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Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

CRA and CPA help articles

CRA FAQ on Temporary Wage Subsidy for Employers

CRA New Releases Update

CPA FAQ on COVID-19

What is the Temporary Wage Subsidy for Employers?

The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).

Which employers are eligible?

  • employers who are a non-profit organization, registered charity, Canadian-controlled private corporation (CCPC), partnership or sole proprietorship;
  • have an existing business number and payroll program account with the CRA on March 18, 2020; and
  • pay salary, wages, bonuses, or other remuneration to an employee.

Note: CCPCs are only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million.

The Temporary Wage Subsidy for Employers is limited to the eligible employers listed above.

How much is the subsidy?

The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer.

Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.

For example, if you have five employees, the maximum subsidy you can receive is $6,875 ($1,375 x five employees), even though the per employer maximum is $25,000.

How do I calculate the subsidy?

The subsidy must be calculated manually.  For example, if you have five employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.

Detailed example of how the subsidy is to be applied to an eligible business

Note that numbers below are used for illustrative purposes only and do not reflect actual tax calculations.

Employee paycheque:

Employee Gross Wages                                       $1,000

Income Tax                                                                  (300)

CPP                                                                                 (30)

EI                                                                                      (20)

 

Net Pay                                                                          $650


Employer tax liability responsibility at due date (i.e. 15th of month for Monthly Remitter):

Income Taxes (EE)                                                $300

CPP (EE)                                                                      30

CPP (ER)                                                                      30

EI (EE)                                                                            20

EI (ER)                                                                            28

Tax liability                                                               $408

Less subsidy (10% x $1,000 earnings)       (100)

Adjusted Tax liability                                         $308

Given this tax break to the employer, the following journal entry should be entered in product unless changes are auto-reflected:

  1. Debit - Federal Tax liability                                                                          $100
  2. Credit - Income account (use existing, or create new)                 $100

Steps you can take to track and record this Subsidy in QuickBooks Desktop

There are two main steps required to track the subsidy in-product:

  1. Manually calculate the subsidy amount by looking at Gross Wage Pay.
  2. Adjust Liabilities to reduce your Federal tax liability by the subsidy amount.

Remember to enter the calculated subsidy amount as a negative number in the Amount field.

A detailed step-by-step example for illustrative purposes

The following example assumes you are a Monthly tax remitter, where Payroll taxes are due to the CRA on the 15th of each month.

Schedule of 10% subsidy for Monthly Remitter

Mar 18th to Mar 31st  (remember to only calculate from Mar 18th to Mar 31st)    and due April 15th.

April 1st to April 30th and due May 15th.

May 1st to May 31st and due June 15th.

June 1st to June 20th (remember to only calculate up to June 20th)  and due July 15th.

In the example below, we are looking at the following:

  • Payroll period:                    Mar 1st to Mar 31st (only take starting Mar 18th)
  • Payroll tax deadline:           Apr 15th

Step 1:

Because this new subsidy amount is not calculated in product today you will first need to determine what Gross wages (including taxable benefits) are applicable to the 10% subsidy.

We recommend referencing the Payroll Summary Report to find a summary of the Total Gross Pay (Reports -> Employees & Payroll -> Payroll Summary). This will help you calculate the subsidy amount before making your payment to the CRA (i.e,. 15th of month)

If you open the Payroll Summary Report, set a custom date from 03/18/2020 through 03/31/2020: you will find a summary of the Total Gross Pay by employee.  Remember that you’re entitled to 10% of each employee's gross pay up to a maximum of $1,375 per employee or $25,000 per employer.  This will also need to be tracked offline to ensure you don’t claim more than these maximums.

For instance, if your total gross pay is $1000, you would be entitled to $100 in Federal Payroll Tax relief on your April 15th filing and payment deadline.

($1000 gross wages x 10% = $100)

Step 2: 

Once you’ve identified the tax relief amount, you need to identify the outstanding tax amount owed to the government.

