Canadian COVID-19 support programs for U.S. multinationals

Mar 18, 2021

In response to the global pandemic, the Canadian government introduced numerous support programs to help businesses facing financial hardship. Two key programs, the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS), may provide essential support to U.S. multinationals carrying on business in Canada either directly or indirectly through Canadian branches or subsidiaries.

Canada Emergency Wage Subsidy (CEWS)

The CEWS provides eligible employers who suffered a revenue decline with a subsidy equal to a portion of their eligible remuneration paid to eligible employees. The CEWS was initially available for 13 four-week periods, but later extended to 16 periods from March 2020 to June 2021. Although the deadline to apply for CEWS for the first 5 periods has already passed, applications for the remaining periods will be due 180 days after the end of the claim period (see chart below for additional claim periods). For more information on deadlines for a CEWS claim period, please see the related Canadian government website page.

Deadlines for a CEWS claim period

  • Period 6 - begins on Aug. 2, 2020 and ends on Aug. 29, 2020;
  • Period 7 - begins on Aug. 30, 2020 and ends on Sept. 26, 2020;
  • Period 8 - begins on Sept. 27, 2020 and ends on Oct. 24, 2020;
  • Period 9 - begins on Oct. 25, 2020 and ends on Nov. 21, 2020;
  • Period 10 - begins on Nov. 22, 2020 and ends on Dec. 19, 2020;
  • Period 11 - begins on Dec. 20, 2020 and ends on Jan. 16, 2021;
  • Period 12 - begins on Jan. 17, 2021 and ends on Feb. 13, 2021;
  • Period 13 - begins on Feb. 14, 2021 and ends on March 13, 2021;
  • A prescribed period that ends no later than June 30, 2021 (currently there are no prescribed periods after claim period 13).

To qualify for the CEWS, a U.S. multinational or its Canadian subsidiary must be an ‘eligible entity’ that employed individuals in Canada and experienced a reduction in ‘qualifying revenue’. Qualifying revenue generally includes Canadian-sourced revenues from normal operating activities. The Canada Revenue Agency (CRA) has issued an administrative position confirming that a non-resident corporation may be an ‘eligible entity’.

The amount of the subsidy generally ranges from 40% to 85% of the eligible remuneration paid to each employee during a claim period and may differ depending on the exact revenue decline experienced in the claim period. The Canadian government generally determines the revenue decline percentage by the change in employer’s revenue in the relevant post-pandemic periods as compared to the corresponding periods in 2019 or the average of revenue earned in January and February 2020. Various alternatives may be available in determining the revenue decline, such as testing the revenue on a consolidated versus stand-alone basis, using cash basis versus accrual basis and comparing monthly revenue or a  three-month average.

A special rule that allows global revenues to be considered in calculating the revenue decline will be of particular interest to U.S. multinationals with Canadian subsidiaries. Under this rule, where an entity earns all or substantially all (generally at least 90%) of its revenue from non-arm’s-length entities, the revenue decline of those non-arm’s-length entities is considered even if the revenue was not earned in Canada. Therefore, even if the Canadian subsidiary’s revenue did not decline, CEWS may still be available to the corporate group, if all other conditions were met.

Another feature of the program that may benefit multinational groups in applying for the CEWS is the ability to rely on global consolidated financial information in determining the revenue decline of an eligible entity. A non-resident may be part of a group of resident and non-resident eligible employers that normally prepares global consolidated financial statements. In such case, the qualifying revenue of the affiliated group, determined on a consolidated basis in accordance with relevant accounting principles, can be used for each member of the group.

A key piece of guidance from the CRA is that even if the cash payment of the CEWS is received after the claim period to which it relates, the subsidy is included in the entity’s Canadian taxable income immediately before the end of the qualifying period to which it relates. Therefore, subsidy claims in respect of 2020 claim periods but received in 2021 will be taxable to the entity in 2020.

Canada Emergency Rent Subsidy (CERS)

The CERS is another important program that may be relevant to U.S. multinationals. The CERS was introduced in September 2020 to replace the old Canada Emergency Commercial Rent Assistance (CECRA) program, under which a property owner could apply for unsecured forgivable loans from the government if the owner agreed to forgive tenants’ rent by at least 75% per month. Contrary to the CECRA, the CERS provides financial supports directly to tenants, not landlords, by covering part of a business’ commercial rent or property expenses.

