The Government of Canada increased the wage subsidy rate to 75 per cent and made the program more accessible.
In April, the federal government announced additional measures for the Canada Emergency Wage Subsidy (CEWS) program and increased the subsidy from 10 per cent to 75 per cent — a much-needed relief for businesses of all types, including automotive dealerships.
The program offers a wage subsidy at a rate of 75 per cent of the first $58,700 normally earned by employees, equivalent to up to $847 per week. It’s available for eligible employers that have suffered a decrease in gross revenues of at least 15 per cent in March, and 30 per cent in April or May, when compared to the same month in 2019. The program is available to employers for up to 12 weeks, and is retroactive to March 15, 2020.
“When you have a technician or salesperson that is very good, that has been with the dealership for a long time, that knows the vehicles very well, knows how to sell them very well, and knows the company very well, as an employer you want to keep that person on — you don’t want to have to rehire them,” said Oumar Dicko, Economist at the Canadian Automobile Dealers Association (CADA).
In an interview with Canadian auto dealer, Dicko said that, for dealers across Canada that are worried about staying open and keeping their employees active, the wage subsidy program aims to ensure employers are able to retain that human capital and expertise within their dealerships. He said the wage subsidy program allows dealers to keep those essential employees on payroll throughout this crisis so they can pick up after the crisis, “right away.”
An earlier announcement from the federal government in March mentioned a 10 per cent wage subsidy rate and an eligibility criteria of $15 million in taxable capital as the threshold, which would have effectively knocked out most dealers due to their vehicle inventory size. The rate has since increased to 75 per cent and the eligibility criteria removed. But at the time of the first announcement some dealers were unclear as to whether or not they qualified for the subsidy.
“I have no idea whether we qualify for small businesses or don’t, because auto dealers have a little problem getting qualified as small businesses,” said Al MacPhee, owner of MacPhee Ford in Dartmouth, N.S., at the time. “We all have to have inventory of over $10 million. And if your inventory is over a certain amount, you don’t necessarily qualify as a small business. So, who is going to offset the expense of us paying our people — like half of them here today? Those things we will have to find out.”
In March, MacPhee said his dealership was operating with half their usual staff, who were still receiving their regular pay. The other half opted to go on employment insurance benefits.
Perry Itzcovitch, co-owner of the Hyatt Group in Calgary, was in a similar position at the time, downsizing the size of their staff body through layoffs, reducing business hours, and boosting online communication. He said the biggest issue was the uncertainty.
“It’s unprecedented. Every business, every facet of the marketplace is affected,” said Itzcovitch. “How long will it take? How long will it be for a level of normalcy to come back? Is it four weeks, eight weeks, twelve weeks? No one has an idea of when these things are going to sort themselves out.”
It is still unknown when the situation will drastically improve, but Dicko said the fact that the $15 million in taxable capital eligibility in Canada was removed opens the door for a lot of dealerships. “When that eligibility criteria was removed, that meant most of the dealerships in Canada — as long as they lost revenue (of a certain amount), are eligible to claim the wage subsidy.”
The federal government describes eligible employers as individuals, taxable corporations, and partnerships consisting of eligible employers, non‑profit organizations, and registered charities that fit the eligibility periods. (More information can be found here: https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html)
The legislation was enacted in April, and several new details about the wage subsidy program were revealed by the federal government during the same month. But according to Michelle Miller, CPA, CA, Partner, National Leader — Dealerships at MNP, there are many criteria that need to be considered.
“For example, the decline in revenue test requires that a business remove anything related to a non-arm’s-length party. So if a dealership is doing business with another dealership that is owned by the same group, potentially that revenue would need to be removed from the revenue test,” said Miller. “There’s more detail than that, but that’s the basic understanding of that.”
Miller said dealers can choose to calculate the decrease in revenue based on a consolidated-basis instead of individually, on a store-basis. For dealers that are part of a group of dealerships, it might be something to consider. However, Miller warns that the government has indicated that there are harsh penalties for anyone that might misuse the program.
“I would recommend consulting with your advisor to ensure you’re taking the right steps,” said Miller.
As for the COVID-19 pandemic, CADA’s economist said the situation remains fluid in Canada and things are evolving quickly. He suggested more support will be needed for businesses throughout the crisis.
“To be honest, things are going to get worse in terms of the number of (COVID-19) cases we are going to have. It’s going to get worse and then better,” said Dicko. “In the meantime, the government must be able to adapt and support businesses as much as possible so they can remain in business post-crisis, as part of the recovery.”
