Earlier this year, the federal government introduced the Canada Emergency Wage Subsidy (CEWS) program to support Canadian employers during COVID-19. The program provides a wage subsidy of up to 75% of an employee’s pre-COVID-19 earnings, up to a maximum of $847 per week. The subsidy is available from March 15, 2020 until August 29, 2020.
The rules are complex and determining eligibility can be difficult, especially for physicians who may use different structures, including group practices. Your tax advisor is in the best position to analyze your specific situation.
Who is eligible for CEWS?
- Employers who are individuals, corporations, non-profit organizations, registered charities and partnerships;
- Employers must have a Canada Revenue Agency (CRA) business number for payroll as of March 15, 2020;
- The employer must have experienced a reduction in revenue of at least 15% in March 2020 and 30% in April and May 2020 when compared to a reference period. (For physicians, your revenue is generally your practice income.)
Complexities with group practices
Medical practices can take many structures and may not fit neatly into the legislative requirements to qualify for CEWS. They include:
- medical professional corporations
- group practices that could be
- a cost-sharing arrangement
- group corporations
- group partnerships
- revenue sharing arrangements.
Because each structure is unique, determining eligibility for CEWS requires a careful analysis of the facts and circumstances around the structure itself. This analysis should be carried out by your tax professional.
Two issues with CEWS for group practices
Here are two areas of complexity that should be analyzed for group practices.
Assigning business numbers
Employers must have a CRA business number to make payroll remittances for the business.
In some group practices, several physicians can share the cost of employees (e.g., admin staff, nurses). They may have one CRA payroll number for their collective group. Analysis is needed to determine: Who is the actual employer? Is it possible for multiple physicians to share the business number when applying for CEWS? Can the group entity itself apply — or should it?
Businesses must show that they have experienced a revenue decline when compared to a prior reference period.
a. What is considered "revenue"?
Generally, for the CEWS application, revenues earned must be from arms’ length sources. If you’re in a group, the revenue that you receive from the group entity may not be considered “revenue” for a CEWS application. An example of this might be a physician whose corporation receives medical practice revenue from a group partnership, but the physician is also a partner. A tax professional can help you determine if you’re eligible.
b. What accounting method should be used?
In some cases, different accounting methods (cash versus accrual) can make a significant difference in how your revenue decline is calculated and whether you qualify for CEWS. In addition, complicated group structures may be able to qualify by consolidating revenue in a positive way.
c. What prior period should you use as your reference period?
Similar to the above, how your revenue is calculated for the prior reference periods can make a difference in how your revenue decline is calculated and considered for the CEWS application.
Beware of penalties, if ineligible
It is important to have complete and accurate information for your CEWS application. If the CRA determines later that you were ineligible, any CEWS received must be repaid.
If the CRA finds that you deliberately entered into transactions to inflate your subsidy or were grossly negligent in your application, it can charge a penalty equal to 50% of the CEWS subsidy received or an additional penalty of 25%.
How to apply for CEWS
To apply for CEWS, you can use CRA’s “My Business Account” online service or through a separate Web Forms application.
You can also authorize a representative to apply on your behalf through the CRA’s “Represent a Client” service.
If a professional services firm usually completes your business tax filings for you, you’ve likely already authorized your accountant or tax advisor to represent your business. This could help you streamline the application process since your representative can apply for you once the analysis is complete.
Get the COVID-19 financial help you need
Qualifying for COVID-19-related financial support can be complex and doing so without thorough analysis may lead to incorrect conclusions and may impact your colleagues as well.
Before you contact your accountant or tax advisor, take the following steps:
- Collect revenue and expense information in advance, if possible.
- Collect legal agreements that govern your group arrangement.
- Collect revenue information for all participants in your group arrangement, if possible. (This may be a new undertaking for some group arrangements.)
- Share all information related to other COVID-19 subsidies your practice or employees are receiving as they may need to be factored into the analysis.
- Confirm whether you have previously authorized your advisor to represent you with CRA.
- Consult your banker for a Canada Emergency Business Account (CEBA) application or credit deferral programs.
- Consult your lawyer for complex group arrangements including adjustments to legal agreements.
If you have questions about how changes to your cash flow impact your investment, retirement, or other financial plans, talk to an MD Advisor*.
*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.