In this update, we highlight:\n\n an update on Bill C-17\n the extension of the CEWS to employers who use paymasters\n time limits and other deadlines\n recent technical interpretations related to the CEWS\n feedback on the CRA’s guidance on international tax issues from the Joint Committee on Taxation\n\nUpdate on Bill C-17\nMeasures affecting the CEWS and Canada Emergency Response Benefit (CERB) were included in Bill C-17, which was introduced in the House of Commons on June 10. That bill, however, has not progressed since introduction. As we reported earlier on our COVID-19 tax updates page, the bill, if passed, also implements a one-time payment for persons with disabilities and addresses statutory time limits and deadlines.\nCEWS expanded to include employers who use paymasters\nBill C-17 includes CEWS-related proposed measures not previously announced relating to paymasters (and similar cost-sharing arrangements), discussed below. Most other amendments proposed in Bill C-17 were first announced in the May 15 backgrounder released by the Department of Finance. This includes measures to:\n\n allow corporations formed by amalgamation to calculate benchmark revenue using combined revenues\n introduce an alternative baseline remuneration period\n add restrictions to the “eligible entity definition” for tax-exempt trusts\n\nSince the CEWS program was first announced, CPA Canada has raised concerns with Finance and the CRA related to employers who use paymasters and other arrangements where one entity administers another entity’s payroll. In these cases, only the payroll administrator has a payroll account with the CRA, so the second entity would not qualify for the CEWS under the initial legislation. \nBill C-17 contains proposals to amend the definition of “qualifying entity” to include an entity whose payroll for its employees is administered by a “payroll service provider” with a CRA payroll account that it uses to remit source deduction for the entity’s employees.\nTechnically, in addition to meeting the existing conditions of the qualifying entity definition in paragraphs 125.7(1)(a) to (c) of the Income Tax Act (ITA), an eligible entity that does not have its own payroll account with the CRA may be a qualifying entity for CEWS purposes if: \nOn March 15, 2020: \n\n it employed one or more individuals in Canada, \n the payroll for its employees was administered by another person or partnership (i.e., a “payroll service provider”), and\n the payroll service provider had a payroll account with the CRA, and\n the payroll service provider used its business number to make the required payroll remittances on behalf of the eligible entity in respect of the eligible employees\n\nThe proposed legislation is causing confusion because it also specifically requires the CRA to be satisfied that these conditions have been met. The application of many tax rules generally depends on the Minister of National Revenue’s satisfaction that conditions are met, especially ones that benefit taxpayers.\nHopefully, the CRA will provide guidance on how it will administer this provision, so employers are clear on what they need to do to demonstrate that they meet the conditions. Since these employers do not have a CRA payroll account, they also need the CRA to clarify how they should apply for the CEWS.\nThe effective date of this proposal is April 11, 2020, the date that the initial CEWS legislation received Royal Assent as part of Bill C-14. The change therefore applies to the first CEWS qualifying period that started on March 15, 2020, if passed.\nNo similar change was introduced to the 10 per cent Temporary Wage Subsidy (TWS), so employers using paymasters who don’t otherwise qualify for the CEWS remain ineligible for the TWS.\nTime limits and other deadlines\nBill C-17 includes the May 19 Department of Justice proposals regarding time limits in a number of statutes and regulations (including the ITA and Excise Tax Act (ETA)) where COVID-19 may make compliance difficult or impossible, or where the periods’ expiry could produce unfair or undesirable effects. As we discussed in our June 8 blog, a recent submission from the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada raised a number of important concerns about these proposals under both the ITA and ETA.\nBill C-17 has revised the list of provisions that may be suspended or extended. Where taxes are concerned, the bill now also includes: \n\n the ITA and ETA provisions governing extensions of time to object to an assessment or to request an adjustment under the general anti-avoidance rule\n an additional provision that prevents a suspension or extension of a limitation period in the listed statutes and regulations from going beyond December 31, 2020, as the Joint Committee recommended\n\nRecent CRA technical interpretations on CEWS issues\nMeaning of “exempt from tax” for eligible entities \nIn a recent technical interpretation that was shared with us (but not yet published), the CRA was asked whether a non-resident corporation can qualify as an “eligible entity” under ITA subsection 125.7(1), even though its Canadian-source income may be excluded from its Part I income because the income meets the conditions in paragraph 81(1)(a). \nThe definition of “eligible entity” in paragraph 125.7(1)(a) includes “a corporation, other than a corporation that is exempt from tax under this Part or is a public institution.” As subsection 81(1) excludes certain amounts from income and subsection 