CEWS and Other Funders

Double-dipping: obtaining funding twice for the same expenditures.

We all understand why this is wrong — but applying the concept to CEWS can be confusing. We at Young Associates have encountered differing viewpoints on how best to treat the relationship between CEWS and other funders, and have spent significant time exploring the issues internally. In our view, there has not been nearly enough public discussion of the issues, or guidance from funders — leaving organizations to work through decisions as best they can. 

This eblast is offered as a contribution to the discussion and, we hope, a better understanding of the underlying accounting and public policy issues.

It’s lengthy, so if you’re a client, we recommend reviewing with your Senior Associate. You should also consider flying it past your auditor or a board member, to gain their insight into whether your organization might have any concerns.

Important caveats

This eblast is not intended to serve as advice. We do not consider this to be a conclusive piece of research. Although we offer a few ideas about how you might proceed, we do not intend to provide direction.

Rather, we are contributing some factual information, which we hope will assist our clients and others in discussions they may be having with their auditors and their funders.

Determining how your organization should treat CEWS relative to other funding comes down to a management decision informed by professional interpretation of accounting principles and funding agreements.

If you’re going to make an error with your treatment of CEWS, you may want to err on the side of caution. A government audit might still be years down the road, and you don’t want to receive a demand for repayment that you’re unprepared to fulfill.

The issue

COVID has diverted us from many familiar and well-trodden paths. All of us — legislators, regulators, funders, auditors, managers, service providers — have been forced, to a greater or lesser extent, to adjust our methods as new information presents itself. 

For many accounting issues, there is a body of professional literature backed up by years of auditing (annual financial audits plus CRA and funder audits) whereby principles are clarified and interpretations are hammered out. Organizations facing thorny questions know where they can turn for guidance.

With respect to CEWS and other COVID emergency funding, to a large extent, the audits are yet to happen. (We at YA have not yet gone through a CEWS audit, and only one or two project grant audits where CEWS was a factor.) We have been managing as best we can with information as it becomes available. We have come up with various questions for which it has been extremely difficult or impossible to find conclusive guidance from official sources:

• Is CEWS a grant, or is it something else? 

• Should CEWS be treated as a matching grant when it comes to employment grants, or any other funding that supports salaries?

• CEWS is calculated on the basis of wages, but is the funding specifically directed towards wages, or is it intended more broadly to maintain operations?

• Suppose we were found to have double-dipped. How would that be resolved between CEWS (i.e. the CRA) and the other funder (a different ministry or department, perhaps at a different level of government)? (Spoiler: we have no idea. This is the one question where you won’t find any commentary below.)

Summary of key points

The remainder of this document goes into detail about how we arrived at these conclusions, but here are the highlights:

• The CEWS legislation and accompanying FAQ explicitly allow the wage subsidy to be claimed regardless of other funding sources.

• Grants may be either restricted or unrestricted. Restricted grants that carry stipulations related to payroll costs need to be explored with reference to your ability to claim CEWS.

• Funding terms and conditions typically prevent grantees from “double-dipping.”

• CEWS is excluded from the definition of government funding. Rather, it is legally defined as a refund of taxes. 

• By virtue of being a refund of taxes, CEWS revenue is directly tied to payroll cost.

• GAAP sets out a coherent rationale for why CEWS should be treated as “double-dipping” if a restricted grant is in play.

The section of this document entitled “Possible approaches” outlines various paths you might consider taking, to tread carefully around these issues.

CEWS legislation

When CEWS was first announced, there were many unanswered questions surrounding the program. Young Associates devoted significant time to researching, reading the legislation and consulting with other professionals in the industry to arrive at a better understanding of the Wage Subsidy rules. 

Notably, we learned that the CEWS legislation does not prevent organizations from claiming CEWS in instances where they have received other funding. Indeed, the CEWS FAQ states the following (emphasis ours):

If an eligible employer has received or is reasonably expected to receive an amount as a subsidy or other assistance based on the salary, wages or other remuneration paid to an eligible employee that would otherwise be eligible for the wage subsidy, the amount of the government subsidy or assistance does not reduce the amount of the eligible remuneration used to calculate the wage subsidy for that employee.

Thus: the CEWS legislation allows you to claim CEWS on salaries that are subsidized by other programs. However, the CEWS FAQ acknowledges that other funders may not take a reciprocal approach. Without adding any detail, guidance or qualification, the CEWS FAQ states:

The amount of the wage subsidy received could affect an eligible employer’s entitlement under other federal or provincial funding programs.

Restricted and unrestricted funding

Before going further, let’s confirm a couple of core definitions. On a practical level, managers experience these concepts as part of the infrastructure of government funding. But, at heart, they belong to Generally Accepted Accounting Principles (GAAP — more on that below).

A restricted grant is subject to externally imposed stipulations as to how the grant can be spent. Employment grants offer a prime example. Once you have accepted funding from Canada Summer Jobs, Young Canada Works, or any other such program, you are required to use the funds only to pay salary and benefits — and, generally, only for the agreed position. (You can’t tell them that you’re creating a marketing position and then go off and hire a technician instead.)

An unrestricted grant still has a purpose, of course — but there are no stipulations as to how the grant can be spent. Arts council project grants offer a perfect example. When you accept the funding, you are expected to utilize it in service of executing the project, within the project budget you set out — but the funder does not stipulate that a certain amount of money must be spent on this or that. As long as the project is delivered as promised, the grantee has latitude to decide how to apply the funds.

