Canada Emergency Wage Subsidy (“CEWS”) Audits

During the COVID-19 pandemic, over 340,000 Canadian businesses received the Canada Emergency Wage Subsidy (CEWS), with businesses receiving around $100 billion in financial support from the Canadian government.

Currently, the Canada Revenue Agency (CRA) is auditing these claims, aiming to recover as much of it back as possible. The CRA has already denied or adjusted claims totaling more than $450 million in these subsidies that had been paid out to employers. The audit of the program by the CRA is ongoing and is expected to continue until at least 2025.

The CRA can audit any period for which a business filed a CEWS claim. Therefore, it’s crucial for businesses that applied for the CEWS to familiarize themselves with the audit and appeals processes and to seek legal advice and representation if audited.

Understanding the CEWS

The CEWS was introduced in March 2020 to help employers with declining revenues retain workers during the pandemic. The program provided eligible employers with a grant equal to 75% of the first $58,700 they would normally pay employees, up to $847 per week for each employee, for up to 12 weeks, retroactive to March 15, 2020. The eligibility requirements for the CEWS included a significant drop in revenue, initially set at 15% for March 2020 and 30% for subsequent months.

CRA’s Approach to CEWS Audits

The CRA’s approach to the CEWS involved significant reliance on applicants’ self-declarations of revenue decreases and payroll totals, increasing the risk of overpayments. The CRA focused on post-payment audits for overpayment recovery rather than pre-payment validations. This decision was partly due to the urgency of disbursing funds to support businesses during the economic downturn caused by the pandemic.

The CRA’s audits of CEWS claims have revealed several issues, including payments made to ineligible recipients and businesses with a history of tax noncompliance. The CRA has faced challenges in verifying the eligibility of recipients due to a lack of updated information on applicants’ revenues and payrolls. As a result, the CRA has embarked on costly audits to claw back funds paid to ineligible recipients.

These audits are expected to continue until at least 2025. The CRA has also been working to strengthen its efforts toward tax compliance for the GST/HST to ensure it has the information needed to validate CEWS claims.

Preparing for a CEWS Audit

Businesses audited by the CRA for their CEWS claims should be prepared to provide detailed documentation to support their eligibility. This includes records of revenue declines, payroll information, and any other relevant financial data. It is essential for businesses to understand the audit and appeals processes and to seek legal advice and representation if audited.

Conclusion

The CEWS has played a crucial role in supporting Canadian businesses and workers during the pandemic. However, the CRA’s ongoing audits highlight the need for businesses to be prepared for potential scrutiny. If your business has received CEWS payments, it is advisable to review your records, ensure compliance with the program’s requirements, and seek professional advice if you are subject to an audit.

How KR Law Firm Assists with CEWS Audits

At KR Law Firm, we have a team of experienced tax lawyers in Toronto who are well-versed in handling CEWS audits. Our lawyers are committed to guiding clients through the complex audit process. We help make the process understandable and straightforward, ensuring you know your options and what’s required at each step.

KR Law Firm’s Goal

Our goal at KR Law Firm is to make the audit process less stressful for businesses. We aim to increase the likelihood of a favorable outcome by providing expert guidance and representation. With our expertise and dedication, we’ll support you through every stage of the audit process, from initial consultation to the resolution of any disputes.

If your business is facing a CEWS audit or you need assistance with any tax-related matter, book your free consultation or contact us. Our team is here to provide personalized service and professional advice tailored to your specific needs.

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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.