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.

Navigating the CECRA Program (Canada Emergency Commercial Rent Assistance)

We’ve covered government programs like CERB (the Canada Emergency Response Benefit) and CEWS (The Canada Emergency Wage Subsidy), and we’re happy to add a tip sheet for the Canada Emergency Commercial Rent Assistance (CECRA). It took some time for details of the program to become available. When new information was hard to come by, we decided to take matters into our own hands and contact the CRA directly about our questions related to the CECRA. Here is the information we discovered that might help you decide if this program will work for your organization. 

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

What is the CECRA Program?

Administered by the Canada Mortgage and Housing Corporation (CMHC), the Canada Emergency Commercial Rent Assistance (CECRA) Program provides relief for small businesses (including non-profit and charitable organizations) experiencing financial hardship due to COVID-19. 

It offers unsecured, forgivable loans to eligible commercial property owners to reduce tenants’ rent by a minimum of 75% for April, May, and June 2020. That is, the funds go to your landlord; the landlord in turn reduces their tenants’ rent. 

The tenant pays 25%, the property owner absorbs 25%, and the government provides a loan to the owner for the remaining 50% of the typical rent cost. The loan will be forgiven if the landlord complies with all applicable program terms and conditions — including to not recover forgiven rent amounts when the program is over.

The program will be accepting applications until August 31, 2020. 

Though landlords must apply to the program, their small business tenants must meet certain criteria to qualify. 

Eligibility

To qualify for the CECRA program, the commercial property owner and small business tenant must have a legally binding rent reduction agreement for April, May, and June 2020 to reduce tenant rent by at least 75%. The rent reduction agreement must include a moratorium on evictions for this period.

Impacted small business tenants are businesses — including non-profit and charitable organizations — that:

• pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement)

• generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level)

• have experienced at least a 70% decline in pre-COVID-19 revenues (see below)

Calculations

There are 2 scenarios by which to calculate your 70% reduction in revenues:

• If your small business was operating during April – June 2019, then compare your average gross revenues from April, May and June of 2020 to your average revenues of April, May and June of 2019.

• If your small business was not operating during April – June 2019, then compare your average gross revenues from April, May and June of 2020 to your average gross revenues for January and February 2020.

Note: You will be required to calculate your AVERAGE of April, May and June 2020, rather than a month over month comparability.

For registered charities and non-profit organizations, the calculation would include most forms of revenue, excluding revenues from non-arm’s length persons. Registered charities and non-profits can also elect to exclude grants and government support.

The CMHC defines gross revenue as revenue earned from ordinary activities in Canada. Calculate your revenue using your normal accounting method (ie: cash, accrual, or modified accrual) and exclude revenues from extraordinary items. Government wage subsidies (the CEWS and the 10% wage subsidy) are considered extraordinary items and can therefore be excluded from your calculations as well. 

If you’re applying before June 30, you must forecast your June revenues. This forecast must be supportable by the variables at play for your business. The result is to be guided by the average revenue reduction for April and May and the forecasted change given your respective province or territory’s guiding principles for reopening the economy.

Application

The application process is initiated and submitted by the landlord. 

Tenants will need to attest to their eligibility for the program with an attestation form, a sample of which can be found here. Landlords must also submit their tenants’ contact information, registered business name, business number, number of employees, lease area and monthly gross rent for April to June 2020. Tenants will be required to provide this information to their landlord. 

Property owners also need to provide information, sign an attestation and agree to the terms and conditions of the loan agreement. These documents can be found in the application portal.

Finally, property owners must enter into a legally binding rent reduction agreement with each impacted tenant to confirm the rent reduction in accordance with the program terms and conditions. This agreement is conditional upon final approval of the application.

More information about the program can be found at: www.cmhc-schl.gc.ca

Our Findings

The CMHC website does not go into great detail about calculations for non-profits and charities. In order to uncover more information, we were able to get through to the CRA via phone last week. We also read through the sample attestation form, which brought some insight. Here are our findings:

1. Use the AVERAGE of April, May and June for your 2019 and 2020 revenue calculations. You are not comparing month over month as it was with the CEWS.

