Federal budget extends Covid support for businesses

In the federal budget on Monday, the Liberal government extended current business support programs and introduced a new hiring program. The feds also proposed a $15 federal minimum wage.

The budget proposed extending to Sept. 25 the Canada Emergency Wage Subsidy (CEWS), and the Canada Emergency Rent Subsidy (CERS) and its lockdown top-up. (The budget also proposed adding additional qualifying periods for these supports until Nov. 20, 2021, if required.)

The subsidy rates for CEWS and CERS would gradually decrease over the July-to-September period, the budget proposed. As of July 4, only employers with a decline in revenues of more than 10% would be eligible for the subsidies (the budget outlined rate structures and reference periods).

For certain publicly listed corporations, the budget proposed a clawback of the wage subsidy.

These corporations would have to repay subsidy amounts for a qualifying period (beginning after June 5) if aggregate compensation for named executive officers during 2021 exceeded that of 2019. (Compensation for named executive officers is disclosed under securities law in a company’s annual information circular.)

The amount of the wage subsidy to be repaid would be the lesser of:

• the total of all wage subsidy amounts received in respect of active employees for qualifying periods that begin after June 5, 2021; and
• the amount by which the aggregate compensation during 2021 exceeded that of 2019.

Repayment would be applied at the group level and to wage subsidy amounts paid to any entity in the group, the budget said.

As for the CERS, applicants must have a business number with the CRA. The budget proposed that if an eligible entity buys business assets from a seller who met the business number requirement, the buyer is deemed to meet the requirement. (A similar deeming rule already applies to the wage subsidy.) This measure would apply as of the start of the rent subsidy, the budget said.

As the wage subsidy winds down, the government plans to introduce the Canada Recovery Hiring Program to offset the cost of increasing worker hours or hiring additional staff as businesses reopen.

Eligible employers will be able to claim either the hiring subsidy or the current wage subsidy for a particular qualifying period but not both, and the hiring subsidy won’t apply to furloughed staff (as the wage subsidy does).

Innovation

The budget also included funds to help businesses innovate. The government will spend $4 billion on the Canada Digital Adoption Program, which will create a “Canadian technology corps” of 28,000 young Canadians, who will be trained and deployed to help as many as 160,000 small businesses move online and offer e-commerce.

These businesses will be eligible for microgrants to support digitization. For companies farther ahead with technology adoption, there will be access to advisory support.

The budget also proposed allowing immediate expensing of up to $1.5 million of eligible capital investments by Canadian-controlled private corporations made on or after budget day and before 2024 to free up cash that can be used for job creation.

The measures will be paired with improvements to the Canada Small Business Financing Program, which will now include lending against intellectual property and start-up assets and expenses, a maximum loan amount from $350,000 to $500,000 and a new line of credit to cover short-term capital needs.

Minimum wage increase

The budget won’t be without costs to businesses, however. The government has proposed a $15 minimum wage for federally regulated employees that will rise with inflation. Provisions would ensure that where provincial or territorial minimum wages are higher, the higher wage would prevail.

The government said the measure will benefit more than 26,000 workers — 36% of them newcomers or immigrants — making less than $15 an hour.

Corporate tax changes

Large companies will be subject to limitations in interest deductions on loans, as is the case in all other G7 countries, the budget said. Beginning in 2023, this interest deduction will be limited to 40% of earnings in the first year of the measure and 30% thereafter.

Relief will be provided for small businesses and “other situations” that don’t represent significant tax base erosion risks, the budget said. Draft legislation is expected this summer.

The government also said it will examine barriers to the creation of employee ownership trusts, and how workers and owners of private businesses in Canada could benefit from their use.

“Employee ownership trusts encourage employee ownership of a business, and facilitate the transition of privately owned businesses to employees,” the budget said, adding that the U.S. and U.K. support these arrangements.

Michelle Connolly, senior vice-president, advanced wealth planning at Wellington-Altus Private Wealth, said the government was “looking for how to promote key employees and management to participate in the growth of business and ownership transfer.”

Further, “They’re looking for alternative ideas and structures other than stock options,” she said.