TurboTax wants to ensure accuracy with the information we have provided in this article, all content will be updated as we learn more from the Canada Revenue Agency and the Government of Canada.
Let’s clear up what the Temporary Wage Subsidy was about first, and then how it impacted all of us, if at all. Also, this was a separate program from the Canada Emergency Wage Subsidy (CEWS), which was announced on March 27th, 2020. For details on CEWS, click HERE.
What was the Temporary Wage Subsidy (TWS)?
The TWS was a 3-month subsidy program, provided to qualifying businesses. It was calculated on their remuneration (such as salaries or wages) paid to employees between March 18, 2020, and June 19, 2020. The subsidy was equivalent to 10% of the remuneration paid, to a maximum of $1,375 per employee, and $25,000 per employer.
The subsidy was for remittances on the income tax portion that you held from the employee and would be remitted to the CRA, not the Canada Pension Plan (CPP) or Employment Insurance (EI), that was withheld from the employee. The amount withheld from the employee did not change, rather the employer could reduce the amount of income tax source deductions being remitted to the CRA, by the subsidy amount, for the stated period.
As a business, you must keep in mind that this subsidy was taxable income for you. If your subsidy ended up being $2,000 that you didn’t have to remit to the CRA, that is now reported in your bookkeeping as income and will be taxed on your next tax return filing.
Individual Taxpayers (employees)
This wage subsidy did not impact you based on the information provided. Even though the federal government provided this subsidy to qualifying businesses, one where you might be employed, it actually did not impact the taxes that were being withheld from your paycheque continued as they’ve always did and you will receive your T4 in February 2021 for your wages and appropriate deductions.
Self-employed individuals, partnerships, or individuals (other than a trust)
Sole-proprietorships or partnerships with employees were included as eligible employers within the legislation. These businesses were able to utilize the subsidy on their employees’ income tax remittances, but not on monies paid to the proprietor or partner, as they are not an employee of their unincorporated business.
Corporations, most Canadian-Controlled Private Corporations (CCPCs)
CCPCs were eligible if for their most recent tax year, ending prior to March 18, 2020, they had a business limit greater than nil (for purposes of qualifying for the small business deduction); and their taxable capital employed in Canada was less than $15 Million.
Other business types
Registered charities and non-profit organizations also qualified for the TWS.
Calculating and reporting the TWS
All businesses handled the TWS in the same way in terms of calculation and remitting. Be sure to track your subsidy amounts to ensure to do not exceed the limits and are prepared for the 2021 T4 summary calculations.
The CRA was not responsible for calculating the allowable subsidy. You were responsible for calculating the subsidy manually and did so by:
- Determining the number of employees from March 18th to June 19th, 2020
- Multiplying the number of eligible employees by $1,375 ( max $25,000)
- Calculating your gross eligible remuneration from March 18 to June 19, 2020 (total of the 3-month salary for each eligible employee)
- Multiplying your gross eligible remuneration by 10% to get your allowable subsidy amount. Make sure this amount does not exceed the maximum of $1,375 per eligible employee or $25,000 per eligible employer.
You will need to keep information to support your calculations in case CRA asks for them. As well, you need to fill out the PD27 self-identification form for each payroll account. If you reduced your payroll remittances, but it is later determined you were not eligible for the TWS, the CRA will assess you for the income tax you deducted from your employees’ pay but did not remit. This assessment may include penalties and interest.
You must report the total subsidy amount as income on your tax return in the same year you reduced your remittances.
For more details on wage subsidy and other benefits as part of the Federal Government’s Emergency Response Plan for COVID-19, click here.
See also our COVID-19: Tax Info Centre, from our TurboTax Support team, answering many FAQs on this topic and more.
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Susan has been an accounting professional for over 20 years, and has been working with businesses and individuals and their taxes for the past 12. Education is a passion for Susan, and when not writing or talking about tax for TurboTax Canada, she can be found speaking at events, teaching at Mohawk College, and working with many businesses and entrepreneurs through her own accounting advisory practice. Susan is known to be approachable but pulls no punches when it comes to the reality of business finance and taxes.