Entrepreneurship & Small Business

Canada Emergency Response Benefit and business wage subsidy

  • Last Updated:
  • Jun 5th, 2020 4:09 pm
[OP]
Sr. Member
Dec 19, 2010
612 posts
158 upvotes

Canada Emergency Response Benefit and business wage subsidy

My wife has her own business impacted by covid19, revenues will be impacted next few months for sure and likely into the Fall. She draws a salary from her company. Even though she’s been paying EI, her bookeeper advised because she owns more than 40% of the company, she is not eligible for EI. Is this correct?

She is planning to apply for the CERB of $2k per month for four months. Yesterday it was announced businesses will also be given a wage subsidy of 75% of wages if revenue is down 30% which it will be. Can my wife claim $2k/mo and the business also claim the wage subsidy as she expects the loss in revenue and income to last longer than four months? She has a legitimate case where her business revenue and personal income is expected to drop by half or more in 2020.

Thanks.
352 replies
Deal Addict
Sep 19, 2009
1934 posts
765 upvotes
Toronto
callmebob wrote: My wife has her own business impacted by covid19, revenues will be impacted next few months for sure and likely into the Fall. She draws a salary from her company. Even though she’s been paying EI, her bookeeper advised because she owns more than 40% of the company, she is not eligible for EI. Is this correct?
Yes, her bookeeper is correct. https://www.canada.ca/en/revenue-agency ... chart.html

"Corporate employee who controls more than 40% of the corporation's voting shares receiving salary, wages or other remuneration" are EI exempt. If she made the payments in error / over-contribute, she can apply to have last 3 years of payments refunded.
Deal Addict
Sep 19, 2009
1934 posts
765 upvotes
Toronto
callmebob wrote: She is planning to apply for the CERB of $2k per month for four months. Yesterday it was announced businesses will also be given a wage subsidy of 75% of wages if revenue is down 30% which it will be. Can my wife claim $2k/mo and the business also claim the wage subsidy as she expects the loss in revenue and income to last longer than four months? She has a legitimate case where her business revenue and personal income is expected to drop by half or more in 2020.

Thanks.
Although at this time the government has provided very little details about those two programs, I am quite sure your wife cannot double dip. If you get wages, and your employer gets a 75% wage subsidy to pay you, you are still employed. And as long as you get wages, you have not lost your job, which is a CERB requirement.

And just to quote Alberta's premier, there’s a ‘special place in hell’ for scammers amid COVID-19 pandemic,
[OP]
Sr. Member
Dec 19, 2010
612 posts
158 upvotes
Thanks for the response. To be clear there is no intent to scam the system, trying to understand how the various assistance programs work together. For the business to remain in operation, she may need to apply for the interest free loan that the govt has announced.
Deal Addict
Feb 25, 2007
1242 posts
722 upvotes
Ottawa
My understanding (not an expert, but have reviewed this) is:

She is not eligible for UI.
If her business can continue employing her, if the conditions are met, the business may be eligible for the wage subsidy program.
If her business cannot continue paying her, or needs to significantly reduce "hours"/salary, as an individual she may be eligible for CERB.
She can't double dip per se, i.e. regarding the same income/same income period. However, doubtless there will be businesses that initially retain their employees and receive subsidies, but based on the evolving situation eventually need to furlough them, and then those individuals will become eligible to CERB (if they otherwise meet the conditions).

The conditions for all of this have not been fully specified yet. There seems to be a willingness to extend the benefits to those of us who are self-employed, and no explicit restrictions (yet?) on companies whose employees are not arm's length. However, it is likely that those whose companies have only paid them dividends (rather than salary) are unlikely to be eligible. Which is fair.

In discussions with my accountant, we've both felt it both fair/ethical and also safer (from an audit point of view) to avoid being greedy. For those who have regular (i.e. daily/weekly) revenue and pay themselves with regular monthly self-payroll, this is fairly straightforward: document the reduction in revenue, and use the regular monthly payroll numbers as a baseline. For those whose revenue and/or self-payroll is chunky, make sure your approach passes the smell test and document it in a way you would feel comfortable explaining to a CRA auditor. Or to a cynical friend/relative who thinks any businessperson is a grasping, scheming opportunist!
Deal Addict
Sep 19, 2009
1934 posts
765 upvotes
Toronto
houska wrote: My understanding (not an expert, but have reviewed this) is:

She is not eligible for UI.
If her business can continue employing her, if the conditions are met, the business may be eligible for the wage subsidy program.
If her business cannot continue paying her, or needs to significantly reduce "hours"/salary, as an individual she may be eligible for CERB.
She can't double dip per se, i.e. regarding the same income/same income period. However, doubtless there will be businesses that initially retain their employees and receive subsidies, but based on the evolving situation eventually need to furlough them, and then those individuals will become eligible to CERB (if they otherwise meet the conditions).

The conditions for all of this have not been fully specified yet. There seems to be a willingness to extend the benefits to those of us who are self-employed, and no explicit restrictions (yet?) on companies whose employees are not arm's length. However, it is likely that those whose companies have only paid them dividends (rather than salary) are unlikely to be eligible. Which is fair.

In discussions with my accountant, we've both felt it both fair/ethical and also safer (from an audit point of view) to avoid being greedy. For those who have regular (i.e. daily/weekly) revenue and pay themselves with regular monthly self-payroll, this is fairly straightforward: document the reduction in revenue, and use the regular monthly payroll numbers as a baseline. For those whose revenue and/or self-payroll is chunky, make sure your approach passes the smell test and document it in a way you would feel comfortable explaining to a CRA auditor. Or to a cynical friend/relative who thinks any businessperson is a grasping, scheming opportunist!
You are making couple of good points here and I don't know if your accountant mention it, but a business does not actually need to have any revenue or any cash to pay salaries. Since a Canadian business is also allowed to hire & fire without any external interference, I believe the Government will have come up with clarifications and not waste taxpayers money on nonreal, pure imaginary social benefits.

