Business
CEWS 2.0 – Why I see it as another attack on the small business owner
July 18, 2017 – The Minister of Finance announces draft legislation of the Tax on Split Income (TOSI) rule changes that would have far reaching impact into the small business community and although some changes were made, the rules have negatively impacted small businesses ever since and will continue for years to come.
Three years later, July 17, 2020 – The same Minister of Finance tables legislation of the changes to the Canada Emergency Wage Subsidy (CEWS), what I like to call CEWS 2.0 which will also continue for years to come.
Before you try to correct me and say that the subsidy is only for 2020, please read on.
While many media and politician soundbites like to give the impression of how CEWS 2.0 will help small business, I cannot help but see this as an opposite approach.
Do not get me wrong, money is money, and businesses will take all the help they can get, and if my business qualifies, I will take full advantage of it, but I personally don’t have to pay a tax specialist to figure it out.
There are two new calculations to CEWS 2.0.
- a baseline amount based on the percentage of revenue decline in the month compared to either the same month in 2019, or the January-February 2020 average revenue amount.
- a top-up amount based on the three-previous month revenue decline where it exceeds 50%.
Instead of an all or nothing at a 30% decline, even a 1% decline will get you a pro-rated payout, although the costs of figuring out your eligible amount might outweigh the benefit.
In fact, you could have an increase in revenue compared to this time last year and still get a payout. Make sense?
If the previous three months were greater than a 50% decline you qualify for the top-up amount regardless of the result for the current month.
The complexity of the CEWS design will reward those that have experts in their corner compared to those that do not.
Consider the following scenario:
A large public corporation that has employees making more than $1,129 a week will be able to not only have a simple calculation, they will not have anyone “related” to the corporation that they have to do extra baseline remuneration calculations for. Just like CEWS 1.0, in CEWS 2.0 every employee including the CEO will be subsidized in a public corporation, with no clawback mechanism (as recommended in my earlier article, the Keep it Simple S…ubsidy).
In the large public corporation, the bookkeeping, payroll, and accounting function will be up to date and (I would hope) accurate because of internal controls. They also frequently have large accounting and I.T. departments to easily calculate the eligibility and amounts for such a subsidy.
But let us compare this to a small owner-managed business like a restaurant for example. The profit margins in restaurants are already sliced thinner than the meat on a charcuterie board. Add to this the extra costs of social distancing and safety precautions, as well as the inconsistency of regulations for being closed, re-opened, and closed again as we navigate the pandemic and restaurants seem like a lost cause for a business owner.
Assuming they are able to still successfully navigate the minefield that COVID19 has placed on their livelihoods, many restaurants have dozens of part-time staff, including family members.
So right away we have a glaring difference: relatives.
The rules in CEWS 2.0 has not reduced any of the requirements for calculations to be made with respect to relatives working in the business. Relatives must have been being paid as a wage employee during one of a few optional calculation periods prior to March 15, 2020 to be eligible for any of the CEWS.
Do you remember TOSI?
TOSI basically was designed so you could only income split dividends with related persons under a complex set of strict rules. Even though restaurants are considered “food services”, the Canada Revenue Agency (CRA) and Finance have in Example 4B of their TOSI explanatory notes an example of a restaurant which would not be considered a service. In doing so, they sent the message to continue to pay yourselves in dividends if you run a family owned restaurant.
As a result, family owned restaurants continued to do just that.
Fast forward to 2020 and you now have family members working in a low margin business, with no support for their dividend remuneration under CEWS 1.0 or CEWS 2.0.
Even if the small business owner was one of the lucky fortune tellers that decided to pay themselves wages, they still have to do a baseline calculation (two different ways – weekly or bi-weekly – for each claim period) just to figure out how much they might be able to get.
Keep in mind the bi-weekly periods are the periods that were set by finance, not the period you may already be using for your payroll cutoff.
Now we have the part-time restaurant staff in my example. The family business now must calculate the average weekly earnings of each individual staff member during the claim period to figure out what the maximum amount of benefit is.
To make it better, the bookkeeping records better be pristine and accurate on a month to month basis, rather than on an annual basis like many, if not most, small businesses do.
Enter in that sale on the 1st of this month instead of the 31st of last month, and you could be looked at as “gaming the system”.
If you are a late-night pub restaurant, make sure that you are closing out the tills at 11:59pm on the 31st of the month – or your numbers would be inaccurate and you could be called a “tax cheat.”
