Personal Finance

Strange situation where Air Canada gets money but small business owners don't

  • Last Updated:
  • Apr 15th, 2020 11:05 am
[OP]
Member
Jun 30, 2009
323 posts
158 upvotes

Strange situation where Air Canada gets money but small business owners don't

https://www.thestar.com/business/2020/0 ... rkers.html

So as everyone has probably heard, Air Canada has just rehired more than 16000 workers, under the CEWS program. This program will essentially allow Air Canada to receive a 75% wage subsidy from the government for keeping people employed.

Then there is the issue where some small businesses don't qualify for a government Loan under the CEBA program, which is a meant to help businesses stay afloat during this time.

https://www.cbc.ca/news/business/small- ... -1.5526549

So on one hand the government is paying the wages for employees of a major corporation, and at the same time refusing to lend to small businesses. At the very least, this is a strange situation.
21 replies
Member
Jan 24, 2013
205 posts
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Rainy River
Seems consistent with the usual Liberal practice. If the corporation has a lot of employees in Quebec (Bombardier, SNC Lavalin, Air Canada etc.) give them whatever they want. If the oil industry is in trouble let it die because Alberta and Saskatchewan voters elect Conservatives. That has been the Trudeau way going back to the days his old man was in power. I wish he'd let Bombardier die it's so poorly managed the handouts all go to the elite who run the company into the ground and keep it there.
Deal Fanatic
Nov 24, 2013
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Kingston, ON
Some businesses not qualifying for CEBA doesn’t have much to do with the breadth of companies that will benefit from CEWS. CEBA has a very narrow scope based on payroll size and the max “benefit” outside of potential interest savings is $10,000/business in eventual loan forgiveness.

CEWS is deliberately broad in scope, from AC to Ma & Pa’s Diner. The reason being, anyone not laid off and paid by employer (whether working or not) is someone who doesn’t need EI or CERB, saving the strain on those systems, reducing people who fall through the cracks, and moving cost out of the EI program and onto the general budget. Govt is expecting companies who will apply for CEWS to pay 100% of pay to the employees but only get 75% back. The more employers take advantage of this, the fewer Canadians have to get by on reduced income, and the less incidence of insolvency and default that could ripple through a fragile economy. Instead of 55% pay on EI, people will get 100% pay, and govt only has to put up 20% of that 45% difference. (Up to EI cap, of course).

This isn’t corporate welfare; it’s a bailout for the people who would otherwise be laid off and facing income reductions. 25% co-pay means it’s still cheaper for businesses to lay off than participate.
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Aug 21, 2007
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retireyoung55 wrote: Seems consistent with the usual Liberal practice. If the corporation has a lot of employees in Quebec (Bombardier, SNC Lavalin, Air Canada etc.) give them whatever they want. If the oil industry is in trouble let it die because Alberta and Saskatchewan voters elect Conservatives. That has been the Trudeau way going back to the days his old man was in power. I wish he'd let Bombardier die it's so poorly managed the handouts all go to the elite who run the company into the ground and keep it there.
wouldnt oil/energy co be eligible for the same wage subsidy? not sure how different in that sense.
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Oct 3, 2013
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Mike15 wrote: Some businesses not qualifying for CEBA doesn’t have much to do with the breadth of companies that will benefit from CEWS. CEBA has a very narrow scope based on payroll size and the max “benefit” outside of potential interest savings is $10,000/business in eventual loan forgiveness.

CEWS is deliberately broad in scope, from AC to Ma & Pa’s Diner. The reason being, anyone not laid off and paid by employer (whether working or not) is someone who doesn’t need EI or CERB, saving the strain on those systems, reducing people who fall through the cracks, and moving cost out of the EI program and onto the general budget. Govt is expecting companies who will apply for CEWS to pay 100% of pay to the employees but only get 75% back. The more employers take advantage of this, the fewer Canadians have to get by on reduced income, and the less incidence of insolvency and default that could ripple through a fragile economy. Instead of 55% pay on EI, people will get 100% pay, and govt only has to put up 20% of that 45% difference. (Up to EI cap, of course).

This isn’t corporate welfare; it’s a bailout for the people who would otherwise be laid off and facing income reductions. 25% co-pay means it’s still cheaper for businesses to lay off than participate.
Correct. CEBA and CEWS are completely separate. CEBA can be used to help with CEWS payments, but that is not necessary, as the former is just meant to aid with general operating costs. Air Canada is far too large to qualify for CEBA.

What Air Canada has done is the correct thing - they are using CEWS as intended. CEWS is meant to avoid layoffs and to give job attachment & income security to Canadian citizens. It is not meant to benefit Air Canada, and doesn't end up doing so in any way. In fact, Air Canada is likely to incur a lot of administration costs by doing this. More than likely, these "re-hired" employees will just be allowed to sit at home and do nothing.