Open Pay Liabilities (select Employees -> Payroll Centre -> Pay Liabilities tab -> Pay Liabilities) and set a custom data range to March 18 to March 31.

You will see a breakdown of the taxes owed on April 15th.

The tax amount with regards to Federal Income tax is what is subject to a subsidy reduction.

Step 3:  

Navigate to the Payroll Centre -> Pay Liabilities tab and select Adjust Liabilities.

This will allow you to reduce the Income tax liability by the subsidy amount you are entitled to.

Step 4: 

Remember in our example, your gross wages were $1000 in this tax period entitling you to a $100 tax subsidy on those earnings.

To make the reduction in product, enter the appropriate information:

Date Date you make this adjustment
Effective Date April 15, 2020 (to match when taxes are due)
Adjustment is for Company

In the Taxes and Liabilities table:

Item Name Federal Income Tax
Amount -100 (make sure to select a negative amount)
Memo Tax subsidy - COVID 19

Note: make sure you have "Affect liability and expenses account" selected under Accounts Affected. This means it will affect your chart of accounts and change the amounts due showing on your financial statements.

Click OK.

Step 5:

You should now see your entry when you open the Pay Liabilities page again.

This is called a "Tax payment" in product but for this purpose we’re leveraging the feature to reduce your tax liability.

Step 6:

When you go back to your Pay Liabilities page again for Mar 18 - Mar 31, 2020 you’ll now notice that the tax amount due reduced by $100 as desired.

Step 7: 

Let’s assume it’s April 15th and you’re ready to make your tax payment to the CRA.

If everything looks acceptable, take note of the adjusted Federal taxes amount.  Use these details to make your physical payment to the CRA as you normally would in addition to reviewing your PD7A form (CRA payment options here).

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24 Comments
Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

I understand running the gross payroll report March 18-31 to get the amount to figure out the 10%.  Am I correct that we would then pay liabilities from March 1 - 31 and adjust from within this report? 

 

If we follow the tutorial - is there a step missing to produce a payment for March 1-17th?

Highlighted
Level 7

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

My understanding is that you don't have to figure out exact days of pay for the employees within the period, rather you include any paydays that fall within the period.  Otherwise this will be a nightmare for most, as their dates don't coincide with most employer's payroll periods and records.

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Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Thank you Rochelle.  I reread the tuturial and once the prior tax adjustment is made, then it does say to run your PD7A report as usual which would be from March 1-31. 

 

Do you agree to take the 10% subsidy and from what I read apply for the 75% wage subsidy and there will be a part to deduct the 10% wage subsidy already taken?

Highlighted
Level 7

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hello @SimplyWonderful ,

 

According to this info from CRA, yes.

 

Interaction with 10 per cent Wage Subsidy

On March 25, 2020, the COVID-19 Emergency Response Act, which included the implementation of a temporary 10 per cent wage subsidy, received Royal Assent. For employers that are eligible for both the CEWS and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Would you happen to have an update for the new 75% wage subsidy for how to record the average hours for hourly employees currently not working?

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Level 7

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hello @Charlene6 ,

 

The latest I've seen is under the "Amount of Subsidy" section of the CRA document explaining the subsidy.  I noticed it wasn't in there last week but is now.  It says:

 

The pre-crisis remuneration for a given employee is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

 

As far as I can tell, that will be true of employees currently working or not working due to COVID-19.  Note that they have also expanded the CEWS by introducing a new 100% refund "for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan.  This refund covers 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.

 

This can be very overwhelming and confusing.  This is my take on all of it and how it all works together:

 

  • If you are an employer eligible for the 75% CEWS, then you are not excluded from the 10% CEWS.
  • The 75% CEWS is paid to you by CRA.
  • The 75% CEWS expects employer to top-up wages to 100%, if at all possible.
  • The 10% CEWS is realized when paying your payroll remittances by deducting the amount from income tax payable.
  • If you were to claim both of them, you would have to calculate the maximums for both programs, and you would have to reduce the 75% CEWS by the amount of the calculated 10% CEWS for earnings in the same claiming period.
  • If you are claiming 75% CEWS and paying employees who are not actually working, you are also eligible for the expanded CEWS by getting a 100% refund of your employer-paid EI & CPP paid for those employees.
  • This refund is not available for eligible employees that are on leave with pay for only a portion of a week.  In this case, you would be claiming only 75% CEWS and 10% CEWS.

