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Historic Wage Bill Passed: 75% CRA Wage Subsidy for Businesses

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Taxable corporations, business owners, and partnerships in Canada are expressing relief with the Canada Emergency Wage Subsidy, or CEWS. The latest offering by the federal government provides a 75% wage subsidy to eligible employers. It will be for a period of up to 12 weeks and retroactive to March 15, 2020.

Likewise, CEWS is good news to employees, because it prevents job losses. On the part of employers, they can use it to rehire workers that were temporarily laid off due to business closures or reversals. It should also place companies and businesses in a better position to resume normal operations in the aftermath of the crisis.

Historic wage bill

Prime Minister Justin Trudeau asserts that the coronavirus is his generation’s greatest challenge. Battling the virus is similar to fighting a war. The government needs to shield the country from the threat it is facing.

As such, the House of Commons approved in an emergency session on April 11, 2020, the $73 billion CEWS. The flagship program is more than 25% of the government’s emergency fiscal plan to date.

CEWS was enacted to prompt employers experiencing financial dislocation to keep employees on the payroll or rehire those shown the exit. The time frame is while the COVID-19 crisis is ongoing.

Wage subsidy

Under the CEWS, eligible employers will receive a subsidy of up to 100% of the first 75% of pre-crisis wages or salaries of existing employees. An eligible remuneration is equivalent to 75% of salaries and wages paid to new employees.

To be eligible, private corporations or businesses, including non-profit organizations and registered charities, must have a drop of at least 15% in revenue last March and a 30% decline in the succeeding months. In a nutshell, CEWS was designed to help Canada stem the wave of job losses.

Hardest-hit sector

The aviation sector is taking the hardest hit during this coronavirus pandemic. Most airline companies, including Air Canada (TSX:AC), have been laying off thousands of workers. The country’s flag carrier and most dominant airline let go of 16,500 workers. It was the biggest layoff by a Canadian firm thus far.

Unions have also revealed that 5,100 flight attendants and 600 pilots are on unpaid leave. The health crisis forced Air Canada to abruptly cut seat capacity by 85-90% where the results are significant revenue losses.

Talk of bankruptcy and a possible bailout are already swirling about Air Canada. The way to a near-term recovery is the lifting of domestic and international travel restrictions as well as the return of passenger traffic. However, the travel ban might extend for months, as Canada is far from flattening the curve.

The shares of Air Canada rose to $20.08 on April 9, 2020, but went down to $18.15 as of this writing. The year-to-date loss stands at 62.6%.

More waves coming

The federal government expects more waves of layoffs or furlough as the lockdown drags on. Like Air Canada, many employers and business owners will be applying for and using CEWS. Emergency income support is badly needed to survive the pandemic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

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