2. Registered charities and Non-Profit organizations CAN elect to exclude grants and government support from your eligibility calculations.

3. You CAN exclude the wage subsidies (the CEWS and the 10% wage subsidy) for the purposes of the revenue calculation. These are considered extraordinary items. 

4. If you are unable to forecast June accurately, it would be best to delay filing the claim. Speak with your landlord about delaying the process if necessary. 

We have heard that some landlords are requiring tenants to provide their information on a short turnaround. You may need to meet their timeline if they are applying on behalf of numerous tenants.

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 can help navigate your organization’s CECRA eligibility requirements and calculate the required revenue reduction. 

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 Cassie Wojcik, Rob Bril and the Young Associates team based on the best information available to us as of the date of posting. We are happy to receive your comments at info@youngassociates.ca. 

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.

Important CEWS Budgeting Considerations

As more and more businesses move out of the emergency phase and into the planning phase of the pandemic, considerations surrounding CEWS and other government supports available throughout the rest of the year are top of mind. We want to make sure you understand provisions of CEWS that may help you with budgeting for staffing over the summer and fall.

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

Food for Thought About Maximizing CEWS and Other Government Support

We’re very aware of the challenges of planning for reopening — and that for many, particularly in the performing arts, the next production is likely to be many months in the future. Understanding the provisions of CEWS may help you with budget decisions.

It’s important to understand a feature of the program that may not have been top of mind while you were sorting out eligibility and the first subsidy claim. You can base your CEWS claim on pre-crisis compensation — not necessarily on the compensation you are paying right now. In your budget planning, you may want to consider reducing salaries temporarily, to reflect reduced current workload, and to shift your salary spending to the fall, after CEWS has ended.

This opens the possibility of reducing compensation now and still being subsidized up to 75% of your staff’s pre-crisis wages. Therefore, if wages are reduced to 75% or less, they will be subsidized in full. If wages are kept above 75%, anything above that benchmark will be paid by the organization.

Note that due to maximum claim amounts, any employees earning more than $847 per week will need different calculations. 

Additionally, there’s a special provision for employers who keep staff on payroll when there’s no work for them — AKA “furloughed” staff. CEWS will cover 75% of their wages and 100% of employer CPP and EI costs.

Scenarios to Help With Planning

Many of you will have worked through — or are working through — your own calculations. We are offering the following scenarios to illustrate options and the financial outcomes you might attain.

Results will vary by company. We have used publicly sourced T3010 data as the basis of our sample company.

XYZ Theatre Company has an operating budget of $875,000. Its 5 staff are all at home, working remotely. The leadership will confirm reopening plans based on public health advisories – but they are anticipating their next show will be February 2021.

That’s 8 months down the road.

At the moment, they are paying everyone their normal salaries. Board and management are looking at what the company can reasonably afford while conserving resources for a successful re-launch.

They qualify for CEWS, which provides 24 weeks of subsidy, ending August 29. Staff will require notice of any change to salary levels. Each company must evaluate this relative to its circumstances. We are using the July 4 pay period as the first possible date for a pay change.

Calculations are based on a number of additional assumptions, which you can find here.

Salary and CEWS details are given in the table below.

If XYZ Theatre Company continues to pay everyone their regular salary during 2020, CEWS will reduce their net cost by 89,256. 

To give you a sense of proportion, this company’s salaries represent 30% of its 2020 operating budget. CEWS will cover a bit more than 10% of the total budget. This illustration won’t hold true in all circumstances; proportions depend on the size of the company and its payroll.

Click here to review the impact of CEWS on a sample pay period in July.

Scenario: 75%

One alternative under consideration is reducing pay to 75%, effective with the July 4 pay. 

If they pay 100% of regular pay from the start of the year to the June 27 pay, and then reduce pay to 75% until Dec 31, their net salary cost will be 140,519. You can review the table here. 

In this scenario, their net salary cost falls to 140,519. 

Click here to review a sample pay period in July.

They will receive the same subsidy (89,256) as if they kept salaries at 100%, because they can base their CEWS claim on pre-COVID earnings. 

