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Keep It Simple S…ubsidy

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9 minute read

You want my idea for the wage subsidy… well here it is.

WARNING: It is so simple to implement, there is no way a government would do it.

(Originally posted on LinkedIn (no joke) April 1, 2020)

 

 

People have said “you are quick to pick apart the wage subsidy, so what is your solution?”

So… you asked for it… here it is:

I’ve said it from the very beginning that it should resemble EI support. All they should be doing is simple.

(No this is not an April Fool’s joke… but I am hoping the Press Conference on April 1, 2020 by the Minister of Finance was)

I was fine with EI amounts… but since we have the Canadian Emergency Response Benefit (CERB)… let’s use that amount to keep it more simple.

The amount is this:

(just like the CERB). $2,000 per worker per month, taxable, and no withholdings up front

Put a ‘clawback’ amount on those that are getting it like the clawback on Old Age Security or regular EI benefits for when they file income tax next year.

The 3-prong approach to the subsidy

 

Prong 1 – CERB from Service Canada

Everyone should get it. Yes, everyone.

However, anyone that makes more than the EI maximum in 2020 must pay back 30 cents of the CERB on every dollar over the $54,200 EI maximum threshold when they file their 2020 taxes.

So when you file your personal 2020 income tax, if you ended up making more than $80,667 in income, you will have had to pay back the full $8,000 of CERB received on a T4E.

This results in helping everyone today, help jump start the economy when we need to and have those that get back on their feet quicker, paying some or all of it back.

If you received both the CERB from Service Canada, and the CERB through your employer, you have to pay back the amount greater than the $8,000 received, and then any other amount based on the formula above.

This will prevent or reduce the double dip.

 

Prong 2 – CERB through the Small Business employer

The small business (less than $15M in assets of all associated corporations) employer would also get the CERB on a per-employee basis. They already have to fill out the number of employees when they file their remittance forms, so what’s the difference?

This $2,000 flows through to subsidize the wages, and must be paid to the employees. You create a different box number to track it on the T4 slips next year for audit purposes and to make sure the employee got the money.

I know this isn’t 75%, but the 75% was a capped amount anyways. That’s why I said keep it simple.

In order to incentivize the small business employer so they don’t lay them off, treat it as a flow through, and non-taxable to the employer.

So if there are five employees at the small business, the employer will get $10,000 of CERB to flow through to the employees.

The employee’s wages will be subsidized by the $2,000 amount, and they will put the $2,000 in a different box on each T4 slip for tracking purposes.

In order to incentivize the employer to act as the flow-through for Service Canada, this $2,000 will not be subject to EI or CPP by the employer and will not be included in the taxable income of the employer.

This allows the employer to claim the full wage deduction, have subsidized payroll costs, and save the income tax amount by deducting the full payroll.

By not counting it as income, this tax and remittance savings can be viewed liked an “admin fee” for acting on Service Canada’s behalf.

On $10,000 (5 employees) this would save up to $252 in Employer EI, $525 in Employer CPP, and $900 in federal income tax.

Cost to government for employer being the administrator instead of Service Canada: $1,167.

Incentive for employer to NOT lay off the staff, $10,000 in wage costs… and $1,167 in tax savings.

 

Prong 3 – CERB through Large Corporations

If the employer is getting the CERB on a per-employee basis and they are a large (greater than $15M in assets) corporation or associated group, allow them to not pay employer EI or CPP on the CERB.

100 employees = $200,000 = up to $5,040 in reduced EI, and $10,500 in reduced CPP remittances as the incentive.

So the employer gets $2,000 per employee as a subsidy to cover wage costs, and does not have to do payroll withholdings on the amount, saving them a total of $200,000 + 5,040 + 10,500 = $215,540.

Or put another way, they can save $15,540 by not laying them off.

If that’s not enough incentive, then perhaps look at it being only 50% taxable, which in the example above, would reduce Federal income tax by $15,000 (using 15% general rate x 50% x $200,000)

 

 

Audit Tracing

By simplifying the process, there is less ability for abuse.

Service Canada will issue everyone a T4E with the CERB they personally received from them (no application necessary).

T4 box numbers can be reconciled by CRA on slip filing to amounts of CERB received by the employer through the PIER system.

Those same boxes can be reconciled to specific individuals on tax filings to see if there were any that should repay.

Amounts greater than $8,000 received by anyone will need to be repaid.

Those with income over the EI Maximum amount, will have to repay some or all of the CERB back when they file.