And, there are grants that occupy a middle ground, where some spending components may be stipulated, and others left more to management’s discretion. For example, we have seen Ontario Trillium Foundation grants with a capital component stipulating that a certain number of dollars are to be spent on acquiring a computer — and with a program component where management can decide as the project progresses how exactly to spend that portion of the funding.

It is management’s responsibility to identify, understand and adhere to any restrictions, as part of the responsibility of accepting the funding.

Funding agreement terms and conditions

We have not found any public guidance or commentary that we can share from “other funders” on the topic of CEWS and how grant recipients should or should not proceed when preparing their CEWS subsidy claim. 

By way of background, at the federal level, at least, all funding terms and conditions must be approved by the Treasury Board. Thus, although grant materials may be drafted at the program level, they are approved by a central authority, which applies a set of standards and rules. The Treasury Board’s Transfer Payments Policy mandates how terms and conditions must operate. The objective of this policy is to:

“ensure that transfer payment programs are managed with integrity, transparency and accountability in a manner that is sensitive to risks; are citizen- and recipient-focused; and are designed and delivered to address government priorities in achieving results for Canadians.”

However, we reviewed the terms and conditions of a handful of sample funding agreements and found little in the way of common wording between programs. Therefore, management must review each contract carefully. This is a management responsibility.

For example, one contract states, “The Grantee acknowledges that the amount of Grant funds available to it is based on the actual costs to the Grantee, less any costs (including HST and other taxes) for which the Grantee has received, will receive, or is eligible to receive a rebate, credit or refund.” 

Another states, “The Host agrees that they will not substitute the remaining portion of the Participant’s salary with funding from another federal or provincial funding body.”

These clauses represent two quite different “takes” on the issue of double-dipping. Logically, funders want to prevent organizations from receiving money from different streams to pay the same expenses on the same project. But, how does either of these examples relate to eligibility for a CEWS claim?

(Note: we don’t believe there’s any question that CEWS can be used to “top up” a restricted grant. So, for instance, if your Canada Summer Jobs grant pays for 65% of the cost of your student employees, there’s nothing against you claiming the value of CEWS applicable to the other 35% of their salary. The question is whether you can base your CEWS claim on 100% of their salary.)

When asked about it, some funders have requested that grantees recalculate and repay CEWS with their funding taken into account — but other funders have not had an issue. Given our own challenges with trying to get a handle on CEWS and other funders, we have been left wondering about the funders’ capacity to get to grips with these complex and challenging issues. Are our clients getting an answer based on (say) Treasury Board guidance — or are the program staff providing their best interpretation? 

The flip side of that last paragraph is that, at the end of the day, an audit evaluation of CEWS — or of your other funding — will be based on the legal facts, not on the advice of your grant officer.

So, what exactly is CEWS?

A specific legal definition of CEWS arrived in an unexpected source: the June 2021 Excise and GST/HST News:

Under the Income Tax Act (ITA), the CEWS takes the form of a deemed overpayment of liability under Part I of the ITA by an eligible entity, which is then refunded to the eligible entity. The Minister of National Revenue has statutory authority under the ITA to refund the deemed overpayment. Therefore, the CEWS is a refund of taxes imposed under the ITA and excluded from the definition of government funding.

(Again, the emphasis is ours.)

For our client base, it’s fair to say that CEWS subsidy has greatly exceeded the value of payroll taxes remitted over the same period. So, the “deemed overpayment of liability” may be difficult to see with reference to any given organization’s case. However, this definition does provide clarity on one point: it clearly ties CEWS revenue to payroll expense. 

Earlier, we had raised the question of whether CEWS is intended to be applied specifically to payroll costs, or whether it is intended to support the organization generally (despite being calculated on payroll costs). Though it is called the “wage subsidy”, it is tempting to think of it as a lost revenue subsidy, since revenue drop is the critical factor in determining eligibility. But, according to this definition, CEWS is indisputably linked to payroll cost.

Further, since CEWS is excluded from the definition of government funding, it is tempting to believe that, unless the terms and conditions of other grants specifically refer to refunds of taxes (as our first example does), it is acceptable to claim CEWS on 100% of your restricted employment grants. This brings us to one final item...

Generally Accepted Accounting Principles (GAAP)

GAAP states that you cannot recognize a restricted grant as revenue unless you’re able to match it directly to an eligible expense. This means that — properly — all restricted grants, when received, should be posted to deferred revenue (a liability account). Restricted grants meet the definition of a liability because you are not entitled to the money unless you can prove that it was used as stipulated. Over the duration of the project, as expenses are properly incurred, the related portion of the grant can be recognized — that is, moved out of liability and into revenue.

Let’s use a specific example. Say we were awarded a Young Canada Works grant of $6,500, covering 65% of intern payroll costs of $10,000. When we receive the first YCW grant installment, we should book that money to deferred revenue. We can recognize it in tandem with our YCW intern’s payroll costs.

Based on the definition of CEWS as a refund of a deemed tax liability, we must consider the wage subsidy to be a direct offset to payroll expense. That is: CEWS reduces our payroll cost.

Now, suppose we had applied for CEWS for 100% of our YCW intern’s salary. Under GAAP, we would not be allowed to recognize any of the YCW grant in this period. If we did, we would be claiming both the CEWS and the restricted grant — double-dipping!

Note that the concept of a “matching grant” is irrelevant here. What matters is that GAAP allows us to apply only one revenue source — of any nature — to a given expense. 

Under this interpretation, recipients of restricted grants should not apply for CEWS, to the extent that payroll costs are already funded by the restricted grants. Or — more broadly — if the grantee did apply for CEWS despite having a restricted grant, then the restricted grant cannot be recognized as revenue. Only one source of funding — either CEWS or the other funder, not both — can be recognized, and the rest must sit on the balance sheet as a liability.