In XYZ Theatre’s case, reducing the AD and MD salaries to 75% moves their gross pay below the CEWS max, but because the subsidy is the lesser of pre-COVID earnings or actual salary paid, the company can still claim the maximum CEWS subsidy. 

From September to December, the wage reduction will save an additional 32,825. Total bottom-line impact will be 122,081. On their $875,000 budget, this represents savings of about 14%.

Summary table

Here are the results of our two scenarios, side by side.

Additional considerations

We are not advocating for salary reductions — simply illustrating the importance of CEWS being based on pre-COVID earnings.

If you reduce salaries by more than 75%, you will reduce the subsidy amount as well — effectively gaining nothing.

If you are considering salary reductions, consult with an HR professional about the specifics of your organization’s situation. 

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 can help you think through this process and prepare budgets and cash flow projections for the next few months and beyond. 

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 Heather Young CPB and 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.

Canada Emergency Wage Subsidy Updates & Interpretations

The legislation supporting the Canada Emergency Wage Subsidy (commonly known as the 75% wage subsidy, or CEWS) is finally here. On April 11, Parliament passed Bill C-14, officially passing the subsidy into law and giving our sector more concrete guidelines for evaluation and application. Below, we have outlined the existing plan as well as the updates to help you navigate the implementation of the wage subsidy for your organization.

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

Overview

The Canada Emergency Wage Subsidy (CEWS) will reimburse eligible employers 75% of employees’ wages or salaries, based on a maximum annual salary of $58,700 – representing a benefit of up to $847 per week, per employee. The program will be in place for a 12-week period, from March 15 to June 6, 2020. 

Employers are eligible if they are private sector entities (commercial or nonprofit) that have experienced a 15% reduction in revenue in March, and a 30% reduction in revenue for the remaining months of the program. 

Eligibility for this wage subsidy is based on the salary or wages actually paid to employees. The application will be processed on a retroactive basis, so the amount of salary and wages paid will need to be identified during the application. All employers are expected to make best efforts to bring employees’ wages to their pre-crisis levels – i.e. pay the remaining 25%.

An application portal for the subsidy is in the works and is expected to be available within the next 3-6 weeks. 

Calculating Revenue Loss

To be eligible for the program, employers must:

• Decide on what basis they will calculate their eligibility. There are two basic options. Either compare their revenue in March, April and May 2020 to that of the same month of 2019. Or, compare their revenue in March, April and May 2020 to the average of their revenue in January and February 2020 to show the required reduction. (That is: the Jan-Feb average serves as the benchmark for each of the following three months.) Once the method is chosen, it must be used throughout the program period.

  • For March, the government reduced this 30% benchmark to 15% in recognition of the fact that many businesses were not affected by COVID-19 until halfway through the month.

  • Employers are allowed to measure revenues either on the basis of accrual accounting (as they are earned) or cash accounting (as they are received). Once chosen, the same accounting method must be used by the employer throughout the program period.

• NEW: To provide certainty for employers, the government has included wording that states once an employer is found eligible for a specific period, they will automatically qualify for the next period of the program.  For example, an employer with a revenue drop of more than 15% in March would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9. Similarly, an employer with a revenue drop of 30% in April would qualify for the second and third periods of the program, covering remuneration paid between May 10 to June 6. 

  • Note, however, if you receive funds for which you are not eligible, you will be required to pay them back. If any fraudulent activity is found individuals could face fines and/or imprisonment.

  • We anticipate further clarity on this point to be forthcoming from the federal government

Charities and nonprofits have options available when it comes to calculating the 30% loss of revenue required to qualify for the program

• To recognize the challenges in measuring revenues of non-profit organizations and registered charities the legislation gives the option to choose whether or not to include amounts received from government sources in revenues for the purpose of applying the revenue decline test. This would include operating and project grants. Once chosen, the same approach must be maintained by the organization throughout the program period.

  • It is to your advantage to consider future months before making your first filing.

Pay Periods

Note that the subsidy is framed as a weekly amount by the CRA. If you pay your staff weekly, you’re set. If you pay bi-weekly, obviously, the calculation is straightforward. If you pay your staff semi-monthly or monthly, you cannot use your payroll numbers: you need to calculate it separately.

