Connect with us
[the_ad id="89560"]

Business

CEWS 2.0 – Why I see it as another attack on the small business owner

Published

12 minute read

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.

  1. 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.
  2. 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.

CEO | Director, Canadian Tax Advisory CGL Strategic Business & Tax Advisors With the Income Tax Act always by his side on his smart-phone, Cory has taken tax-nerd to a whole other level. His background in strategic planning, tax-efficient corporate reorganizations, business management, and financial planning bring a well-rounded approach to assist private corporations and their owners increase their wealth through the strategies that work best for them. An entrepreneur himself, Cory started CGL with the idea that he wanted to help clients adapt to the ever-changing tax and economic environment and increase their wealth through optimizing the use of tax legislation coupled with strategic business planning and financial analysis. His relaxed blue-collar approach in a traditionally white-collar industry can raise a few eyebrows, but in his own words: “People don’t pay me for my looks. My modeling career ended at birth.” More info: https://www.CGLtax.ca/Litzenberger-Cory.html

Follow Author

Business

INDIGENOUS CONSULTATION AND ENGAGEMENT AT CANADA’S ENERGY AND UTILITY REGULATORS

Published on

INDIGENOUS CONSULTATION AND ENGAGEMENT AT CANADA’S ENERGY AND UTILITY REGULATORS

CAMPUT is the Association of Canada’s provincial, territorial and federal energy and utility regulators.  CAMPUT’s purpose is to improve energy and utility regulations in Canada and to educate and train our members.  We are highlighting the work of two of our members, the Canadian Nuclear Safety Commission and the Canada Energy Regulator, in the areas of Indigenous consultation and engagement.

The Canadian Nuclear Safety Commission (CNSC) has a broad mandate, including to protect health, safety and security, and the environment, and to disseminate objective scientific, technical and regulatory information to the public, including Indigenous groups.   The CNSC is also an agent of the Crown with the responsibility of ensuring the Duty to Consult is met before making decisions.  The CNSC has explored various means to ensure that Indigenous groups’ voices are heard and integrated into Commission decision-making. The CNSC has also committed to developing on-going, respectful relationships that allow open dialogue in the spirit of reconciliation and trust building.

First, the CNSC focused in-house and put into place policies, practices and processes with an overarching regulatory framework and management system to confirm that CNSC decisions uphold the Honor of the Crown. This included a Regulatory Document (REGDOC 3.2.2, 2016) that sets out the Commission expectations on how proponents play a significant role in working with Indigenous groups to address concerns and mitigate impacts and / or treaty rights, early in design and project proposal stages.

The CNSC also has a dedicated team with expertise in Indigenous consultation and engagement that conducts ongoing engagement with Indigenous groups with interests in nuclear facilities. The long-term goal is to help build relationships and trust and help CNSC staff learn more about the history, rights, interests, and culture of the Indigenous groups. The CNSC continues to work with Indigenous groups to ensure they are provided the opportunity to present their views and give oral presentations at Commission hearings.

To support this participation, the CNSC has put in place a Participant Funding Program that in part, has helped Indigenous groups hire consultants to review technical scientific reports, fund Indigenous Knowledge studies, cover community meeting costs, pay Honoraria for elders, and costs for travel and preparations for hearings. Further, Commission hearings have taken place in communities near facilities to allow easier access by Indigenous groups, and teleconferencing, web access, live streaming and simultaneous translation in Indigenous languages has also been used.

The CNSC acknowledges the importance of working with and integrating Indigenous Knowledge alongside scientific and regulatory information in its assessments and regulatory processes, where appropriate and where authorized by Indigenous communities. Indigenous ways of knowing and cultural context enhance the CNSC’s understanding of potential impacts of projects and strengthens project reviews and regulatory oversight.

The CNSC also runs its own Independent Environmental Monitoring Program (IEMP) that seeks Indigenous participation in taking samples from public areas around nuclear facilities and measuring and analyzing the amount of radiological and hazardous substances in the samples. Following discussions with many Indigenous groups, it was recognized that they could play a key role in identifying country foods and traditional harvest areas and participate as part of the IEMP. Getting meaningful monitoring results to Indigenous communities is a key priority for the CNSC.

The Canada Energy Regulator (CER) welcomes change. In August 2019 we transitioned from the National Energy Board to the Canada Energy Regulator. The CER has been given new legislation and is focused on improvement. Reconciliation with Indigenous Peoples is a pillar of our renewal.

Our legislation directs us to find meaningful ways to engage with Indigenous Peoples. We embrace our new mandate and have woven specific deliverables on reconciliation into every aspect of our work.

Our vision: to transform the way we work with Indigenous Peoples, recognizing their unique cultures, knowledge and histories; and endeavor to reflect a renewed Nation- to-Nation relationship based on the recognition of rights, respect, cooperation and partnership.

