The Temporary 10% Wage Subsidy is a Three-Month Tax Program (March 18, 2020-June 19, 2020) that’s part of Canada’s Covid-19 Economic Response Plan. It aims at avoiding mass layoff by the employers and to encourage rehiring.
Temporary 10% Wage Subsidy allows ‘Eligible Employers’ to claim an amount equal to 10% of the Remuneration paid to the Employees during this period. It would reduce the amount of Payroll Deduction required to be remitted to the Canada Revenue Agency(CRA).
“Avoiding Mass Layoff & Encouraging Rehiring”
Eligible Employers:
Who’s an Eligible Employers to claim the Subsidy is an important question here. Employers qualify for the TWS if:
- You are Individuals(Sole-Proprietors), certain Partnerships, Non-Profit Organizations, Charities and certain Canadian-Controlled Private Corporations (CCPCs).
- A CCPC is essentially a private corporation whose shares are not listed on a stock exchange, and that is owned and controlled by Canadian residents. Large CCPCs which have taxable capital of more than $15 million among their associated corporations in the previous year won’t qualify for the TWS.
- Employers are only eligible if they had a Payroll Program Account with the CRA on March 18, 2020.
- Pay Salary, Wages, Bonuses, or other Remuneration to an eligible employee.
Eligible employee:
An eligible employee is an individual who is employed in Canada by the above listed employers.
Subsidy Limit:
Under the TWS program, the maximum amount of Subsidy is $1375 per employee and $2500 per employer. Employers who are considered to be associated for tax purposes will not be required to share the subsidy.
Calculating the Subsidy:
- An employer must deduct and withhold amounts for Income Taxes, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, and Employment Insurance (EI) premiums, and pay these withholdings(along with employer CPP/QPP contributions and EI premiums) to the Canada Revenue Agency (CRA) and Revenu Quebec on the 15th of following month.
- Employers must continue to deduct all source deductions, including Income Taxes, CPP/QPP contributions and EI premiums from Employees’ pay. The Employer can only reduce remittances of Federal, Provincial (other than Quebec) or Territorial Income Taxes and cannot reduce any remittances of CPP/QPP contributions or EI premiums.
- The Employer can choose to reduce its Payroll Income Tax Remittances to the CRA by the amount of the TWS on Employer’s next Remittance Date (April 15th if the employer is a quarterly or monthly filer).
- Point to be noted here is that though the TWS is based on Remuneration paid to employees between March 18 and June 19, there is no deadline for claiming the TWS (through Reduced Income Tax Remittances). In other words, if the amount of the TWS exceeds the income tax that the employer would normally have to remit up to June 19, 2020, the employer can continue to reduce subsequent Income Tax Remittances to claim remaining TWS after this date.
- Employers who choose not to Reduce Current Payroll Remittances can transfer the TWS to a Future 2020 Remittance or can request to have it paid at the end of 2020.
- Remittances to Revenu Quebec may not be reduced. While the CRA is currently working on the reporting requirements for the TWS program, the Employer should keep all information necessary to support its manual calculation of the TWS. This will include records of all remuneration for the relevant period, as well as tax deductions and the number of employees.
Example:
- Thomas owns a Bakery that has 5 employees. Total payroll for the Bakery Employees between March 18 and June 19, 2020 will be $120,000. Even though 10% of the Payroll during this time is $12,000, the maximum available wage subsidy will be limited to $6,875 because the maximum total TWS per employee is $1,375 and the Bakery has five employees.
- Thomas makes Monthly Tax Remittances on behalf of his Bakery Business. He can claim the first TWS by reducing the Bakery’s Remittance for March 2020, which is due on April 15, 2020. The TWS would be calculated as 10% of wages paid from March 18th. Assuming the eligible wages are $40,000, Thomas will be permitted to reduce the Federal and Provincial Tax portions of the April 15th Remittance to the CRA by $4,000. He can continue to reduce future Remittances of Income Tax until the Bakery reaches the maximum TWS.
The TWS amount will be included in the employer’s income and taxed in the year it is received.