The CERS program mimics the CEWS program’s eligibility requirements in that CEWS eligible entities may also be eligible for CERS provided the entities experience revenue declines and pay “eligible rent expenses”, which generally include rent, property taxes, commercial mortgage interest and insurance expense.

Eligible entities with ‘eligible rent expenses’ that experienced a decline in revenue (determined in a similar manner to that applicable to CEWS) can receive a maximum subsidy of 40% to 65% of eligible expenses for periods 8 to 13. Note that actual claim periods references for CERS are not the same as those for the CEWS but are aligned with them in this article for simplicity. The subsidy percentage for periods 14 to 16 has not been announced by the government. The Lockdown Support feature of the CERS provides an additional 25% subsidy for eligible entities that are subject to a lockdown or that were required to significantly limit their activities under a public health order. Through CERS, hard-hit businesses subject to a lockdown could receive rent support of up to 90% of eligible expenses, subject to certain caps.

Similar to the CEWS, the CERS is included in Canadian taxable income immediately before the end of the qualifying period to which it relates. If an entity has previously applied for the CECRA, the forgiven portion of the loan is also included in the taxable income in the year the loans were received.


To date, the Canadian government has received over 2.3 million applications and approved CAN$60 billion of CEWS subsidies. As the CRA’s audit activities resume, the CRA is scaling up its audit efforts of the CEWS, CERS and other COVID subsidy programs. The information request for a CEWS audit can be very extensive and may include minute books, detailed revenue decline calculations and payroll information.

Because the CRA has made it clear that its mandate is to enforce the tax rules during the pandemic, it is critical for entities that have received CEWS and/or CERS to maintain proper supporting elections, attestation forms, and documents in case of a CRA audit.

U.S. tax implications


U.S. Multinationals must be cognizant of these relief provisions for purposes of calculating the amount of Global Intangible Low Taxed Income (GILTI) inclusion. As noted above, the CEWS and the CERS are included in Canadian taxable income immediately before the end of the qualifying period to which it relates. This income inclusion potentially increases the amount of tested income attributable to a Canadian CFC.

Financial statement impact: For-profit companies

Generally, government assistance that is not in the form of a tax credit is not accounted for under ASC 740. However, how the assistance is accounted for (e.g. above the line in the statement of income) can have an impact on a reporting entity’s income tax provision under ASC 740. The guidance in U.S. GAAP related to accounting for government assistance is not straight forward, and under some circumstances non-existent. Before analyzing the ASC 740 considerations, filers should first determine how to account for the subsidies in their financial statements. To the extent the CEWS and CERS are recognized for income tax purposes in the same period as they are recognized for financial accounting purposes, then a basis difference (and deferred tax item) is not expected to arise.  U.S. multinationals should consider whether there is disparity between how the government assistance is reported for U.S. GAAP purposes in its consolidated financial statements versus how it is reported in the Canadian entity’s books of account (a “stat to GAAP” difference) and whether the difference, if any, results in a basis difference that should be accounted for as a deferred tax item in the foreign provision. Benefitting from either of these subsidies can also have an impact on the U.S. provision, either through its impact on inclusions from a controlled foreign corporation or from a branch. To determine how to account for the impact on its income tax provision, a reporting entity should carefully consider the financial reporting requirements and how they compare to reporting for income tax purposes to determine whether the impact is limited to the current provision or whether there will be a deferred tax impact.

Financial statement impact: Nonprofit organizations

In ASC 958-605, there is specific non-tax accounting guidance for how non-profits are to account for government assistance. For example, whether to recognize income and when. Nonprofits must follow ASC 958-605 while for-profit enterprises have no specific guidance and might rely on ASC 958-605 or on IAS 20, by analogy. If the latter, conditional grants received are recognized in the period in which the expenses they are meant to offset (or support) are incurred.  ASC 958-605 specifically excludes transfers of assets from government entities to business entities from its guidance, and requires grantees to consider whether the benefit received carries conditions and/or a reciprocity

RSM contributors

  • Ayana Martinez
  • Julia Gowe