How lenient are your other funders? Would they be okay with you applying for maximum CEWS as long as the program is available, holding your other grant in deferred revenue, and expending your other grant after CEWS is gone? Perhaps a question worth asking.

Possible approaches

As we stated above, we are offering factual content rather than conclusions or direction  — and we are aware of different audit firms taking different approaches to the issues we’ve laid out. But, if you are struggling to resolve questions of CEWS and the other funder, and you are looking to err on the side of caution, we can offer some suggestions:

• Read grant terms and conditions carefully, and evaluate the strictness of any restrictions. Do you have any latitude for interpretation? Or are the stipulations categorical?

• Avoid claiming the CEWS for payroll costs that are 100% subsidized by a restricted grant.

• Do claim CEWS for the portion of payroll costs that are not subsidized by a restricted grant. (That is, if your restricted grant covers 65%, go get the other 35%!)

• If you have claimed CEWS in situations where you also have restricted funding, discuss accounting treatment with your auditor. Our research suggests that you are onside with GAAP as long as restricted revenue is properly deferred, and recognized only in sync with eligible costs. 

• Likewise, consider a discussion with your funder. Can you negotiate any avenue by which you could defer the restricted grant until after the end of the CEWS program?

• Do your best to quantify your risk. What is the dollar amount of the overlap between CEWS and your restricted funding? That’s the amount you might be required to repay if you were to undergo an audit. Make sure to reserve that cash in case of a future demand to repay.

As the pandemic continues, and in particular as CRA progresses with its CEWS audit program, no doubt we will learn more and gain greater clarity. Meantime, we would be very happy to hear from readers about their views, any research they have undertaken, and any discussions they are having on this important area of risk management.

We will leave you with a selection of key definitions gathered in the course of our research. We hope that you have found this helpful! 

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Definitions

The following explanation of CEWS comes from the Excise and GST/HST News - No. 109.

The purpose of the CEWS is to enable businesses to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses to resume normal operations following the crisis… The definition of government funding excludes a refund, rebate, or remission of, or credit in respect of, taxes imposed under any statute. Under the Income Tax Act (ITA), the CEWS takes the form of a deemed overpayment of liability under Part I of the ITA by an eligible entity, which is then refunded to the eligible entity. The Minister of National Revenue has statutory authority under the ITA to refund the deemed overpayment. Therefore, the CEWS is a refund of taxes imposed under the ITA and excluded from the definition of government funding. Furthermore, the CEWS is not paid for the purpose of financially assisting NPOs in carrying out its purpose. As such, the CEWS is not included in the government funding amount in the percentage of government funding calculation… [I]t is a statutory obligation under the ITA for the Minister to refund the deemed overpayment to eligible CEWS applicants.

The following definitions related to government transfer payments (which include grants and contributions) come from the Government of Canada glossary:

Transfer payment

Is a monetary payment, or a transfer of goods, services or assets made, on the basis of an appropriation, to a third party, including a Crown corporation, that does not result in the acquisition by the Government of Canada of any goods, services or assets. Transfer payments are categorized as grants, contributions and other transfer payments. Transfer payments do not include investments, loans or loan guarantees.

Contribution 

Is a transfer payment subject to performance conditions specified in a funding agreement. A contribution is to be accounted for and is subject to audit.

Grant

Is a transfer payment subject to pre-established eligibility and other entitlement criteria. A grant is not subject to being accounted for by a recipient nor normally subject to audit by the department. The recipient may be required to report on results achieved.

Other transfer payment 

Is a transfer payment, other than a grant or contribution, based on legislation or other arrangement, that may be determined by a formula. Examples of other transfer payments are transfers to other orders of government such as Equalization payments as well as Canada Health and Canada Social Transfer payments.

The following definitions of accounting terms come from the CPA Canada publication, A Guide to Financial Statements for Not-For-Profit Organizations:

Note that the publication addresses philanthropic support more than government funding, and is worded accordingly — but the concepts can be transferred to public support.

Contribution

Contributions are a type of revenue unique to not-for-profit organizations. The main characteristic of a contribution that sets it apart from other types of revenue is that it is a non-reciprocal transfer. In other words, the contributor does not receive anything in exchange for the contribution. Government funding to an NPO is considered to be a contribution. 

Restricted contribution

A restricted contribution is a contribution subject to externally imposed stipulations as specified by the donor.... [A] restriction might be to use the contribution only for one particular program, or to purchase a capital asset, or it may be that the contribution is not to be used at all, but rather invested as an endowment with the income from the invested funds to be used for a particular program. Accepting such restricted contributions places an obligation on the organization to respect those restrictions, and to use those monies only in accordance with donors' wishes.

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Planning Amidst Uncertainty, Federal Budget Updates & More

We hope most of you have been able to book vaccinations now that the booking system has opened up to all Ontarians over 18! These are exciting times, and we hope we will see things start to improve soon thanks to increased vaccinations.

Though exciting, there is also plenty of uncertainty around the future of the sector. We would like to offer a few thoughts about the issues you are facing.

We Have Your Back

We’ve been starting to receive calls from the CRA following up on CEWS and CERS claims, and have been providing documentation on clients’ behalf. We’re braced for audits, but we’re confident we’ve done our due diligence and will be ready to assist if CRA comes calling.

 We continue to stay alert to CEWS, CERS, and other subsidies. Please get in touch with your bookkeeper if you have any specific questions or concerns. 