If you don’t agree… well… the specific repayment formula can be figured out later… we have a year for that. We need the money in the public’s hands now though.

 

In Conclusion

These incentives and recapture mechanisms will reduce the likelihood of layoffs in low-margin industries like hospitality since $2,000 a month goes a long way to covering those wages; it will “Flatten the EI Curve” (trademark pending – not really… but I like saying it)

It would get everyone back working quicker after this is done by maintaining the connection to employers, and get the economy kick-started with cash injections at the front of this thing, rather than the end.

In the end… you have employers flowing the $2,000 through to the employee on Service Canada’s behalf as a no-withholding amount and a nominal cost to the employer to administer it, rather than Service Canada processing hundreds of thousands (if not millions) of individual applications.

If they are a small business, they actually get a tax savings by being the administrator and helping Service Canada in the process.

If they are a large business, they can have a good chunk of payroll costs reduced by not having to pay EI and CPP on the amount, and perhaps tax savings.

In the end, every worker gets $8,000 over 4 months just to buy everyone time and we have Flattened the EI Curve.™

Biography of Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr can be found here.

#RedDeerStrong – If you’re struggling and you need to consolidate debt through a mortgage refinance, Kristen is here for you.

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

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Alberta

Premier Jason Kenney shares photos of the Keystone XL pipeline crossing the Canada US border.

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Alberta Premier Jason Kenney announces that shovels are in the ground in Alberta, Saskatchewan and parts of the United States on the Keystone XL pipeline expansion.

On Saturday, the day after Alberta premier announced at a press release that after the province made a $1.1 billion dollar equity investment in the Keystone XL pipeline, that shovels were already in the ground. Jason Kenney shared pictures on social media pictures of the pipeline crossing into the United States along the Saskatchewan border.

Keystone XL pipeline construction shows progress as it crosses the border into the United States from Saskatchewan

A long with the initial investment to get the pipeline project going again, the province will also provide an additional $4.2 billion in loan guarantees to help developer TC Energy start construction immediately. Kenney has said that the government had been negotiating with the company for months, and that no private sector bidders were ready to finance the project at this time. “In other words,” Kenney has said, “without this investment by Alberta, the pipeline would not be built.”

The project when completed, “in the spring or summer of 2023 will connect Canada’s oil sands with refineries in the United States. The pipeline is critical to the long-term future of Alberta’s oil industry, which has maxed out its capacity to bring oil to foreign markets using rail. Cars and existing pipelines. The Keystone XL pipeline will carry 830,000 barrels per day south from Alberta to a number of locations in the states.

Aside from announcing that, “construction is well under way” Kenney also added, “Our historic investment in getting a major pipeline built, creating good, high paying jobs – one of the reasons was to get work moving now in this construction season and throughout 2020.”

Alberta faces a long road to an economic recovery once the country can get past the Covid- 19 pandemic, Kenney is staying positive, “This investment will create 7,000 jobs, directly and indirectly here in Alberta this year alone. We believe that Alberta’s government will receive back at least 30 billion dollars in additional royalties and other revenues because of the additional shipments that Keystone XL will make possible.”

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Alberta

Add another Edmonton big event; ITU World Triathlon Cancelled

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From organizers of the ITU World Triathlon

With the health and safety of our athletes and community our top priority, and based on the directive from Alberta Canada’s chief medical officer of health, the organizers of the 2020 World Triathlon Grand Final Edmonton are announcing that the Grand Final that was scheduled for August 17-23, in Edmonton, Alberta will unfortunately not take place in 2020.

Alberta’s chief medical officer of health Dr. Deena Hinshaw clarified this Thursday, saying: “mass gathering restrictions currently in place also apply to all summer events or festivals in Alberta.

Those restrictions prohibit gatherings of more than 15 people and require people gathered in groups of fewer than 15 to maintain a distance of two metres from one another”.

The Edmonton organisers, Triathlon Canada and World Triathlon want to share their deep disappointment that this event will not be able to take place as planned, despite all efforts from all the parties involved, but absolutely understand that the  current global situation with the COVID-19 outbreak make it impossible for the event to happen at this stage.

World Triathlon, along with the Edmonton Organizing Committee, the City of Edmonton and all stakeholders and the community partners  will continue to work closely together to find new options for the event to take place in the future, when it is safe to do so.

Our hearts and thoughts remain with our many front-line workers and those affected by this global crisis.

Updated summer rules for gathers over 15 cancels most events till September.

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