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The federal governments wage subsidy was enacted as part of Bill C-13 – COVID-19 Emergency Response Act on March 25, 2020.
In general terms the program allows an “eligible employer” to claim a credit against employee tax remittances equal to 10% of “eligible remuneration” paid up to a maximum of $1,375 per employee and $25,000 per employer for the “eligible period.”
An eligible employer, for the purpose of the wage subsidy, is defined as a person or partnership who employs more than one employee in Canada, is registered with the Canada Revenue Agency for payroll remittance purposes, and is included in one of the following categories:
- A Canadian Controlled Private Corporation (“CCPC”) that qualified for the Small Business Deduction, or would have qualified if the passive income grind was not applicable, in its last taxation year that ended before March 18, 2020;
- An individual other than a trust (“sole proprietorship”);
- A partnership whose members are all either CCPCs described in 1, individuals or registered charities;
- A non-profit organization; or
- A registered charity.
The program applies to eligible remuneration paid from the beginning of the day on March 18, 2020 to the end of the day on June 19, 2020.
Eligible remuneration includes salary, wages or other remuneration paid to an “eligible employee.”
An eligible employee is an individual who is employed in Canada.
For the purposes of this example, assume that an eligible employer pays three employees between March 18, 2020 and June 19, 2020 the following total amounts:
- Employee 1: $5,000
- Employee 2: $10,000
- Employee 3: $15,000
For simplicity, assume the employer is withholding 40% of wages to remit to CRA. The computation of the wage subsidy would be as follows:
|Employee 1||Employee 2||Employee 3||Total|
Gross salary paid
Required remittance before subsidy
Wage subsidy at 10% (max $1,375)
CRA remittance payable
Please note, while the total remittance paid is $9,125, the eligible employer’s total remittance will be recorded as if $12,000 was paid. The total amount reported on the employees T4 will be $12,000. The employees net pay will be unaffected by the wage subsidy.
Please also note that the employer’s total wage subsidy claimed cannot exceed $25,000.
The total amount of the wage subsidy received will be included in the income of the eligible employer. In the example above, the eligible employer will have an addition to their taxable income of $2,875.
There will be specific record-keeping and reporting required to take advantage of the wage subsidy program. The Canada Revenue Agency has indicated that specific guidance and forms will be provided in the coming days.
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