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The wage subsidy's mixed result

Small and medium businesses have been unsure of eligibility and revenue decrease requirements under the Canada Emergency Wage Subsidy.

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A controlled-access online survey conducted by the Canadian Federation of Independent Business (CFIB) of its members in January 2021, with over 4000 respondents, suggests that up to 239,000 businesses could disappear in Canada as a direct result of COVID-19. The survey results demonstrate that Alberta has a higher percentage of businesses at risk of closure in comparison to the average of all of the provinces.  Amidst an economic recession and low oil and gas prices, small- and medium-sized businesses in Alberta were struggling before COVID-19. The pandemic only further exacerbated and compounded the province’s financial disruption in 2020. With the announcement of federal income tax relief measures, Albertans were hopeful that such programs could resuscitate the flailing economy and provide much needed support to keep local businesses operational. Unfortunately, results have been mixed.

On March 27, 2020, the Canada Emergency Wage Subsidy (CEWS) program was launched to provide support to eligible Canadian businesses that suffered certain significant revenue decreases as a result of the pandemic. As part of the program, federal payments were made to eligible applicants to offset the cost of employees and cover a portion of employee wages. As of January 2021, CEWS was the highest utilized federal support program both in Alberta and nationally, according to Keyli Kosiorek, a senior policy analyst at the Canadian Federation of Independent Business.

Given the state of the Alberta economy prior to the pandemic, it is perhaps not surprising that a survey conducted by the CFIB in October 2020 of almost 500 companies discovered that a greater number of small business owners in Alberta relied on CEWS than the national average. The Business Council of Alberta reports that, after accounting for population size Alberta stands out as receiving the largest share of support from CEWS - “if all provinces were affected equally, Alberta would have received about 12% of CEWS support—equivalent to its share of national employment. However, as of the latest data available, Alberta is receiving 16% of total CEWS dollars. This means Alberta accounts for 31% more than its “expected share” of CEWS.”

In response to the uptake of CEWS and other relief programs, tax and legal advisors were required to review the legislation in real-time and distill the program conditions and requirements to help clients receive much-needed cash infusions as quickly as possible. Alisha Mawji, is co-founder of altruWisdom a Calgary startup which provides an online platform to help Canadians make financial decisions.  She indicated that from March to May 2020 her platform was bombarded with requests for advice with respect to CEWS. She advised that the top question from clients was whether they met the CEWS qualification requirements. Small businesses and incorporated professionals, in particular, were unsure of eligibility and revenue decrease calculation requirements.

In particular, for some, the benefits of CEWS were limited or nonexistent as additional costs, including rent, outstanding debts, lower sales and higher inventory spiraled out of control. In April 2020, 314 non-profits and charities prepared a letter to the Canadian government requesting that CEWS be available in the absence of meeting the 30% revenue loss eligibility requirement as such a drastic requirement would put non-profits and charities out of business and result in permanent closures. Although program requirements were subsequently adjusted to provide some additional flexibility, many nonetheless opted not to claim CEWS given the complex nature of the legislation and its labyrinthine requirements. In September 2020, tax advisors and business industry publicly chastised the administration of the CEWS program, the Canada Revenue Agency (CRA) for aggressively pursuing audits of CEWS claimants putting unnecessary pressure on already struggling businesses. Redacted cumbersome information requests circulated on LinkedIn highlighted the onerous nature of the CRA requests and short turn-around response times mandated by the tax authorities.  One Calgary-based registered charity, who opted to remain anonymous, noted, “we simply could not afford to hire tax advisors or dedicate resources to understanding the complex rules and feared penalties or other repercussions in case we misunderstood the requirements.”

Regardless, the federal relief program does not appear to be going away anytime soon. Not only has it been extended to June 2021, the CRA has also announced a change to T4 information slips for employers. All Canadian employers will be required to report employment and retroactive CEWS payments on the T4 Statement of Remuneration to help track payments. As the 16-month CEWS program runs its course, the program will likely continue to generate controversy and have mixed impact on Alberta businesses.