As part of the COVID-19 response plan, the Federal government is providing a 3-month wage subsidy that allows businesses to reduce the amount of payroll deductions required to be remitted to the CRA.
The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer. For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
The subsidy must be calculated manually and can be understand using the following example: If you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
Once you have calculated your subsidy, you can reduce your current remittance of income tax that you send to the CRA by the amount of the subsidy. Note that you cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums. For example, if you calculated a subsidy of $2,050, you would reduce your current remittance of income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.
When can I start reducing remittances?
You can start reducing remittances of income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020. For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
If the income taxes you deduct are not sufficient to offset the value of the subsidy, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (i.e. after June 20, 2020).
For example, if you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is for remuneration paid after June 20, 2020.
How will the subsidy affect deductions from employees?
There is no impact. You will continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from remuneration paid to your employees. The subsidy is only calculated when you remit these amounts to the CRA.
What else do I need to know?
If you choose not to reduce your payroll remittances during the year, calculate the temporary wage subsidy on remuneration paid between March 18, 2020, and June 20, 2020. You can then ask for the subsidy to be paid to you at the end of the year, or transferred to the next year’s remittance.
Also, if you receive the subsidy, it is considered a taxable income and you must report the total amount as income in the year in which the subsidy is received.