On October 11, 2020, (recently-incorporated) NewCo purchased all the assets of a third party (OldCo), with the result that it became the employer of OldCo’s employees. OldCo and NewCo jointly elected under s. 125.7(4.1)(e) respecting the assets, and met all other conditions to qualify for the CEWS.
In determining NewCo’s qualifying revenue for October 2019, is the qualifying revenue attributable to the assets for that prior reference period pro-rated, based on the number of days in the current reference period that NewCo (21 days) and OldCo (10 days) used the acquired assets in carrying on business, for purposes of computing the revenue reduction percentage? In responding negatively, CRA stated:
Where these [s. 125.7(4.1)] conditions are met, the acquirer will include in calculating its qualifying revenue for its prior reference period or current reference period, as the case may be, the amount of the qualifying revenue of the seller for that period that is reasonably attributable to the acquired assets (the assigned revenue). In addition, the assigned revenue is to be subtracted from the qualifying revenue of the seller for its prior reference period or current reference period ... .
In our view, the assigned revenue described in paragraph 125.7(4.2)(a) of the Act refers to the qualifying revenue of the seller for the entire prior reference period that is reasonably attributable to the acquired assets. Furthermore, neither subsections 125.7(4.1) nor 125.7(4.2) of the Act provide for the proration of, or otherwise adjust, the qualifying revenue for a prior reference period as you suggest. However, we note that paragraph 125.7(4.2)(a) of the Act also refers to the qualifying revenue of the seller that is reasonably attributable to the acquired assets for the current reference period. In our view, in determining qualifying revenue for the current reference period under this provision, the acquirer would include the assigned revenue of the seller. Moreover, pursuant to paragraph 125.7(4.2)(b) of the Act, this assigned revenue would be subtracted from the seller’s qualifying revenue for the current reference period.
As to whether the two companies could claim the CEWS for the wages paid for the qualifying period 8 (September 27 to October 24), CRA stated:
[T]he CEWS is calculated for a qualifying period pursuant to subsection 125.7(2) of the Act by reference to the eligible remuneration paid to eligible employees by an eligible employer in respect of a week in the qualifying period. In our view, both the seller and acquirer in your given scenario can consider their respective eligibility for the CEWS for the qualifying period.