Planning Amidst Uncertainty

Impacts are Uneven Across the Sector

Some organizations are seeing large surpluses — others, large deficits — others, lesser impacts from COVID. Our observation is that some common characteristics drive the financial outcomes organizations are likely to see.

The biggest arts organizations, who generate proportionally more earned revenue and who receive proportionately less government funding seem more likely to be hurting. These organizations are also more likely to own land and buildings, and to have significant fixed costs — and therefore less agility.

Mid sized and smaller organizations, whose earned revenues make up a smaller proportion of their operating budget appear to have seen different financial outcomes (so far!): the continuation of operating grants and the addition of emergency grants and subsidies have the potential to create substantial short-term operating surpluses even in the midst of the current emergency.

The smallest arts organizations may have been left out in the cold. With no payrolled employees they cannot receive CEWS; with no rented space they cannot receive CERS; these same features make them ineligible for CEBA; and they may not have qualified for Canada Council emergency funding.

These disparities raise interesting questions about what interventions may be needed to support recovery, and about what shape the arts community may take in the “new normal.”

Benchmarks & Expectations

It’s difficult at the moment to feel any sense of control over financial plans. Managers are unsure how to plan programs, board members are feeling anxious about upholding their fiduciary/financial responsibilities, and everyone is trying to meet funder and donor expectations — expectations which aren’t necessarily clear. 

Previously, an accepted sustainability benchmark was to hold unrestricted net assets equal to about 3 months of revenues. At 2020 and 2021 year-ends, some companies are seeing surpluses that have pushed their net assets above that 25% mark — and of course there is concern about possible reaction from funders and other supporters.

Considering the longer-term effects of the pandemic, we expect that this generally accepted 3 months of savings benchmark may change — or at least be relaxed while the world recovers from the crisis. We expect that over the next few years, nonprofits and charities will absolutely need any larger surpluses they may have accumulated to sustain themselves as the sector rebuilds. 

What Can You Do?

• Save your surplus: If you’re worried about what a major surplus will look like on your financial statements, explore options that don’t involve rushing to spend it. 

• Plan (and communicate) for the long haul: Given the present uncertainties, it seems reasonable to ask stakeholders to support you in crafting a measured response. As of this writing, it’s unclear how the latest Federal Budget measures will be implemented — let alone what subsidies might be available past 2021. It is wise to assume that any short-term plans should be contextualized within a multi-year game plan, and that your game plan needs to remain flexible.

• Consider creating an internally restricted fund: Your board of directors can move to segregate a portion of your net assets for a defined purpose. This might be as general as “operating reserve,” or more specific such as “new creation fund” or “scholarship fund.” The objective is to define an intention for your net assets. This conveys to the readers of your financial statements that you are thoughtfully considering your future options (not just hoarding cash).

• Consider incorporating a foundation: This would be a significantly more complex response, requiring careful thought and planning. Larger organizations, or those with proportionally larger net assets, may find it beneficial to create a separate foundation to support operations. This has the effect of investing the main portion of your resources in a separate — though related — organization. Your operating entity therefore reports smaller net assets. Of course, you now have a second corporation to manage — so the pluses and minuses need to be carefully evaluated.

• Consult with an expert: Before changing the structure of your net assets, discuss the matter with your board, your auditor and other financial and legal advisors.

Revenue Uncertainty

Planning for the future is difficult when so much is still up in the air: When will venues be allowed to reopen? How soon will audiences come back? How long will subsidy programs like CEWS be around? What are the details of the new recovery programs?

With so many unanswered questions (and many more), the most we can do for now is speculate, and speculation doesn’t make for useful budget scenarios! 

What Can You Do?

• Narrow down your options: Don’t spend time agonizing over hundreds of scenarios. To the extent that you can, try to identify “bookends”: the best and worst case scenarios will give you a better idea of your limits.

• Focus on what you can control, leave what you can't: Revenues are tough to predict; expenses are usually more within your control. 

• Read your balance sheet: This will allow you to track your cash, which will help with immediate cash flow estimates. You’ll also want to pay close attention to obligations against your cash. For example, you may have deferred revenue from various sources — which entails commitments to upcoming activities. Be sure you understand how much flexibility you actually do have. 

Conclusion

Although in the “before times” you might have been tempted to spend down a large surplus, we believe it is reasonable to assume we'll have some years of repercussions of the pandemic to contend with — and that you are likely to find a future, mission-driven, strategic use for those funds. The government cannot continue its current level of subsidy indefinitely; at some point they will need to replenish their reserves. 

It will also be a while before audiences come back the way they used to. Though the timelines are unclear, the common wisdom is that the arts sector will be among the last to rebound. 

Ultimately, we don't know what the effects will be in the long term, so it is best to hold onto cash reserves, structure them thoughtfully, and be conservative about spending.

Important Dates and News

• June 2: QuickBooks Connect Conference

  • The YA team will be attending to make sure we stay on top of product updates, and get the most out of the software to best serve your organizations

• The CEWS and CERS programs have officially been extended to September 25, with rates starting to decrease in July. Details have yet to be officially published. The federal budget also proposed a potential extension to Nov. 20, 2021, if required.

• Deadline schedules for CEWS and CERS below

  • Periods 1-8 of CEWS have closed, Period 9 to close on May 20. 

  • Period 1 of CERS has closed, Period 2 to close on May 20.

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

March 2021 CERS & CEWS Update

As we approach a full year of the pandemic, there has been some uncertainty about the continuing government subsidy programs that so many of our clients rely on. Today, our questions were answered! See below for an explanation of yesterday’s press release regarding CEWS and CERS. 