I can’t wait for the Halloween pub crawls this year, when the weekly earnings of those late-night pub staff will have to also be cut off at midnight Saturday, October 31st. At least there will be plenty of mask wearing that night.
So, we now have increased the compliance costs for the small restaurants for monthly reporting, weekly payroll calculations, overnight cutoffs on month-ends, and special treatment for relatives of the business.
It doesn’t take a tax specialist, a cost-accounting CPA, or a PhD in mathematics to figure out that this is going to cost more per employee in overhead costs to the small family business in comparison to the large public corporation.
While I am more than happy to receive money from my clients for doing the immense research and calculations that will be required, the fact remains for the small business owner, is all of this extra work and compliance cost worth it in the end?
Sadly, you will not know if it is worth it, until after you have put in the work to calculate it.
If you happen to be one of the lucky ones that qualifies, you will then have to track the amount of CEWS you received for each employee separately.
This is because the CRA in question 29 of their Frequently Asked Questions on CEWS said that there will be a new box at the bottom of the T4 required to be filled in for the amount of CEWS received for that employee.
But what about my earlier statement that CEWS will impact businesses for years to come? With your calculation and compliance is going on until the end of February 2021 with the addition of the T4 box, does it end there?
February 2021 will just be the beginning. This will begin the audits of the CEWS claims (if they have not already started).
Since the CEWS is required to be reported on the 2020 T4 slips filed by the business in February 2021, would it be fair to say that the three-year tax compliance clock only begins at that time?
This means from now until February of 2024 you can expect to have a call from (likely the payroll audit division of) the CRA to take a look at:
- your weekly employee wage calculations;
- the monthly revenue calculations;
- the monthly cut-offs;
- the timing of your invoices;
- the CEWS amounts allocated to individual staff members; and
- the scrutiny of amounts paid to relatives;
All while you have the joy of having an internal debate with yourself on whether to pay your tax specialist to deal with them, or to try and go at it alone and confused.
July 2017 – TOSI
July 2020 – CEWS 2.0
I wonder what July 2023 will bring.
This article was originally published on July 23, 2020.
—
Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr is the founder of CGL Strategic Business & Tax Advisors (CGLtax.ca). Cory is an advocate for small business in his role as Alberta Governor for the Canadian Federation of Independent Business (CFIB); converts legislation into layman terms for fun; and provides Canadian tax advisory services to other CPA firms across Canada; opinions are his own.
Biography of Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr can be found here.
Business
The world is no longer buying a transition to “something else” without defining what that is
From Resource Works
By Stewart Muir
Even Bill Gates has shifted his stance, acknowledging that renewables alone can’t sustain a modern energy system — a reality still driving decisions in Canada.
You know the world has shifted when the New York Times, long a pulpit for hydrocarbon shame, starts publishing passages like this:
“Changes in policy matter, but the shift is also guided by the practical lessons that companies, governments and societies have learned about the difficulties in shifting from a world that runs on fossil fuels to something else.”
For years, the Times and much of the English-language press clung to a comfortable catechism: 100 per cent renewables were just around the corner, the end of hydrocarbons was preordained, and anyone who pointed to physics or economics was treated as some combination of backward, compromised or dangerous. But now the evidence has grown too big to ignore.
Across Europe, the retreat to energy realism is unmistakable. TotalEnergies is spending €5.1 billion on gas-fired plants in Britain, Italy, France, Ireland and the Netherlands because wind and solar can’t meet demand on their own. Shell is walking away from marquee offshore wind projects because the economics do not work. Italy and Greece are fast-tracking new gas development after years of prohibitions. Europe is rediscovering what modern economies require: firm, dispatchable power and secure domestic supply.
Meanwhile, Canada continues to tell itself a different story — and British Columbia most of all.
A new Fraser Institute study from Jock Finlayson and Karen Graham uses Statistics Canada’s own environmental goods and services and clean-tech accounts to quantify what Canada’s “clean economy” actually is, not what political speeches claim it could be.
The numbers are clear:
- The clean economy is 3.0–3.6 per cent of GDP.
- It accounts for about 2 per cent of employment.
- It has grown, but not faster than the economy overall.
- And its two largest components are hydroelectricity and waste management — mature legacy sectors, not shiny new clean-tech champions.
Despite $158 billion in federal “green” spending since 2014, Canada’s clean economy has not become the unstoppable engine of prosperity that policymakers have promised. Finlayson and Graham’s analysis casts serious doubt on the explosive-growth scenarios embraced by many politicians and commentators.
