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COVID-19

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

Your event has been CANCELLED

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Your Event Has Been Cancelled

By Ilan Cooley

The live event industry is in serious trouble. It was the first sector to go dark due to the pandemic, and it is expected to be the last to be allowed back to work.

The people behind the scenes of your favourite events are the mavericks and risk takers you likely don’t know about. They create the events that make you smile until your face hurts, cheer until you lose your voice, and dance until you can’t stand up. They make the magic that fills your social feeds, and the moments that live in your memories.

You may have gotten an email saying “your event has been cancelled” – they lost their livelihood.

“People don’t understand how bullseye targeted this virus was at our industry,” says Jon Beckett, owner of Production World. “It was a 100% bullseye. You couldn’t hit it more dead centre. It’s not like it hurt us – it took it away. People don’t understand that until you talk to them about your industry.”

Production World Staff

Beckett’s company used to employ 50 people. Having lost more than 200 events so far, they have laid off 35 people. Their 25,000 square foot warehouse contains almost seven million dollars worth of staging, lighting and other production equipment.

“We have to house that inventory,” he says. “It is not like we can sell it.”

Similarly, Fort Saskatchewan based Superior Show Service has two separate warehouses full of rental items nobody currently needs, plus tax bills and insurance due. As a 35-year-old family-run event rental company, they cater to tradeshows and large events. Some of the 35 staff they laid off in March have been hired back after accessing relief programs, but with more than 80 events already cancelled, owner Chris Sisson worries about the future.

“It feels like the carpet kicked out from under you,” he says. “I’ve always been able to provide for a great number of families, not just my own, and today I have no idea how to provide for my own. I have been in this industry my entire life, and now I have no idea what to do. It is truly humbling and dumbfounding.”

Chris Sisson of Superior Show Service

Event promoter Mike Andersson prefers not to dwell on what has been lost, instead focusing on building something consumers will want to come back to when it is over. He knows how to manage complex logistics and bring large groups of people together. Even when faced with severe restrictions for events, his company, Trixstar, was busy creating pandemic proof event manifestos, and blue-sky concepts for safe gatherings.

“When everything came crashing down we were putting up material about what events look like after this, and showing some optimism,” he says. “It is important to get people together and to celebrate.” He admits there are good days and bad days. “It is a rollercoaster of emotions,” he says. “Obviously we feel terrible. It affects us, but it affects so many companies. From the security companies, to the ticketing companies, to the tent company, to the production company – all those people are affected.”

Event photographer Dale MacMillan also worries about the people behind the scenes. He has lost more than 100 days of shooting for professional sporting events, large music events, festivals and fairs, which makes up about 60% of his income, and he knows others are in the same situation.

Dale MacMilon takes event photos like this shot of Trixstar

“There’s a guy sitting out there with probably a quarter section of land and he’s probably got 5500 porta potties that are out at ten to 20 events throughout the month, and he is affected tremendously,” says MacMillan. “I see some of the guys that are usually in the business of trucking the machinery to set up the fairs and festivals that are delivering for Amazon now. I look at all of those people who work the booths to break plates. They are not working at all. How else is a guy who owns a plate breaking booth going to get any other business?”

Even artists like Clayton Bellamy are wondering how to pay their bills. As a successful singer/songwriter and member of Canada’s top country band, The Road Hammers, he wishes the gold records on his wall represented a decent living, but admits there is no money to be made without touring. With up to 90% of his income derived from live shows, and almost no revenue from music streaming, he says he will do whatever it takes to feed his family.

“Obviously I have kids and that comes first before anything,” he says. “The main thing to do is to find work.” He also knows lack of touring impacts others. “Our band employs a lot of people. It is not just me on the stage – it is the tour manager, and the person in the office answering the phones at the management company, and the manager. We help employ 50 people. If you think about the industry as a whole, there are a lot of people relying on that trickle-down.”

Clayton Bellamy

Beckett says the model for live events has changed forever.

“If we are going to collapse, then we are going to give it all we can. Right now, we are optimistic that we can somehow find ways to juggle.”

Production World is streaming virtual events to online audiences, and delivering reimagined AHS compliant live events with a mobile stage, video wall, and in-car audio for things like graduations, weddings, movies, drive in music events, and even funerals. They are retrofitting churches for virtual services, and recording content to deliver music and sermons to parishioners.

Sisson suggests his industry should collaborate with government and other industry professionals to develop a plan, like doing events by the hour to control occupancy counts, disinfecting surfaces, contact tracing and testing, and utilizing existing technologies like temperature checks and facial recognition.

“I will be ashamed of our industry if we cannot have something that is approved and a way to conduct ourselves by October,” he says. “At the end of the day there are a lot of livelihoods that need to get looked after.”

MacMillan says the advice his parents gave him to plan for a rainy day was valid. He will get creative with other revenue sources and try to take advantage of programs and subsidies.

“If it helps you along one more month, it is one more month that you can make it until things open up again.”

Bellamy tries to keep his mental health in check by maintaining a rigorous schedule of practicing, writing, and working on existing projects. He plans to finish a new record so he can hit the ground running when touring resumes.

“Right now, I have no income,” he says. “I don’t have a safety net. I don’t have a plan B.”

He says if people want to support their favourite artists they should buy music and merchandise directly, like and share posts and music on social media, and send a letter to the government to help change laws that impact fair pay for artists’ streaming rights.

A return to “normal” is a long way off, and no matter when life starts to feel unrestricted again the world will be altered, and things will be different. Behind the scenes, the event industry not just trying to reinvent itself, it is fighting for survival.

“People don’t think about the human side of it and all that goes into it and all the different companies that come together to produce an event,” says Anderson. “Nobody in the entertainment industry is making a dollar right now. Everyone has to figure out how to survive this, and survive it together. So, my optimism is, I think a lot of companies are going to survive this because they are working together. They are going to support each other once we come out the other side.”

On September 22nd Canadian event industry technicians, suppliers and venues from across the country will Light Up Live events in red to raise awareness for the live event industry – which is still dark.

www.ilancooley.com

Read more on Todayville.

 

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COVID-19

Question the COVID Status Quo

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This interview with Stanford physician Dr. Jay Bhattacharya was recorded September 14.

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