Federal Minister Chrystia Freeland announced the eligibility guidelines for the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) for March 14 to June 5, 2021. Previously, details had only been released up to CEWS Period 13 and CERS Period 6, which end March 13. 

Please note that this is proposed legislation, so there is potential for changes to be made in the coming weeks. 

According to the press release, the current rate structures for the CEWS and the CERS will be maintained through to June 5:

• The maximum base CEWS rate for active employees will remain at 40%, and the maximum top-up rate will remain at 35%. 

• The maximum CERS rate would remain at 65%, and the maximum Lockdown Support component of CERS will remain at 25%

To ensure that the general approach continues to compare a pre-pandemic month to a current month, the months of the calendar year 2019 will continue to be used as reference for revenue drop calculations. 

The proposed reference months for CEWS Periods 14-16 and CERS Periods 7-9 are as follows:

Period	General Method	Alternative Method
CEWS Period 14 CERS Period 7 March 14 – April 10	Mar 2021 over Mar 2019 or Feb 2021 over Feb 2020	Mar 2021 or Feb 2021 over average of Jan and Feb 2020
CEWS Period 15 CERS Period 8 April 11 – May 8	Apr 2021 over Apr 2019 or Mar 2021 over Mar 2019	Apr 2021 or Mar 2021 over average of Jan and Feb 2020
CEWS Period 16 CERS Period 9 May 9 – June 5	May 2021 over May 2019 or Apr 2021 over Apr 2019	May 2021 or Apr 2021 over average of Jan and Feb 2020

You can find the press release here. A full backgrounder with additional details for the release can be found here. 

Budgeting with CEWS

One thing that is top of mind for our customers during the pandemic is budgeting and cash flow. Considering that earned revenues have largely been reduced and the Canada Emergency Wage Subsidy (CEWS) has been a major stabilizing factor during unstable times, projecting CEWS has become a priority for many. 

However, due to the ever-changing nature of the subsidy, as well as the estimation involved in the calculation and forecasting process, attempting to project CEWS is a much more difficult task than most would assume.

Here is some further detail to help you understand how challenging it is to forecast CEWS, and what your alternatives are when trying to project budget and cash flow.

Estimating Future Revenues

There are 2 steps to calculating CEWS. The first is to compare the current period’s revenues to a previous period to measure the revenue drop. This is where the first element of uncertainty lies. It is very difficult to forecast revenues with confidence. We don’t know what public health challenges lie ahead, so many organizations are struggling around programming decisions, what to charge for vs. offer for free, and what fundraising avenues to pursue.

Nonetheless, your bookkeeper needs your revenue estimates by month before they can make any further calculations. 

If you are accustomed to budgeting annually, you will need to pivot to a monthly budgeting process in order to generate estimates for CEWS.

Your bookkeeper will have evaluated the benefits of using the cash or the accrual method of reporting. If your company is filing using the cash method, your bookkeeper may need an up to date monthly cash flow forecast.

The Sliding Scale Factor

The second step is to calculate the subsidy rate. This tip sheet contains details on the base and top-up rates for Periods 8 to 10. 

Since the base subsidy rate is calculated on a sliding scale, any errors from step 1 will be multiplied by a factor of 0.8 for Periods 8 to 10. 

Additionally, if you have a greater than 50% revenue drop, a faulty revenue forecast will result in an inaccurate top-up subsidy estimate.

Estimating Future Payroll Costs

The second step to calculating your CEWS subsidy is to apply the rates to your payroll cost. Your bookkeeper will need your staffing costs by employee, by month in order to make the calculations. Employee detail is required because there is a maximum per employee.

Remember to allow for any anticipated changes — and any contingencies that should be discussed. For example, if you are considering a layoff under certain circumstances, your payroll will be reduced and your CEWS forecast needs to be reduced accordingly.

Government Policy

The government reserves the right to amend CEWS. We have seen a number of important changes to the program since it was first announced. We have also seen the rules confirmed very close to the implementation date. For instance, CEWS Period 8 arrangements were confirmed a few weeks after the Period start date.

The government has announced that CEWS will continue until June of 2021, but at this point we know the terms and conditions only until Period 10, which ends on December 19.

Risks

As you can see, there is a significant risk of inaccuracy in forecasting CEWS. The numbers involved are large. For many organizations, payroll is the single largest expense — and de facto CEWS has become one of the largest revenue sources.

Understandably, managers want to build CEWS into their budgets. For many organizations, CEWS has proven to be the single most stabilizing factor during the pandemic.

But, as you can see, a budget forecast for CEWS involves estimates on top of estimates — plus the “unknown” of future public policy changes.

Possible Approaches

The more conservative your estimates, the less likelihood you will wind up in trouble.

One important challenge with budgeting — in any situation — is that once the plan is on paper, people tend to feel “authorized” to proceed. This can mean that staff members forge ahead with planned expenses (which are in your control) while revenues (which are generally not in your control) remain uncertain.

One idea is to omit CEWS altogether. Define what revenues you’re able to count on, and what expenses you expect before even taking CEWS into account. This will give you a better idea of the state of your organization and your internal cash flow. 

Or, omit the top-up subsidy and prepare your budget forecast only on the base rate. 

If you are dependent on CEWS and therefore need to see it in the budget, prepare the best possible documentation for your revenue forecasts. Keep good notes! Review often. As each month elapses, re-evaluate your estimates for upcoming months. 

Lowball revenue forecasts, which will lowball the CEWS rate that you may claim. Highball expense forecasts, including salaries — but hold back as much as possible on actual spending.

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know going in how much our work will cost — and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price, or accept a portion of said price that reflects your level of satisfaction. 

