You want my idea for the wage subsidy… well here it is.

WARNING: It is so simple to implement, there is no way a government would do it.

(Originally posted on LinkedIn (no joke) April 1, 2020)

People have said “you are quick to pick apart the wage subsidy, so what is your solution?”

I’ve said it from the very beginning that it should resemble EI support. All they should be doing is simple.

(No this is not an April Fool’s joke… but I am hoping the Press Conference on April 1, 2020 by the Minister of Finance was)

I was fine with EI amounts… but since we have the Canadian Emergency Response Benefit (CERB)… let’s use that amount to keep it more simple.

The amount is this:

(just like the CERB). $2,000 per worker per month, taxable, and no withholdings up front

Put a ‘clawback’ amount on those that are getting it like the clawback on Old Age Security or regular EI benefits for when they file income tax next year.

The 3-prong approach to the subsidy

Prong 1 – CERB from Service Canada

Everyone should get it. Yes, everyone.

However, anyone that makes more than the EI maximum in 2020 must pay back 30 cents of the CERB on every dollar over the $54,200 EI maximum threshold when they file their 2020 taxes.

So when you file your personal 2020 income tax, if you ended up making more than $80,667 in income, you will have had to pay back the full $8,000 of CERB received on a T4E.

This results in helping everyone today, help jump start the economy when we need to and have those that get back on their feet quicker, paying some or all of it back.

If you received both the CERB from Service Canada, and the CERB through your employer, you have to pay back the amount greater than the $8,000 received, and then any other amount based on the formula above.

This will prevent or reduce the double dip.

Prong 2 – CERB through the Small Business employer

The small business (less than $15M in assets of all associated corporations) employer would also get the CERB on a per-employee basis. They already have to fill out the number of employees when they file their remittance forms, so what’s the difference?

This $2,000 flows through to subsidize the wages, and must be paid to the employees. You create a different box number to track it on the T4 slips next year for audit purposes and to make sure the employee got the money.

I know this isn’t 75%, but the 75% was a capped amount anyways. That’s why I said keep it simple.

In order to incentivize the small business employer so they don’t lay them off, treat it as a flow through, and non-taxable to the employer.

So if there are five employees at the small business, the employer will get $10,000 of CERB to flow through to the employees.

The employee’s wages will be subsidized by the $2,000 amount, and they will put the $2,000 in a different box on each T4 slip for tracking purposes.

In order to incentivize the employer to act as the flow-through for Service Canada, this $2,000 will not be subject to EI or CPP by the employer and will not be included in the taxable income of the employer.

This allows the employer to claim the full wage deduction, have subsidized payroll costs, and save the income tax amount by deducting the full payroll.

By not counting it as income, this tax and remittance savings can be viewed liked an “admin fee” for acting on Service Canada’s behalf.

On $10,000 (5 employees) this would save up to $252 in Employer EI, $525 in Employer CPP, and $900 in federal income tax.

Cost to government for employer being the administrator instead of Service Canada: $1,167.

Incentive for employer to NOT lay off the staff, $10,000 in wage costs… and $1,167 in tax savings.

Prong 3 – CERB through Large Corporations

If the employer is getting the CERB on a per-employee basis and they are a large (greater than $15M in assets) corporation or associated group, allow them to not pay employer EI or CPP on the CERB.

100 employees = $200,000 = up to $5,040 in reduced EI, and $10,500 in reduced CPP remittances as the incentive.

So the employer gets $2,000 per employee as a subsidy to cover wage costs, and does not have to do payroll withholdings on the amount, saving them a total of $200,000 + 5,040 + 10,500 = $215,540.

Or put another way, they can save $15,540 by not laying them off.

If that’s not enough incentive, then perhaps look at it being only 50% taxable, which in the example above, would reduce Federal income tax by $15,000 (using 15% general rate x 50% x $200,000)