That said, OP, I do agree that the government has failed to take into account how many businesses cannot afford to even implement CEWS via a reimbursement process. This is complicated by the current hold up in passing the CEWS legislation, where final details and a definite implementation date are yet to be announced. Many businesses just do not wish to commit to it.
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Oct 7, 2007
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Has the 75% wage subsidy even been voted on yet in the HoC? I thought the initial legislation that was passed on the wage subsidy was for a 10% program and that the 75% wage subsidy wasn't actually legal (as written). How can such decisions actually be made until the legislation is voted on and enacted?
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Nov 24, 2013
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choclover wrote: Has the 75% wage subsidy even been voted on yet in the HoC? I thought the initial legislation that was passed on the wage subsidy was for a 10% program and that the 75% wage subsidy wasn't actually legal (as written). How can such decisions actually be made until the legislation is voted on and enacted?
Timeline for voting on it is TBD (maybe announced today?) but there's indication it will pass when the voting happens.
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Mar 10, 2018
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adeel wrote: wouldnt oil/energy co be eligible for the same wage subsidy? not sure how different in that sense.
Alberta? I wish there should have been some package for them. It is unfair for them. for last few years.
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May 16, 2017
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choclover wrote: Has the 75% wage subsidy even been voted on yet in the HoC? I thought the initial legislation that was passed on the wage subsidy was for a 10% program and that the 75% wage subsidy wasn't actually legal (as written). How can such decisions actually be made until the legislation is voted on and enacted?
Decisions are made ASSUMING the legislation will pass - the point of the press release is to apply pressure to the gov't and especially the opposition to ensure the legislation passes.

"Following an analysis of publicly available information on the CEWS, discussions with Department of Finance officials on certain questions of interpretation, and subject to its adoption into law substantially as announced, Air Canada intends to adopt the CEWS for the benefit of its 36,000 Canadian-based employee workforce. "
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Jan 21, 2018
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The CEWS hasn't happened yet for anyone - this is all political posturing. The government needs some positive news to show that their programs are helping, so they need big companies that are friends of the government like Air Canada to step up and say they are re-hiring lots of workers because of the government's help, even though it hasn't actually provided that help yet.

In the meantime small businesses that could only last a month or two without income are probably closing forever because they haven't actually received any help yet and don't know when they will.

Another problem with these theoretical programs is the amount of bureaucratic administrative work that will be required of small business to apply, and the difficult of spending hours trying to access overloaded government or bank web sites or days trying to get someone on the phone who probably doesn't know any better than you what's going on. By comparison the CERB is easy - just go online, apply, receive $500 next week.
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Nov 17, 2004
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Scote64 wrote: The CEWS hasn't happened yet for anyone - this is all political posturing. The government needs some positive news to show that their programs are helping, so they need big companies that are friends of the government like Air Canada to step up and say they are re-hiring lots of workers because of the government's help, even though it hasn't actually provided that help yet.

In the meantime small businesses that could only last a month or two without income are probably closing forever because they haven't actually received any help yet and don't know when they will.

Another problem with these theoretical programs is the amount of bureaucratic administrative work that will be required of small business to apply, and the difficult of spending hours trying to access overloaded government or bank web sites or days trying to get someone on the phone who probably doesn't know any better than you what's going on. By comparison the CERB is easy - just go online, apply, receive $500 next week.
Everything passed and at the moment it seems like it’ll be just as easy to apply as for the CERB with random audits done after the fact and repayment and penalties assessed then if necessary.
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CensoredByRFD wrote: Everything passed and at the moment it seems like it’ll be just as easy to apply as for the CERB with random audits done after the fact and repayment and penalties assessed then if necessary.
3 to 7 weeks away
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Nov 17, 2004
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Scote64 wrote: 3 to 7 weeks away
Pretty sure they’re now saying 2-5 since they had said 3-6 before.

But either way, a business should have the ability to get through this as long as they know that there is help coming. It’s a bit of a cash flow crunch, but that’s why in conjunction with the $40k loan, it’s a very workable patchwork system.

Although they’re backdating to March 15th, I doubt that many companies are going to be going backward after they’ve already processed their layoffs and their staff have already collected CERB. I know I’m not. I’ll be timing my staff return to their CERB payments and bringing them back a bit at a time according to the loans and my own company available cashflow through credit and other means.

If a business is operating on a shoestring budget with no credit to pull on to survive these 3-4 months, well...that is unfortunate. But 9 out of 10 businesses fail in their first 5 years anyway (or so the quoted statistics always go). Who is to say they wouldn’t have failed in a couple months time anyway.

Unfortunately there is no perfect solution. But I don’t think we can really complain about what the feds have been able to do so far to help.
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Dec 28, 2007
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santafe wrote: https://www.thestar.com/business/2020/0 ... rkers.html

So as everyone has probably heard, Air Canada has just rehired more than 16000 workers, under the CEWS program. This program will essentially allow Air Canada to receive a 75% wage subsidy from the government for keeping people employed.