Contact us: info@youngassociates.ca

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

CERS & CEWS Updates

2020-12-04 UPDATE: The 2020 Fall Economic Update on November 30 announced that the maximum CEWS rate will be raised to 75% (40% base subsidy, 35% top-up) for the period beginning December 20, 2020 and extending this rate until March 13, 2021. The current rate of the Canada Emergency Rent Subsidy and Lockdown Support will also remain in place until March 13, 2021. Official details about this have yet to be announced. 

Canada Emergency Wage Subsidy Updates (CEWS)

With the introduction of Bill C-9, the Federal Government provided more insight into the Canada Emergency Wage Subsidy (CEWS) and the newly announced Canada Emergency Rent Subsidy (CERS). This is the first major announcement since we were first informed of the extension that would allow the CEWS to continue through June of 2021. The new bill gives us information about Period 10 (Nov 22 - Dec 19), and comes with a few other adjustments. 

The maximum base subsidy rate of 40% for Period 8 will remain in place for Periods 9 and 10:

	Period 8:  Sep 27 – Oct 24	Period 9: Oct 25 – Nov 21	Period 10:  Nov 22 – Dec 19
Maximum weekly benefit per employee	Up to $452	Up to $452	Up to $452
Revenue drop: 50% and over	40% Maximum base subsidy rate	40% Maximum base subsidy rate	40% Maximum base subsidy rate
Revenue drop: 0% to 49%	0.8 x revenue drop (e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate)	0.8 x revenue drop (e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate)	0.8 x revenue drop (e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate

Harmonization of revenue-decline test for both base and top-up subsidies: The top-up subsidy used to be calculated on the basis of a 3-month revenue decline. In order to align this calculation with the base subsidy calculation, the same revenue decline calculation will now be used for both the base and top-up subsidies. 

Under both the base and top-up subsidies, revenue decline will be determined using the general or alternative method as outlined in the table below.

Period	Revenue Drop Calculation Method (for Base Subsidy & Top-up Subsidy)
Period 8	General	October 2020 over October 2019 or September 2020 over September 2019
	Alternative	October 2020 or September 2020 over average of January and February 2020
Period 9	General	November 2020 over November 2019 or October 2020 over October 2019
	Alternative	November 2020 or October 2020 over average of January and February 2020
Period 10	General	December 2020 over December 2019 or November 2020 over November 2019
	Alternative	December 2020 or November 2020 over average of January and February 2020

Safe Harbour Rule: To ensure this change does not result in a lower wage subsidy for eligible employers than you would have received using the previous revenue decline test, a safe harbour rule will apply from 27 September to 19 December 2020 (i.e., from Periods 8 to 10). Under this rule, an eligible employer will be entitled to a top-up subsidy rate that is no less than the rate that would have applied under the three-month revenue-decline test, which you would have used in Period 7. 

Amendment of eligible employee definition: Now, eligible employee means someone who was employed primarily in Canada throughout the qualifying period. This amendment clears up some vagueness that was previously in the definition.

A summary of Bill C-9 can be found on this Government of Canada webpage. 

More info found at ey.com.

Canada Emergency Rent Subsidy (CERS)

In addition to updating the CEWS, Bill C-9 also introduces the Canada Emergency Rent Subsidy (CERS). 

As opposed to CECRA (Canada Emergency Commercial Rent Assistance), this subsidy provides relief directly to business tenants, and uses a sliding scale to determine eligibility. It is also aligned with the CEWS, using the same period start and end dates as well as the same initial revenue drop calculation. Similar to CEWS, it has been announced for September 27-December 19, but is expected to continue through June of 2021.  

What can the subsidy be used for? 

Eligible Expenses

• Commercial rent

• Property taxes (including school and municipal taxes paid by owners)

• Property insurance (paid by owners)

• Interest on commercial mortgages, less any subleasing revenues

• Must be based on agreements entered into before October 9, 2020, and continuations of those agreements 

• Must apply to real properties located in Canada

Ineligible Expenses

• Sales tax on any eligible expenses

• Expenses relating to residential property used by the taxpayer (eg: their house or cottage)

• Payments made between non-arm’s-length entities

• Mortgage interest expenses in respect of a property primarily used to earn, directly or indirectly, rental income from arm's-length entities 

Expenses for each qualifying period would be capped at $75,000 per location and be subject to an overall cap of $300,000 that would be shared among affiliated entities.

Who can get the subsidy? 

Eligibility criteria for the CERS is generally aligned with the CEWS. Eligible entities include individuals, taxable corporations and trusts, non-profit organizations and registered charities. Public institutions are generally not eligible for the subsidy. For a complete list of eligible entities, please visit https://www.canada.ca.

In addition, an eligible entity must meet one of the following criteria:

• Have a payroll account as of March 15, 2020 or have been using a payroll service provider

• Have a business number as of September 27, 2020 (and satisfy the Canada Revenue Agency that it is a bona fide rent subsidy claim)

• Meet other conditions that may be prescribed in the future

Calculations

There is both a base subsidy and a top-up subsidy available through the CERS. The revenue drop calculation method is the same as the CEWS and can be found in the table above. 

The Base Subsidy rate for the CERS is calculated on a sliding scale as follows:

Revenue reduction %	Base Subsidy Rate
> 70%	65%
50-70%	40% + ([revenue reduction %] − 50%) × 1.‍25
< 50%	0.‍8 × [revenue reduction %]

The top-up amount is only available for properties that have been temporarily shut down or had their activities significantly limited by a mandatory public health order for at least one week. The maximum top-up subsidy rate is 25%, and is calculated using the following formula:

0.25 × [# days in period for which the property is subject to a public health restriction]
[# days total in qualifying period]

Deadline

An application for the CERS must be filed no later than 180 days after the end of the qualifying period.