Because the 10% CEWS must be deducted from the 75% CEWS, I would suggest making the 75% calculation first.

 

Below is a screenshot of a spreadsheet I've made to ensure calculations are correct.  The first claiming period is for payments made from Mar 15 to Apr 11.  I am on a bi-weekly pay period, so I have calculated wages paid on my Mar 27 bi-weekly payroll and my Apr 9 bi-weekly payroll, which amounts to 4 weeks.  If anyone is interested in the formulas, please use QB community private message to contact me.

 

CEWS Calculations.PNG

 

Because I am calculating two pay periods in the first claiming period, which covers 4 weeks, I have multiplied all of the weekly subsidy amounts by 4.  Note that I have reduced the 75% subsidy amount by the amount I will be claiming for the 10% subsidy on payroll remittances.

 

RE:  10% Subsidy Only

You will have to keep a running balance of how much 10% subsidy you have claimed, so that you don't exceed the $1375 per employee limit, nor the employer $25,000 overall limit.  We have enough employees that I will exhaust almost the entire $25K in my first remittance.  However, if your calculated subsidy for a period is larger than the amount of tax you are remitting in that period, you can carry forward your unclaimed amount into the next period.  On your next remittance you would add your carry forward subsidy amount to the current subsidy amount and deduct as much as you can from tax.  Continue carrying forward until you are able to reduce your entire subsidy, even if you go beyond the Jun 19/20 period.

Highlighted
Level 2

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Can I get a copy of your spreadsheet?

Highlighted
Level 7

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi @mbeatty , 

 

Gladly.  Please PM me your email address as this forum does not allow .xls(x) attachments.

Highlighted
Level 2

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

the original posting in quickbooks (back in march) about how to calculate the 10% wage subsidy did not note to take out  reimbursements made to employees prior to calculating 10% of gross payroll. Now that QB has updated the system to calculate for us I see I was out in my deduction from federal taxes ( as I did not deduct the reimbursements made to employees and then take the 10%). Will this be a problem for me as my remittance is out - I now see underpaid by $55.38

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

A few steps missing in this explanation to make these adjustments work correctly;

1) Do the journal entry first to debit Payroll Tax Liability/credit Wage Subsidy (other income account) - doesn't actually adjust liabilities in product.  Just records the Subsidy taken as Income.

2) Company Adjustment to Federal Income Tax * warnings will pop up regarding T4 and employee amounts wont' be affected - hit OK.

3) Do not affect expense account - we are not reducing wage expense.  Scroll down and select "Payroll Liabilities - Federal Taxes" (not expense account)

4) The effective date has to be the PD7A period ended your are adjusting - not the date the remittance is due.  So that the adjustment reflects correctly when you are ready to "Pay liabilities"

 

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Ok. How does this work when filing T4's?

 

My T4 summary will be different than the PD7A report for the year.

 

Will that be an issue?

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi,  On this CRA information page. Item 9. 

You will need to keep information to support your subsidy calculation. This includes: 

  • the total remuneration paid from March 18, 2020 to June 19, 2020;
  • the federal, provincial, or territorial income tax that was deducted from that remuneration; and
  • the number of eligible employees employed in that period.

The CRA is currently updating reporting requirements. More information on how to report this subsidy will be released in the near future.

Here is the Web link: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-su...

 

However, individual employees T4's are not affected.  I confirmed withholding amounts were not affected by generating a T4 2020 in QB to confirm that my adjustments did not hit employees - just to be 100% sure!

My assumption here is such; once CRA updates the T4 Summary for 2020 - QB will have a payroll update and our templates will be changed to include a new box perhaps for subsidy amount taken.  This will allow for the difference not be reflected as a short payments on remittances and therefore not flagged as PD4R discrepancy.  CRA will then use our T4 Summary reporting to verify Subsidy income on the business taxes filed.

