Business Account. To register for a CRA My Business Account or to access an existing accounts you may use the following link:


This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.