Various other rules that are relevant to the CEWS, such as the deemed government assistance rule, anti-avoidance rules, penalty provision, and notice of determination rules, also apply for purposes of the CERS.

CERS claims will be accepted retroactively for the period from 27 September to 24 October 2020. Similar to the CEWS, the new CERS program will be administered by the Canada Revenue Agency (CRA) as opposed to the Canada Mortgage and Housing Corporation, which administered the CECRA.

More information available from the Government of Canada Website.

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know going in how much our work will cost — and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price, or accept a portion of said price that reflects your level of satisfaction. 

Contact us: info@youngassociates.ca

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

NEW: CEWS Eligibility & Calculation Guidelines

Along with the July 17 announcement of the updates to the Canadian Emergency Wage Subsidy program came a lot of questions from clients and others in the industry. The purpose of CEWS is to enable you to re-hire workers, help prevent further job losses, and ease you back into normal operations. Though the subsidy has been expanded to be more inclusive to employers who have seen a revenue drop under 30%, it has also developed additional complexity that may make calculations more difficult. 

The following guide breaks down the different elements of the changes to the subsidy program, helping you understand how to determine your eligibility and calculate your subsidy under the new rules. 

Warning: this is complicated and detail-heavy! Please read this carefully, and read it more than once! 

Need help? Contact us at info@youngassociates.ca. 

New to CEWS?

Now that companies can apply for CEWS support for a revenue drop as small as 1%, many additional organizations will be able to apply. In order to make your application for the current and future CEWS periods, you will need to have calculated your revenues for the past 3 months.

If you have already been applying for the subsidy, you’re ready to move forward with period 5 calculations.

Safe Harbour Rule

The Safe Harbour Rule for Periods 5 and 6 (July 5 - August 29) allows employers who experience at least a 30% revenue drop in Periods 5 and 6 to continue to receive a subsidy rate of no less than 75%. 

The new rules also open CEWS eligibility to more companies, as you will see below.

Periods 5 and 6 have distinct rules

The CRA has just released a calculator to aid in calculating your subsidy claim for Periods 5 and 6. However, you still need to calculate your revenue drop, which is needed to determine your subsidy rate. 

There are 3 potential scenarios for Periods 5 and 6:

• If an employer has seen a revenue drop of between 1%-30%, they are entitled to the CEWS for Periods 5 and 6 using the new base subsidy rate, as seen in the “Base Subsidy” section below. 

• If an employer has seen a revenue drop of 30% or more, they are entitled to a wage subsidy rate of no less than 75% for Periods 5 and 6. (Safe Harbour Rule)

• If an employer has seen a revenue drop of 50% or more in the current month, they are entitled to the maximum base subsidy rate of 60%. If an employer has seen a revenue decline of more than 50% over the past 3 months, they are entitled to an additional top-up subsidy of up to 25% on a sliding scale, as shown in the “Top-Up Subsidy” section below. 

  • Note that, according to the Safe Harbour Rule for Periods 5 and 6, if the maximum base subsidy rate plus the top-up subsidy rate equals less than 75%, you still qualify for a 75% wage subsidy rate. 

Rules for Periods 7, 8, 9 and 10

Periods 7, 8 and 9 take us to November 21. The following sections on base and top-up subsidy will walk you through the rules as they currently exist.

No rules have yet been announced for Period 10, which takes us to December 19. The government has confirmed the program to December 19, but the rules announced to date cover only to the end of Period 9.

The new deadline to apply for the CEWS has been extended to the end of January 2021. 

It’s important to note that the rules may change again. However, for budgeting purposes, this is the best information available. See the section on budgeting below. 

Base Subsidy

Once you have calculated your revenues for the past 3 months, use the CRA’s calculator for Periods 5 and 6. 

The CEWS has been split into a base subsidy amount and a top-up amount. The base subsidy rate decreases with each CEWS period, starting with a 60% maximum in Period 5 and decreasing to 20% maximum in Period 9. Organizations who have experienced any drop in revenue will be eligible for the wage subsidy under the new conditions. The CEWS rate varies in accordance with the organization’s revenue drop.

The following table summarizes the key details for each period:

	Period 5: Jul 5 – Aug 1	Period 6:  Aug 2 – Aug 29	Period 7:  Aug 30 – Sep 26	Period 8:  Sep 27 – Oct 24	Period 9: Oct 25 – Nov 21
Maximum weekly benefit per employee	Up to $677	Up to $677	Up to $565	Up to $452	Up to $226
Revenue drop: 50% and over	60% Maximum base subsidy rate	60% Maximum base subsidy rate	50% Maximum base subsidy rate	40% Maximum base subsidy rate	20% Maximum base subsidy rate
Revenue drop: 0% to 49%	1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)	1.2 x revenue drop (e.g., 1.2 x 20% revenue drop = 24% base CEWS rate)	1.0 x revenue drop (e.g., 1.0 x 20% revenue drop = 20% base CEWS rate)	0.8 x revenue drop (e.g., 0.8 x 20% revenue drop  = 16% base CEWS rate)	0.4 x revenue drop (e.g., 0.4 x 20% revenue drop = 8% base CEWS rate)

Table 1

To determine revenues, you may choose between two calculation methods. The general method compares one of the eligible months in a period in 2020 to its 2019 counterpart. The alternative method compares one of the eligible months in a period to 2020 January - February average revenue. 

