Effect of government COVID-19 emergency aids (non-subsidy) on your SR&ED and E-Business
Continuing with our series of articles on government emergency measures, we will now continue by talking about non-subsidy COVID-19-related aid programs. Once again, we will look at the likely impact of any such aid on your future Scientific Development and Experimental Development (SR&ED) and E-Business (CDAE in French for crédit d’impôt aux Affaires Électroniques) tax credit claims.
As already recommended previously, it is important to keep any emergency aid documents you will receive safe and handy. They will be needed when calculating future SR&ED and E-Business tax credits and could be requested by tax authorities in the event of an audit.
Emergency aid resulting in reduction of time spent on eligible activities
Laid-off employees who earned wages totalling at least $5,000 over the last 12 months and who did not receive any income for a consecutive period of 14 days due to COVID-19 can receive the CERB. This benefit provides $500 per week for a maximum of 16 weeks. What this means for the employer is that employees receiving this benefit are no longer in the company’s payroll.
The work sharing (WS) program is designed to help employers and employees avoid lay-offs when the company is experiencing a temporary slump in its business operations. The benefit provides employment insurance (EI) to eligible employees who agree to a reduction in their normal working hours and to share work with their colleagues as the company recovers. Self-employed workers and shareholders holding more than 40% of voting shares are ineligible.
To receive this aid, the targeted employees must consent to a 10% to 60% reduction in their working hours. The employer will continue to pay the employees for the regular hours worked. EI fills the gap by paying such employees directly for the hours not worked. These direct payments are generally equal to 55% of the employees’ weekly wage and can go up to a maximum of $573.
To apply for the program, the employer needs to complete the appropriate forms available on the Service Canada website and submit them by e-mail. The e-mail address differs according to the province in which the company is located. Employers are requested to submit their application 10 calendar days before their requested program start date. Simplified measures implemented by Service Canada during the crisis should reduce the processing period to 10 calendar days. Application forms and relevant documents must be preserved carefully for future reference.
Conclusion: These two programs will have an impact on eligible SR&ED activities, which will either see a drop in volume or could be completely put on hold. As companies emerge from the crisis, they will therefore be faced with two possible scenarios. SR&ED activities may recover at a pace exceeding the normal growth rate during regular periods, with minimum impacts on credits, or conversely, such activities may lag significantly, which may in turn have a major negative impact on credits. In any case, it is crucial that any effort invested in eligible SR&ED activities be properly documented.
Temporary lay-offs and the work sharing program greatly affect the E-Business tax credit and its eligibility criteria (which require a minimum of 6 employees, 40 weeks of employment and 26 working hours per week). Investissement Québec has not yet made any official pronouncement on the matter, but our experience tells us that it could be relatively relaxed if everything is well documented. We will communicate details as soon as we have an official response on the issue.
It should further be noted that your company could be eligible for the work sharing program as well as the two subsidies covered in our previous publications (CEWS and 10% temporary subsidy). If that is the case, the CEWS shall be reduced by the amounts paid or reimbursed under the 10% temporary wage subsidy and the work sharing program for the same period.
Emergency aid potentially affecting your E-Business claim
- Concerted Action Program for Maintaining Employment (PACME–COVID-19 Programme actions concertées pour le maintien en emploi)
The Ministère du Travail, de l’Emploi et de la Solidarité sociale du Québec has set up the above program, which enables reimbursement of 100% of expenses for eligible employee training and competency improvement activities totalling $100,000 or less and 50% of those between $100,000 and $500,000. The program will remain in effect for the duration of the crisis. The program’s eligibility criteria are expansive, which means many companies can apply for it.
Reimbursable expenses include wages of employees in training up to $25/h, professional trainers, and on-line course registration fees up to $150/h, or the cost of training equipment and supplies. To apply for this aid, contact your Local Employment Centre.
If your company is receiving government subsidies (CEWS and 10% subsidy), the reimbursement will not be up to 100%, but 25 or 90%, depending on the subsidy received.
This program deals with training, which is an ineligible activity under the E-Business tax credit. As a reminder, employees must spend more than 75% of their time on eligible activities to maintain eligibility for the credit. Under this aid, employees could be excluded from the credit if they spend too much time in training.
Again, Investissement Québec has not announced a decision on the matter. Our advice remains the same for such situations: retain proper documentation in order to prove and support any action taken, if needed. We will communicate any details as soon as we have an official response on the issue from Investissement Québec.
Since we are currently living through very exceptional and fluid conditions, the programs discussed and information provided in this article could change at any time. Eligibility criteria and approved expenses are equally likely to change.
We ask you to rest assured that Emergex SR&ED Subsidies is closely monitoring the situation and is always on top of any new information put out by the governments that could have a significant impact on your claims. We remain available to support you and secure the highest possible returns in your future tax credit claims, considering any potential emergency aid obtained and the unique situation your business will face.