We recognize reconciliation is an ongoing process that occurs in the context of evolving Indigenous-Crown relationships. Sitting around the table with Indigenous communities, we are working to find new ways to co-manage regulatory oversight. We recognize the inseparable connection Indigenous Peoples have with the land and the water, and we will work collaboratively to protect them. We are also ensuring we equip the communities with the right skills and support to make the changes we envision a reality.

Indigenous Advisory and Monitoring Committees (IAMC) bring together Indigenous and federal leaders to provide advice to regulators and to monitor the Trans Mountain Expansion and Line pipelines. Members share the goals of safety and protection of environmental and Indigenous interests in the lands and water. Indigenous participation does not equal support or opposition for a project, allowing for better information-sharing within the group. This initiative represents a foundational change in the way the CER and the Federal government work with Indigenous Peoples. It aims to develop an enduring and meaningful relationship for the entire lifecycle of the project. We believe our work with the IAMCs can lead the way on co- management of regulatory oversight activities and has the potential to be applied across the rest of Canada’s energy system.

Here are some other ways we are changing how we work with Indigenous Peoples:

  • We are meeting with Indigenous communities earlier on who may be impacted by projects we regulate to better understand their concerns and share how the CER holds companies accountable for the protection of Indigenous rights and interests.
  • We are adapting our hearing processes to allow for different paths of Indigenous participation. This includes sharing Indigenous Knowledge, allowing for ceremonies, selecting specific locations for the hearing that are convenient to Indigenous participants or elders, and allowing for remote participation if travel is not possible.
  • We are developing a National Indigenous Monitoring Policy so that all CER-regulated infrastructure projects can benefit from Indigenous Knowledge when they are being build and operated.
  • We are training our employees to understand more about Indigenous history, culture and contemporary issues facing Indigenous Peoples in Canada. This training ensures that consideration of Indigenous rights and interests and becomes embedded in our way of working.

Background.  The Canadian Energy Compendium is an annual Energy Council of Canada initiative which provides opportunity for cross-sectoral collaboration on a topic of shared interest across the Canadian energy sector, produced with the support of Canada’s national energy associations and Energy Council of Canada’s members. The stories contributed to the 2019 edition, Indigenous Energy Across Canada, highlight current conversations celebrating Canada’s dynamic energy sector and encouraging its continuous improvement.

Thanks to Todayville for helping us bring our members’ stories of collaboration and innovation to the public.

Click to read a foreward from JP Gladu, Chief Development and Relations Officer, Steel River Group; Former President and CEO, Canadian Council for Aboriginal Business.

JP Gladu, Chief Development and Relations Officer, Steel
River Group; Former President & CEO, Canadian Council for Aboriginal Business

 

Jacob Irving, President of Energy Council of Canada

The Canadian Energy Compendium is an annual initiative by the Energy Council of Canada to provide an opportunity for cross-sectoral collaboration and discussion on current topics in Canada’s energy sector.  The 2020 Canadian Energy Compendium: Innovations in Energy Efficiency is due to be released November 2020.

Click to read comments about this series from Jacob Irving, President of the Energy Council of Canada.

COASTAL GASLINK PIPELINE PROJECT SETS NEW STANDARD WITH UNPRECEDENTED INDIGENOUS SUPPORT AND PARTICIPATION

Hydro-Québec takes partnerships, environmental measures and sharing of wealth to new levels

Read more on Todayville.

 

Continue Reading

Alberta

Aurora reports $3.3 billion loss for full year, $1.86 billion for Q4

Published on

EDMONTON — Aurora Cannabis Inc. says it incurred $3.3 billion in losses in its 2020 fiscal year, including $1.86 billion in its latest quarter due to large impairment charges.

The Edmonton-based cannabis company marked the quarter by taking $1.6 billion in goodwill writedowns, $86.5-million in writedowns related to its production facilities and $135.1 million worth of inventory charges.

It did not disclose its earnings per share for the quarter, but analysts had expected the company to report a loss of 42 cents per share.

Its fourth-quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was negative $34.6 million, compared with a loss of $50.4 million a year earlier.

Net revenue reached $72.1 million for the three months ended June 30, an almost 30 per cent drop from the $98.9 million it reported last year.

Recently appointed CEO Miguel Martin says he is focusing on repositioning the company immediately because it has slipped from its top position in the Canadian consumer cannabis market.

“My focus is therefore to reposition the Canadian consumer business immediately. We look to expand beyond the value flower segment, leverage our capabilities in science and product innovation and put our effort on a finite number of emerging growth formats,” he said in a news release.

Martin says he will overhaul Aurora by expanding its affordable flower offerings and increase the company’s focus on emerging cannabis formats like pre-rolls, vapes, concentrates and edibles.

This report by The Canadian Press was first published September 22, 2019.

Companies in this story: (TSX:ACB)

The Canadian Press

Continue Reading

Trending

X