If you qualify for Periods 1 through 4, these methods will be familiar to you. If you are new to CEWS, you will find it to your advantage to work your way through both methods to determine which is better for your organization.

See the “Attestations” section below if you’ve previously applied to the CEWS program.

The following table outlines the calculation methods for eligibility:

Period	Eligibility Calculation Method (Base Subsidy)
Period 5	General	July 2020 over July 2019 or June 2020 over June 2019
	Alternative	July 2020 or June 2020 over average of January and February 2020
Period 6	General	August 2020 over August 2019 or July 2020 over July 2019
	Alternative	August 2020 or July 2020 over average of January and February 2020
Period 7	General	September 2020 over September 2019 or August 2020 over August 2019
	Alternative	September 2020 or August 2020 over average of January and February 2020
Period 8	General	October 2020 over October 2019 or September 2020 over September 2019
	Alternative	October 2020 or September 2020 over average of January and February 2020
Period 9	General	November 2020 over November 2019 or October 2020 over October 2019
	Alternative	November 2020 or October 2020 over average of January and February 2020

Table 2

Ultimately, it is important to stay consistent in your calculations for Periods 5-9. Please read the “Attestations” section below for detail about consistency across the CEWS program. 

Top-Up Subsidy

Once you have calculated your revenues for the past 3 months, use the CRA’s calculator for Periods 5 and 6. 

In addition to the base subsidy, there is also a top-up subsidy of a maximum of 25% for businesses experiencing a revenue drop of more than 50% over the past 3 months. 

The eligibility for the top-up subsidy is calculated using a different method than the base subsidy. All eligibility calculations below use the average of the previous 3-month period as a baseline for comparison.

Revenue drop	Top-up subsidy rate
70%+	25%
50% - 70%	1.25 x (3 month revenue drop - 50%)
0% - 49%	no top-up

Table 3

Period	Eligibility Calculation Method (Top-up Subsidy)
Period 5	General	April to June 2020 over April to June 2019
	Alternative	April to June 2020 average over January and February 2020 average*
Period 6	General	May to July 2020 over May to July 2019
	Alternative	May to July 2020 average over January and February 2020 average*
Period 7	General	June to August 2020 over June to August 2019
	Alternative	June to August 2020 average over January and February 2020 average*
Period 8	General	July to September 2020 over July to September 2019
	Alternative	July to September 2020 average over January and February 2020 average*
Period 9	General	August to October 2020 over August to October 2019
	Alternative	August to October 2020 average over January and February 2020 average*

Table 4

*The calculation would equal the average monthly revenue over the 3 months of the reference period divided by the average revenue for the months of January and February 2020.

Note that if you have a revenue drop of 70% or more, you will receive the maximum top-up rate of 25% for a total CEWS maximum rate of 85%. 

CEWS for Furloughed Employees

A different rate structure applies to furloughed employees (That is: employees who are temporarily laid off with pay). For Periods 5 and 6, a 75% subsidy rate applies to furloughed employees. In order to qualify for this subsidy, employers must qualify for the CEWS for their active employees. 

For Period 7 and onward, CEWS support for furloughed employees will be adjusted to align with the benefits provided through the Canada Emergency Response Benefit (CERB) and/or Employment Insurance (EI). We expect more details to be announced within the coming weeks. 

Attestations

If you have applied for Periods 1-4 using either the general method or the alternative method and are now finding that a different calculation method will be more advantageous for Periods 5-9, you are now permitted to change your election for the duration of Periods 5-9 without amending your claims for Periods 1-4.

If you have applied for Periods 1-4 using either the cash method or the accrual method and are now finding that a different calculation method would have been more advantageous, you are now permitted to change your election for the duration of Periods 5-9 — but you must amend all previous claim periods to ensure consistency across every claim period. If you no longer qualify for a previous period due to this change, you may be required to repay the amount you claimed for that period. 

If you are a charity who has applied for Periods 1-4 with or without excluding government grants and are now finding that a different calculation method would have been more advantageous, you are now permitted to change your election for the duration of Periods 5-9 — but you must amend all previous claim periods to ensure consistency across every claim period. If you no longer qualify for a previous period due to this change, you may be required to repay the amount you claimed for that period. Read more about qualifying revenue for charities and nonprofits here.

Additional information about attestations can be found on the CEWS FAQs page. 

Budgeting

Working out a forecast to year-end is a complex task. You need to consider the following factors:

• Anticipated revenue drop for each month

• Based on revenue drop, your eligible subsidy rates (base and top-up)

• Anticipated salary cost

• Whether you have any employees on furlough

You should use CRA’s calculator to work out your CEWS subsidy for Periods 5 and 6, as it will produce an accurate result. Note that the rates change in Period 7, and CRA’s calculator does not (yet) contain these rates. If you are working now on your forecast to year-end, you will need to work out Periods 7 onwards manually.

Any forecast you prepare now will be based on the assumption that the current calculation rules will pertain to future periods. We suggest that you clearly identify this assumption to your board of directors.

If your revenue forecast is inaccurate, your subsidy forecast will also be inaccurate. Referring to the tables above, there is a significant jump to subsidy rates between a 49% revenue drop and a 50% revenue drop. Given the uncertainty of revenue forecasts in these times, if your organization anticipates monthly revenue drops “in that zone,” it would be prudent to base your forecasts on a revenue drop of 49% or less. 

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know going in how much our work will cost — and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price, or accept a portion of said price that reflects your level of satisfaction. 

Contact us: info@youngassociates.ca

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This tip sheet was created by the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.