Principal Issues: Whether an allowance for compulsory annual vacation pay, statutory holiday pay and sick leave pay added by the employer to the base salary or wages on every paycheque of an employee is eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of the CEWS in a given situation.
Position: Yes, in the given situation, we consider, for purposes of the CEWS, that the qualifying entity has paid the allowance to the eligible employee in respect of the same week that the salary and wages relating thereto are paid.
December 22, 2022
Headquarters Headquarters Income Tax Rulings Directorate Income Tax Rulings Directorate Dedicated Telephone Service
Attention: Danny Gagnon danny.gagnon@cra-arc.gc.ca 2020-085641
Subject: CEWS - the concept of "eligible remuneration"
This is in response to your question regarding the Canada emergency wage subsidy ("CEWS") provided under section 125.7 of the Income Tax Act (the "Act").
Specifically, you asked whether the mandatory vacation, statutory holiday and sick leave pay provided for in the various collective agreements in the construction industry in Quebec (the "Allowance") is eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of subsection 125.7(2).
All legislative references herein are to the provisions of the Act.
Our Comments
All definitions for the purposes of the CEWS, including the terms "qualifying entity", "eligible employee" and "eligible remuneration", are set out in subsection 125.7(1).
Amounts paid by a qualifying entity to an eligible employee as sick leave, vacation pay or statutory holidays are generally considered to be part of the employee's regular pay, salary or wages and to be eligible remuneration within the meaning of that term in subsection 125.7(1).
Pursuant to subsection 125.7(2), to qualify for the CEWS in respect of a particular qualifying period, eligible remuneration must be paid to an eligible employee by a qualifying entity in respect of a week in the particular qualifying period. Consequently, to be eligible for the CEWS, amounts paid as sick leave, vacation pay or statutory holidays must have been paid to the eligible employee by a qualifying entity in respect of a week in the particular qualifying period.
For CEWS purposes, when the payment is added by the employer, which is a qualifying entity, to the basic salary or wages included in each pay cheque of an eligible employee, we will consider that the qualifying entity has paid the payment to an eligible employee in respect of the same week as the related salary or wages are paid.
Consequently, in such a situation, we are of the view that the employer may be entitled to CEWS in respect of that payment for the same qualifying period as that in which it pays the related salary or wages, if all other conditions are otherwise satisfied.
We hope that our comments are of assistance.
Best regards,
Isabelle Landry
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch