Principal Issues: 1. In a given situation, 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 pay check of an employee qualifies as eligible remuneration paid to an eligible employee by a qualifying entity and a baseline remuneration for the purposes of the CEWS.
2. In a given situation, whether a security allowance qualifies as eligible remuneration paid to an eligible employee by a qualifying entity and a baseline remuneration for the purposes of the CEWS.
3. Whether the value of a taxable benefit from a private group insurance plan is eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of the CEWS.
Position: 1. Yes, the allowance qualifies as eligible remuneration paid to an eligible employee by a qualifying entity and a baseline remuneration for the purposes of the CEWS.
2. None.
3. No.
Reasons: 1. In the given situation, for purposes of the CEWS, we consider 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 were paid.
2. Question of fact.
3. The value of a taxable benefit from a private group insurance plan is not an eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of the CEWS.
XXXXXXXXXX January 16, 2023
Subject: CEWS – concepts of "eligible pay" and "basic pay”
This is in response to your questions regarding the Canada emergency wage subsidy ("CEWS") provided under section 125.7 of the Income Tax Act (the "Act").
Specifically, you asked whether [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 an eligible entity for the purposes of subsection 125.7(2). You further asked whether the Allowance is included in baseline remuneration within the meaning of that definition in subsection 125.7(1).
You also asked whether the security allowance provided for in the various collective agreements in the Quebec construction industry (the "Allowance") is eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of subsection 125.7(2) and whether it is included in baseline remuneration within the meaning of that definition in subsection 125.7(1).
Finally, you asked whether the value of a taxable benefit under a group insurance plan is eligible remuneration paid to an eligible employee by a qualifying entity for the purposes of subsection 125.7(2).
All statutory references herein are to provisions of the Act.
Our Comments
This technical interpretation provides general comments on provisions contained in the Act and other related legislation, where applicable. It is not intended to confirm the tax treatment of any particular situation involving a particular taxpayer, but rather to assist you in making that determination.
All definitions for the purposes of the CEWS, including the terms “eligible entity”, "qualifying entity", "eligible employee" and "eligible remuneration", are set out in subsection 125.7(1).
Allowance
Amounts paid by a qualifying entity to an eligible employee as sick leave, vacation pay or for 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 for 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.
As for baseline remuneration, it is generally the average weekly eligible remuneration paid to the eligible employee by the eligible entity during a given period. Consequently, in a situation where the Allowance 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, the Allowance is in such a situation included in the average weekly earnings paid to the eligible employee by the eligible entity during the same basic pay period as the related salary or wages are paid.
Allocation
As noted in Question 17 of the Frequently Asked Questions: Canada Emergency Wage Subsidy ("FAQ") (footnote 1), eligible remuneration of an eligible employee means, subject to certain exceptions, amounts paid to the employee as salary, wages, other remuneration, certain taxable benefits (provided such amounts are actually paid), and fees, commissions or other amounts paid for services. These are amounts for which an eligible entity would generally be required to make payroll deductions to be remitted to the Canada Revenue Agency.
However, it is not possible for us to make a determination as to whether the Allowance paid to an eligible employee by a qualifying entity qualifies as eligible remuneration and as baseline remuneration without having analyzed all the facts and circumstances relating to a particular situation.
Taxable benefit from a group insurance plan
Only eligible remuneration paid to an eligible employee is included in computing the CEWS. The value of a benefit under a group insurance plan that is included in computing an eligible employee's income is not eligible remuneration paid to an eligible employee for the purpose of computing the CEWS.
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
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 The FAQs can be found at https://www.canada.ca/en/revenue-agency/services/wage-rent-subsidies/cews-frequently-asked-questions.html