Canada Emergency Wage Subsidy Audits: Are You Ready? – Employment and HR

Canada: Canada Emergency Wage Subsidy Audits: Are You Ready?

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The federal government conducts audits of the CEWS program and requires companies to provide proof of eligibility for the support they have received.

On March 15, 2020, the federal government launched the Canada Emergency Wage Subsidy (CEWS) program to help eligible employers negatively impacted by the COVID-19 pandemic. To date, the CEWS has provided significant grants to Canadian employers who have applied and received applications under the program.

Now, the Canada Revenue Agency (CRA) has begun its post-payment verification of the CEWS program, beginning with a small sample verification of CEWS claims in August 2020. On December 7, 2021, the CRA sent communications to tax practitioners and other stakeholders that it would continue its audit activities in the fall of 2021. These audit activities are expected to continue until 2022. As of the date of this article, taxpayers and tax practitioners are beginning to receive these letters from the ‘BOW.

What do CRA’s post-payment audits mean for businesses that have received the CEWS?

  • Taxpayers have 30 days to respond to these audit requests from the CRA. The 30 day period is from the date on the letter, not when it is received by the taxpayer.
  • To complete an audit, you must provide all the information requested by the CRA during this period. This process can take time given the amount of information requested by the CRA.
  • If a taxpayer cannot substantiate their claims or if it is determined that they made an error in calculating their claims, this could result in the recapture of some or all of the CEWS grants received as well as interest on those claims. amounts.
  • In the event of serious non-compliance, significant penalties may be applied. When anti-avoidance rules apply, the penalty is equal to 25% of the amount of the applicable wage subsidy. Where it is determined that an employer, knowingly or under circumstances amounting to gross negligence, omitted information or misrepresented their CEWS claims, the penalty may be up to 50% of the excess wage subsidy received.

Information requested by the CRA

  • The list below is just a sample of some of the information and documentation the CRA has requested in connection with these CEWS audits.
  • Company Records: Minute books and governance documents related to CEWS applications as well as a list of all entities and companies within the business group.
  • Company agreements: agreements for loans/inter-company advances as well as loans to employees.
  • Eligible Revenues: General ledgers, trial balances, and monthly trial balances have been requested for the 2019 to 2021 tax years, along with documentation supporting revenue and justifying the calculation of “eligible revenue”.
  • Payroll information and wage subsidy calculations: payroll journals, gross CPP, EI, QPP, QPIP, taxes and net calculations by pay period and employee. Employee SINs, detailed payment information, lists and dates of employees on leave, as well as employment contracts, bank statements and proof of payment to employees are also requested.
  • Miscellaneous Information: Certifications filed with applications, details of other grants impacting the CEWS application, and other information.

Take away food

  • If you applied for the CEWS program and received CEWS amounts, be aware that you may receive an audit letter.
  • Taxpayers must be prepared to defend their claims.
  • If you receive an audit letter, do not delay in addressing it. The sooner you start compiling information, the better.
  • Be sure to keep sufficient detailed books and records to support any claims you have made.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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