As an example a business who layoffs the entire staff because there is no expectation of revenue for the foreseeable time and hires 10 relatives / chums of the owner would qualify for the 75% wage subsidy. When the crisis is over, in a 30% unemployment labor market, the owner would have 1000s of applications for each job opening posted, paying half of the pre-crisis salary.
Deal Addict
Feb 25, 2007
1242 posts
722 upvotes
Ottawa
@andrew4321, I'm sure human ingenuity to game the system will unfortunately be on display, so I'm sure you're right that the government will have to come up with qualifications.

My accountant did mention that expectation is that the wage subsidy will only apply to employees and/or positions that were on payroll prior to March 15 to avoid that precise set of shenanigans that you mention, though this has not yet been clarified and could cause trouble if implemeted carelessly and there is normal employee turnover. However, my understanding is that while the company can have its revenue reduced to zero due to Covid and still qualify, it needs to be able to demonstrate a 30% revenue decrease (which would be a 100% decrease if dropped to zero) caused by Covid. There is some debate on what it might mean if revenue is merely slightly deferred; and also some fear that companies that were at no revenue before Covid will have a hard time qualifying if Covid has kept them stuck at zero. This is presently causing heartburn to a startup founder I know, who was just about to start generating revenue and therefore replenishing his cash flow and now needs to wait...and yet might not qualify.

All to be clarified, and I hope not too many people try to abuse the program. Since invariably abuse leads to more severe and yet simplistic restrictions that then negatively affect some who are deserving. Just like expense account cheaters provoke unreasonably onerous expense reimbursement bureaucracy and conditions.
Deal Addict
Dec 13, 2007
1582 posts
78 upvotes
Toronto
First of all, notes about owners of business being not eligible for EI are incorrect, It was so years ago, but then the rules has changed. New rules are in place for at least 5 years now.

Second, today they updated the rules for revenues reduction. They are quite bizarre - they look at revenues in Mar 2019 vs Mar 2020. If there is a reduction then business qualify. In my consulting business income was quite irregular. I could go on for months with little income and then get paid several months worth of work.
Deal Addict
Dec 13, 2007
1582 posts
78 upvotes
Toronto
My own situation is further complicated by the fact that I went on to working full time at another company at the start of the year, so I stopped paying salary to myself from my company. I do continue to operate the business and have one other employee besides me. I do feel I should be able to qualify. The question is how it is going to be perceived if I start paying myself salary again in March.
Last edited by slavka012 on Apr 2nd, 2020 8:33 am, edited 1 time in total.
Jr. Member
Oct 8, 2010
172 posts
41 upvotes
I'm curious how this will work on the technical side. Do we fill out a form online and wait for a wire? I'm willing to dip into cash flow to start calling everyone back to get the ball rolling but worried if criteria changes or huge delays it will set us back even further.
Deal Addict
Dec 13, 2007
1582 posts
78 upvotes
Toronto
They say this about non-arm length employees. So they specifically mention pre-crisis salary.

Bargain hunter, yes they say you apply through My Account.

Personally I doubt they would be able to devise a program without giant loopholes. Too little time to think things through.
A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration.
https://www.canada.ca/en/department-fin ... bsidy.html
Deal Fanatic
Aug 21, 2007
5419 posts
418 upvotes
Markham
slavka012 wrote: They say this about non-arm length employees. So they specifically mention pre-crisis salary.

Bargain hunter, yes they say you apply through My Account.

Personally I doubt they would be able to devise a program without giant loopholes. Too little time to think things through.

https://www.canada.ca/en/department-fin ... bsidy.html
i read yesterday something abou arms length in relation to family of a business owner...but not referring to the owner themself...but i cant seem to locate that now...foudn what i copied yday but cant find it online anymore

Which Employees Are Eligible?
Eligible employees include existing and new employees hired. However, the government has stated a special rule will apply to employee’s that do not deal at arm’s length with the employer. This generally would include relatives of the business owner on payroll. Details on the special rules are expected in the draft legislation

Edit: I realize now that i got this from reviewing the site of a firm summarizing the changes...so stick to the arms length rules per governemnt site, with respect to pre crisis wages
Deal Addict
Sep 19, 2009
1934 posts
765 upvotes
Toronto
adeel wrote: i read yesterday something abou arms length in relation to family of a business owner...but not referring to the owner themself...but i cant seem to locate that now...foudn what i copied yday but cant find it online anymore

Which Employees Are Eligible?
Eligible employees include existing and new employees hired. However, the government has stated a special rule will apply to employee’s that do not deal at arm’s length with the employer. This generally would include relatives of the business owner on payroll. Details on the special rules are expected in the draft legislation

Edit: I realize now that i got this from reviewing the site of a firm summarizing the changes...so stick to the arms length rules per governemnt site, with respect to pre crisis wages
Was anything said about "employee’s that do not deal at arm’s length with the employer" in the context of CERB? Do small business owners / shareholders with more than 40% qualify?
Deal Fanatic
Aug 21, 2007
5419 posts
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Markham
andrew4321 wrote: Was anything said about "employee’s that do not deal at arm’s length with the employer" in the context of CERB? Do small business owners / shareholders with more than 40% qualify?
nothing specifically...theoretically if you were a shareholder of your own corp, you are better off taking the wage subsidy since it has a higher cap 847/week vs only 500/week cerb
Deal Addict
Apr 24, 2017
1142 posts
567 upvotes
Does anyone know if the 75% subsidy is gross or net?

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