What’s striking is how mainstream this realism has become. Even Bill Gates, whose philanthropic footprint helped popularize much of the early clean-tech optimism, now says bluntly that the world had “no chance” of hitting its climate targets on the backs of renewables alone. His message is simple: the system is too big, the physics too hard, and the intermittency problem too unforgiving. Wind and solar will grow, but without firm power — nuclear, natural gas with carbon management, next-generation grid technologies — the transition collapses under its own weight. When the world’s most influential climate philanthropist says the story we’ve been sold isn’t technically possible, it should give policymakers pause.
And this is where the British Columbia story becomes astonishing.
It would be one thing if the result was dramatic reductions in emissions. The provincial government remains locked into the CleanBC architecture despite a record of consistently missed targets.
Since the staunchest defenders of CleanBC are not much bothered by the lack of meaningful GHG reductions, a reasonable person is left wondering whether there is some other motivation. Meanwhile, Victoria’s own numbers a couple of years ago projected an annual GDP hit of courtesy CleanBC of roughly $11 billion.
But here is the part that would make any objective analyst blink: when I recently flagged my interest in presenting my research to the CleanBC review panel, I discovered that the “reviewers” were, in fact, two of the key architects of the very program being reviewed. They were effectively asked to judge their own work.
You can imagine what they told us.
What I saw in that room was not an evidence-driven assessment of performance. It was a high-handed, fact-light defence of an ideological commitment. When we presented data showing that doctrinaire renewables-only thinking was failing both the economy and the environment, the reception was dismissive and incurious. It was the opposite of what a serious policy review looks like.
Meanwhile our hydro-based electricity system is facing historic challenges: long term droughts, soaring demand, unanswered questions about how growth will be powered especially in the crucial Northwest BC region, and continuing insistence that providers of reliable and relatively clean natural gas are to be frustrated at every turn.
Elsewhere, the price of change increasingly includes being able to explain how you were going to accomplish the things that you promise.
And yes — in some places it will take time for the tide of energy unreality to recede. But that doesn’t mean we shouldn’t be improving our systems, reducing emissions, and investing in technologies that genuinely work. It simply means we must stop pretending politics can overrule physics.
Europe has learned this lesson the hard way. Global energy companies are reorganizing around a 50-50 world of firm natural gas and renewables — the model many experts have been signalling for years. Even the New York Times now describes this shift with a note of astonishment.
British Columbia, meanwhile, remains committed to its own storyline even as the ground shifts beneath it. This isn’t about who wins the argument — it’s about government staying locked on its most basic duty: safeguarding the incomes and stability of the families who depend on a functioning energy system.
Resource Works News
“It’s a good a bet that high-speed rail between Toronto and Quebec City isn’t even among the top 1,000 priorities for most Canadians.”
The Canadian Taxpayers Federation is criticizing Prime Minister Mark Carney for borrowing billions more for high-speed rail between Toronto and Quebec City.
“Canadians need help paying for basics, they don’t need another massive bill from the government for a project that only benefits one corner of the country,” said Franco Terrazzano, CTF Federal Director. “It’s a good a bet that high-speed rail between Toronto and Quebec City isn’t even among the top 1,000 priorities for most Canadians.
“High-speed rail will be another costly taxpayer boondoggle.”
The federal government announced today that the first portion of the high-speed rail line will be built between Ottawa and Montreal with constructing starting in 2029. The entire high-speed rail line is expected to go between Toronto and Quebec City.
The federal Crown corporation tasked with overseeing the project “estimated that the full line will cost between $60 billion and $90 billion, which would be funded by a mix of government money and private investment,” the Globe and Mail reported.
The government already owns a railway company, VIA Rail. The government gave VIA Rail $1.9 billion over the last five years to cover its operating losses, according to the Crown corporation’s annual report.
The federal government is borrowing about $78 billion this year. The federal debt will reach $1.35 trillion by the end of this year. Debt interest charges will cost taxpayers $55.6 billion this year, which is more than the federal government will send to the provinces in health transfers ($54.7 billion) or collect through the GST ($54.4 billion).
“The government is up to its eyeballs in debt and is already spending hundreds of millions of dollars bailing out its current train company, the last thing taxpayers need is to pay higher debt interest charges for a new government train boondoggle,” Terrazzano said. “Instead of borrowing billions more for pet projects, Carney needs to focus on making life more affordable and paying down the debt.”
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