We already covered the impacts of the Canada Emergency Wage Subsidy (CEWS) in a previous article. However, the federal government announced that it would be extending the program to June, 2021, and that major changes would be made to both the program eligibility criteria and subsidy rates. Full details are available on the Department of Finance website.
The changes that have been announced will have a greater than previously anticipated impact on your future Scientific Research and Experimental Development (SR&ED) and E-Business (CDAE in French for crédit d’impôt aux Affaires Électroniques) tax credit claims. It should be recalled that, normally, such subsidies are excluded from tax credit calculations, given that the same salary expenditure cannot be funded by the public sector twice (no double dip).
To fully understand your specific situation, and thus provide you with the best possible advice, we have created a simulator which allows us to obtain a relatively accurate computation of this impact and of how much your tax credit will be. The Emergex financial coordinator assigned to your company will be able to answer any related questions you may have.
What precisely is that impact, in concrete terms?
Regarding the SR&ED credit, the wage subsidy paid to each employee eligible for the credit should be deducted from the eligible wage when calculating the tax credit, at a rate proportional to the time spent on SR&ED activities. The calculation of general costs (commonly known as proxy) remains unchanged since the aid received is only deducted after this calculation. In analyzing the results obtained from modelling different potential revenue losses, we can conclude that, on average, a company benefiting from the CEWS will face a loss of 30% of SR&ED tax credits for the entire duration of the program.
For the E-Business, the full subsidy received for each employee will be deducted from their salary. For the credit calculation, the eligible salary cap ($83,333) will apply, and remains unchanged. That means there could be a very low to no impact for high-wage employees, whereas the impact will be greater for lower-wage employees. Our analyses lead us to conclude that there will be a reduction of about 40% for the E-Business.
We will conclude by reiterating our recommendation that you make sure you retain all documents pertaining to any emergency aid you receive. These documents are invaluable when it comes to calculating your SR&ED and E-Business tax credits, as well as their justification in case of an audit by the fiscal authorities.
Contact us! Our simulator is available now. Together, we can thus prepare and plan for your future claims as thoroughly as possible. That’s one of the multiple added values you get from Emergex, at no additional cost!