Then there is the issue where some small businesses don't qualify for a government Loan under the CEBA program, which is a meant to help businesses stay afloat during this time.

https://www.cbc.ca/news/business/small- ... -1.5526549

So on one hand the government is paying the wages for employees of a major corporation, and at the same time refusing to lend to small businesses. At the very least, this is a strange situation.
Nothing strange about. It's a given that the gov't is going to bail out or give tax incentives to large corporation before any small business.
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Nov 13, 2010
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The small ma n pa shops get shafted as usual while big private company laughs to the bank while giving shitty service
Deal Expert
May 30, 2005
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The point of these programs are to prevent job loss, it's not to help businesses from failing. If these small businesses don't even pay 50K in salaries, they aren't really hiring a lot of people, and the money would be better directed to help others get off the street.

As a business, you should be set up to weather tough times like this. I think the government is on-point on this one.
[OP]
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Jun 30, 2009
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Jon Lai wrote: The point of these programs are to prevent job loss, it's not to help businesses from failing. If these small businesses don't even pay 50K in salaries, they aren't really hiring a lot of people, and the money would be better directed to help others get off the street.

As a business, you should be set up to weather tough times like this. I think the government is on-point on this one.
Yes but you are contradicting yourself. If a business needs to be able to weather tough times, then why offer some the CEBA loan and not others. You can't really say to people that they should be better with their finances, and then you go and declare bankruptcy.

There is no requirement that the $40K be used exclusively for payroll. The money can also be used to pay for commercial rent expenses, as well as other recurring expenses that are still due despite these businesses being closed. All the smaller businesses seem to be asking for is an equal footing. If you are willing to lend $40 K to businesses that have at least $50 K in payroll, and some of these businesses have already said they have no intention of using it for payroll (they intend to pay their rent), then offer the same terms to everyone.

The speculation I am hearing from accountants is that the government wanted to prevent holding corporations from accessing the CEBA benefit, and hence created the payroll restriction.
I have been told there are several easy ways to ensure this doesn't happen without needing a payroll restriction.
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santafe wrote: Yes but you are contradicting yourself. If a business needs to be able to weather tough times, then why offer some the CEBA loan and not others. You can't really say to people that they should be better with their finances, and then you go and declare bankruptcy.

There is no requirement that the $40K be used exclusively for payroll. The money can also be used to pay for commercial rent expenses, as well as other recurring expenses that are still due despite these businesses being closed. All the smaller businesses seem to be asking for is an equal footing. If you are willing to lend $40 K to businesses that have at least $50 K in payroll, and some of these businesses have already said they have no intention of using it for payroll (they intend to pay their rent), then offer the same terms to everyone.

The speculation I am hearing from accountants is that the government wanted to prevent holding corporations from accessing the CEBA benefit, and hence created the payroll restriction.
I have been told there are several easy ways to ensure this doesn't happen without needing a payroll restriction.
I think in all cases, the government has stated their priority is to keep jobs. Whether the 40K loan is used for that or not, is basically up to the company, and a gap in the policy. That's why they later came up with the 75% wage subsidy to better target the goal they were after all along. With limited resources, we want to target businesses that have the largest impact on the economy, and in this case, they are those businesses who provide a job to others.

Whether you are a business or an individual, you should always have a rainy day fund, let's say 6 months. If shit hits the fan, aka now, as a business, if your revenue goes to zero, or as an individual, you get laid off, you start cutting your expenses wherever you can, and tap into the rainy day fund to bridge you over the bad times. For individuals, cutting expenses means reducing luxury things like going out for dinner. For businesses, it means cutting costs wherever possible, both legally and fiscally. Laying off staff is a very easy thing to cut, especially with no business, so it's usually near the top of the list. Paying for rents where the lease is fixed for many years, is not as easy to break out of. As such, in bad times, employees get laid off pretty quickly, and that's what the government wants to prevent.

If you have trouble paying rent, that means as a business, you were not being fiscally responsible and have enough of a rainy day fund available to tap into. In this situation, I would question whether this is a business worth saving, given its limited impact on the economy, and their lack of fiscal responsibility.

So far I still do not see a reason why the loan should be extended to businesses who do not have employee payroll over 50K.
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Jon Lai wrote: The point of these programs are to prevent job loss, it's not to help businesses from failing. If these small businesses don't even pay 50K in salaries, they aren't really hiring a lot of people, and the money would be better directed to help others get off the street.

As a business, you should be set up to weather tough times like this. I think the government is on-point on this one.
I could not disagree more.

Bloated government charity cases like Air Canada suck up the taxpayer's resources on a regular basis to maintain jobs, while small business entrepreneurs en mass are actually the engine of our economy, maintaining a large number of jobs while taking most of the risk themselves.

If you think small business should be "set up to weather tough times", you have obviously never been a small business entrepreneur. And unfortunately government is staffed by people with a similar outlook who are very much out of touch with the needs of small business.

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