Canada Emergency Wage Subsidy Audits
What is the CEWS Program?
The Canada Emergency Wage Subsidy (“CEWS”) is a wage subsidy program provided to qualifying employers who have seen a drop in revenue due to COVID-19. If you are eligible for the CEWS program, you will receive a subsidy to cover part of your employee wages.
The federal government introduced the CEWS program on March 15, 2020, via amendments to the Income Tax Act. The purpose of the CEWS program is to prevent additional job losses in the Canadian economy by helping employers keep their employees on payroll, re-hire workers and aid a return to normal operations. As of June 2021, the Canadian government has approved over 3.5 million applications and paid out over $80 billion in subsidies. The Parliamentary Budget Officer has estimated that the CEWS will cost $85.6 billion in 2020-21 and $13.9 billion in 2021-22, making it the most expensive piece of Canada’s COVID-19 Economic Response Plan.
Audit of CEWS Claims
In late 2020, the CRA began to actively audit employers with regards to CEWS benefits they received during the Covid-19 pandemic. The CRA claimed that the audits are “limited in scope.” A CEWS Audit commences with a letter issued by the CRA to the business requesting information and documentary evidence. For example, the CRA is asking businesses for information and documentation regarding their revenue generated in the 2019 and 2020 Taxation Years. This would include, for example, documents evidencing revenues, such as monthly sales reports, sales journals, cash receipts journals and bank statements. The CRA is specifically asking that companies provide detailed working papers verifying the computation of “qualifying revenue,” as well as the business’ revenue recognition policy for all items included in revenues.
The CRA is also asking businesses for their general payroll information, such as payroll journals by pay period and employee. The CRA is also asking businesses to provide information relating to other subsidies and other government programs they received that may impact CEWS claim, such as the 10% Temporary Wage Subsidy. The CRA is also requesting documents from corporation employers’ such as their minute books related to their CEWS claim.
CRA’s Next Steps
It appears that after paying out over $80 billion in CEWS benefits over the past year, the CRA has begun to audit the CEWS claims aggressively. With the Canadian government’s unprecedented and growing deficit, the CRA will undoubtedly be tasked with recouping a portion of the amounts paid out as a result of the Covid-19 pandemic in order to reduce the government’s deficit. The CRA has informed taxpayers that it intends to scrutinize CEWS claims closely and has warned that employers who are found to have abused the program will face severe penalties and even fines, in addition to having to pay back the amounts with interest.
Professional Legal Help With Your CEWS Audit
Employers who received subsidies from the CEWS program should prepare to defend their CEWS claims from the CRA. Our tax lawyers have experience and are very knowledgeable regarding the CRA audit process. Our tax lawyers are also well-versed in communicating and negotiating with the CRA. Employers facing a CEWS audit can contact our lawyers to assist them in navigating through the CEWS audit process.
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By Kaveh Rezaei – Attorney at KR Law Firm
**Disclaimer
This article contains information of a general nature only and does not constitute legal advice. All legal matters have their own specific and unique facts and will differ from each other. If you have a specific legal question, it may be appropriate to seek the services of a lawyer.