Donations from Board Members, Transfers from Investments and other Non-Arm’s Length Transactions

Bill C-14 does not count as revenue amounts derived from a person or partnership not dealing at arm’s length with the organization. We take this to mean that donations from board members and staff, transfers from investments, intercompany transactions (e.g. between an organization and its foundation) and amounts from other non-arm’s length entities should not be included in your calculations evaluating revenue decreases.

Refund of Employer Source Deduction Contributions

For employees who are on leave with pay due to COVID-19, the CEWS will also compensate the employer for the employer’s portion of their contributions to the Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan on top of the 75% wage subsidy. 

You can claim this amount for each week that the employee is receiving their salary or wages but is not working at all.

Employees who COULD work but are refusing don’t qualify for the above. The leave has to be initiated by the employer.

It is unclear at the moment how the employee’s leave should be documented, but it seems clear that documenting the leave – and the reason for the leave – will be important. We recommend one or both of the following: 1) Save written correspondence with the employee explicitly documenting the leave 2) Create an internal document (e.g. a Board motion) stating your rationale. 

Penalties

The employer will be required to repay amounts received under the CEWS if they do not meet the eligibility requirements. 

The government is also imposing a penalty of 25% of the CEWS received by an employer if the employer has engaged in transactions that artificially reduce the employer’s revenue in order to qualify for the subsidy. 

Under existing provisions of the Income Tax Act, persons making, or participating in making, a false or deceptive statement could be prosecuted with a summary or indictable offence. Anyone found guilty could be sentenced to prison for up to 5 years.

Interaction with the 10% Temporary Wage Subsidy

Note that the 75% CEWS does not replace the 10% Temporary Wage Subsidy. Both programs exist. Employers may qualify for both.

If you qualify for both, in our opinion it is to your advantage to claim the 10% subsidy now. You can claim this as a reduction to source deductions payable, thereby helping your cashflow right away. The CEWS portal is expected to launch in 3 to 6 weeks, with a direct deposit turnaround of several additional days. Please see our prior tipsheet for more information.

Note that the amount you claim via the 10% Temporary Wage Subsidy must be deducted from your 75% claim to CEWS. You cannot exceed the 75% subsidy amount. 

Interaction with the Work Share Program

Note that you still can still qualify for the CEWS if you are participating in the Work Share program administered through Service Canada. You will be required to report amounts you have already received through the Work Share program which will reduce the amount received from the CEWS. 

CEWS and CERB

Whether it is best to rehire employees that are currently receiving CERB or to continue to have them laid off is a matter that needs to be evaluated on a case by case basis. It is to your benefit – and your employees’ – to evaluate your financial position to determine the best course of action. 

Claiming CEWS for Subsidized Positions

This point is not specifically covered by government publications, but we wish to draw it to your attention, as in our view it is likely to be interpreted by the CRA as “double-dipping.”

Fully-Funded Positions

If a position is already 100% funded (e.g. Investing In Neighbourhoods, Canada Summer Jobs, Young Canada Works) do not also claim the CEWS. 

Partially Funded Positions

If a position is partially funded by another program, claim only the amount that would bring your total funding for the position up to 75% of the total wages paid. For example, if a Young Canada Works position is subsidized on a 50-50 basis between the employer and the government, the government is already subsidizing 50% of the wages. Therefore, you would claim the additional 25% to “top-up” the total subsidy to 75%.

Decisions that May Be Open to Interpretation

The legislation and general content presently available about CEWS does not cover every possible situation. Employers may need to make their own decisions about how to interpret the rules.

For any element of CEWS that may be open to interpretation, it will be prudent to document your process for potential future audit.

The government’s approach is to respond to the immediate crisis by paying first and asking questions later. Employers must behave responsibly in interpreting the available guidelines, and must assume that there is an eventual risk of audit. Maintain thorough documentation, and ensure that your board of directors understands the decisions you are making.

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 can help you calculate your year over year revenue decreases and provide cash flow projections for the coming months, as well as help you calculate and implement the 75% or the 10% wage subsidy for your organization.

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 Cassie Wojcik, Alicia McGuire PCP and 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.