149(1) exempts taxable income of specific types of “persons,” the CRA reviewed whether amounts excluded from income under subsection 81(1) meet the meaning of “exempt from tax” in paragraph 125.7(1)(a). \nThe CRA indicates that after reviewing the other requirements of the “eligible entity” definition and its overall context and purposes, the paragraph 125.7(1)(a) exclusion was generally meant to exclude corporations described in subsection 149(1) (unless specifically allowed by paragraph 125.7(1)(d)). \nThe CRA concludes that a non-resident corporation whose “Canadian source income is not included in the computation of its income under Part I of the Act as a result of the operation of paragraph 81(1)(a) and a provision under an income tax convention between Canada and another State is not a corporation ‘exempt from tax under Part I’ under the definition of ‘eligible entity’ in subsection 125.7(1) and therefore would not be prevented from being an ‘eligible entity‘ on that basis.”\nFactors in determining a public institution \nIn two recent technical interpretations (see 2020-0846931E5 and 2020-0846831E5), the CRA provides some guidance on determining a “public institution” for CEWS purposes.\nThe definition of “public institution” in subparagraph 125.7(1)(a) refers to an organization described in any of ITA paragraphs 149(1)(a) to (d.6).\nThe CRA’s responses paraphrases these requirements. Paragraphs 149(1)(d) to (d.6) generally exempt from tax the taxable income of any corporation, commission or association where the federal or a provincial government or municipality in Canada owns 100 per cent (in some cases, 90 per cent) of the organization’s shares or capital. \nIn determining the ownership of the “capital” of a non-share corporation, the CRA states that it would consider these factors:\n\n the identity of members\n the structure of the corporation\n who exercises control over the corporation’s financing, operation and direction\n who has the right to elect or change the board of directors, or reverse its decision\n who can contribute capital and receive a distribution of capital\n details regarding asset distribution on winding up or dissolution\n whether a person other than her Majesty in right of Canada, a province or a Canadian municipality has any right to acquire any the corporation’s capital\n\nThe CRA also provides guidance for determining whether an entity meets paragraph 149(1)(c), particularly whether an entity is a municipal or public body, and whether a municipal or public body is “performing a function of government in Canada.” \nThe CRA states, “in our view, a ‘municipal or public body performing a function of government in Canada’ was meant to apply to entities that, while not legally municipalities, nevertheless possessed attributes of municipalities and provided services similar to those provided by municipalities. Historically, the CRA has required that to be performing a function of government, an entity must have the ability and powers to govern, tax, pass by-laws, and provide municipal-type services to its members/citizens.”\nCRA guidance on international tax issues: Joint Committee feedback\nIn a previous blog, we discussed the CRA’s guidance on international tax issues arising from the COVID-19 pandemic. The guidance provides some relief in cases where COVID-19 travel restrictions have created personal and corporate residency, permanent establishment, and cross-border employment income issues. Because the pandemic has affected many of the CRA’s administrative functions, the guidance also sets out some alternative administrative processes for some cross-border tax matters.\nAlthough the guidance has been published and no feedback was requested, the Joint Committee provided input to the CRA on some situations that the guidance does not address. The Joint Committee says the CRA should consider expanding relief in these areas, which include:\n\n corporate residency under the exempt surplus regime\n carrying on business in a jurisdiction under the foreign affiliate regime\n permanent establishment in Canada arising from building sites, installations, drilling rigs, etc.\n cross-border employment income and "qualifying non-resident employee" \n\nThe Joint Committee also asked the CRA for guidance on similar GST/HST issues. A non-resident person generally needs to have a significant presence in Canada to be considered as carrying on business here. The Joint Committee asked the CRA to address whether the significant presence determination should be made without considering activities that the non-resident needs to perform in Canada due to the travel restrictions.\nFinally, the COVID-19 crisis temporarily disrupted the CRA’s processing of non-resident GST registrations. Staffing challenges may have also made it difficult for many organizations to complete registration requests on time. For waiver requests, section 116 clearance certificate requests and other income tax issues, the guidance provides temporary measures and email addresses for making these requests electronically. The Joint Committee asked the CRA to consider similar relief for non-resident GST registrations.\n\nNOTE: The commentary function of this page has been temporarily closed. Unfortunately, because of the volume of feedback regarding recently announced COVID-19 tax measures, we do not have the capacity to respond to individual inquiries. We strongly encourage you to visit our Federal Government COVID-19 Tax Updates page for information.