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Now I am even more confused, I found on article on bookssmarts.ca suggesting to create a COVID19 expense account, is that wrong?

 

https://www.booksmarts.ca/2020/03/31/managing-the-covid-19-temporary-wage-subsidy-in-quickbooks/

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi, Sorry for the delayed response to your message.  And thank you for including the link this particular website.  While I am not disagreeing that this individual is qualified to give sound accounting advice.  I am just as confused as you are!

The method makes sense to work with the framework of adjusting liabilities and affecting expense accounts.  But with this particular accounting matter, it has been quite clear from CRA that the subsidy amount must be treated as "Other Income" and reflected as such in the Income Statement for business to declare with Income Tax filings.

Personally, I would follow the instructions outlined from QB Desktop and likewise even QBO has outlined a clear set of instructions.  As a rule, if I am ever unsure of something that will affect a client's books, I will consult with their accountant for interpretation or direction.  It saves everyone time and money!  I hope this helps.

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

I would like to propose a slightly different way of looking at this:

Since the 10% is a CRA subsidy (or reimbursement) which they are paying the employer, why not treat it as such?  It becomes simple if you do, with no problems with T4 or PD7A.  

- Set up the income account to track the subsidy.

- Calculate the 10% for the remittance period.

- When paying the remittance, review the payment cheque created.   Switch to the Expenses tab and enter the income account in the Account field and the 10% subsidy amount as a negative number in the amount field.  Click 'Recalculate' to have the balance updated - the cheque now reflects the correct amount to remit, the liability account has been debited and the income account credited.

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi,

You are more than welcome to look at it in another perspective.  I prefer to follow the methodology that has been advised and follow it for my own clients personally.  .  CRA has cited below the 10% Subsidy program is not an expense reimbursement and nor should we be reducing wage expenses or recovering as such. The CEWS program is.  Noted below is the link to CRA page, and item #10 is in respect of what the 10% subsidy program is for accounting and tax purposes.

https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-su...

 

10. Is the subsidy considered taxable income?

Yes. If you receive the subsidy, you have to report the total amount as income in the year in which the subsidy is received.

 

 

 

 

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi Robyn,

     Thanks, and that's fine.   But I'm not sure why you think I'm treating the subsidy as an expense or changing wage expenses in any way?    To clarify - I am recording the subsidy as taxable income in a new income account .  So I think we are saying the same thing.

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

I just completed the CEWS for one of my clients and the 10% TWS is DEDUCTED in the calculation. I have attached the info page on the calculation and they "assume" that you will take the 10%.  You will end up having 10% TWS and 65% CEWS to equal you 75%.  There will be a "self-identification" form coming out that will reconcile your amounts taken.  If you DO NOT take the 10% CRA will credit your payroll program account by the amount of the subsidy.  In the CEWS calculation, you MUST enter the 10% TWS whether you have taken it or not !

 

Hope this helps !

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

can i get a copy of your spreadsheet?

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

this looks amazing can I get a copy of the spreadsheet? 

 

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hello AL53,

     You can also use the spreadsheet that has now been provided by the CRA at https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsi... 

Highlighted
Level 2

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

I am a bit confused by the tutorial.  I did a journal entry and adjusted by Federal Tax on the liabilities cheque, which it does say to do in the first part of tutorial and this is how I was advised to record by my accountant.  Then it goes on to say you need to adjust liabilities, but you cannot do this if you have done a journal entry.  So my question is moving forward, how should I be entering the 10% wage Subsidy in Quickbooks?

Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

How to calculate and record subsidy in QuickBooks Desktop Canada
Highlighted
Level 1

Temporary Wage Subsidy for Employers - How to calculate and record subsidy in QuickBooks Desktop Canada

Hi, I can't seem to run the Payroll Employee Report for our most recent payroll in July 2020. The subsidy was extended past June. Is this something that needs to be rectified to enable that report to continue being run?