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Overview: The Canada Emergency Wage Subsidy (CEWS) program has been extended, and a “clawback” provision has been introduced to repay part of the subsidy. This newsletter discusses the accounting for the “clawback”.
The CEWS program was set to end on June 5, 2021. The Federal budget extends the CEWS to September 25, 2021, and gives the government legislative authority to further extend the program, if required, by two additional 4-week periods until November 20, 2021. Further details on the changes to CEWS can be found in the linked PwC Tax Alert
“Clawback provisions” introduced for certain employers
Employers that are public corporations will be required to repay a part of their wage subsidy claims for a qualifying period that begins after June 5, 2021, to the extent the compensation paid to certain executives (referred to as “executive remuneration”) in 2021 exceeds that paid in 2019. The clawback applies to a corporation with publicly listed shares or to an entity controlled by such a corporation. Determining executive remuneration can be challenging in certain circumstances including controlled groups.
Accounting for the Clawback related to executive remuneration under IFRS
CEWS is accounted for as government assistance under IAS 20. In order to recognize government assistance under IFRS there must be reasonable assurance that the relevant conditions of the grant have been met.
Entities should only recognize CEWS for periods after June 5, 2021 where they expect not to be subject to the clawback provisions relating to executive remuneration. In other words, if a company expects to be subject to the clawback provision, government assistance should not be recognized in income until there is reasonable assurance the employer will not be subject to the clawback.
Potential Clawbacks related to dividend payments and share repurchases
Further amendments to the law require the Minister of Finance to prepare a report on proposed measures to: (a) prevent publicly traded companies and their subsidiaries from paying dividends or repurchasing their own shares while receiving the Canada Emergency Wage Subsidy, and (b) recover wage subsidy amounts from publicly traded companies and their subsidiaries that paid dividends or repurchased their own shares while receiving the Canada Emergency Wage Subsidy.
The Minister of Finance must cause the report to be tabled in each House of Parliament no later than 30 days after June 29, 2021 or, if either House is not then sitting, on any of the first 15 days on which that House is sitting.
As at June 30, 2021 the Minister of Finance has not introduced a report on proposed measures to the House of Commons. The House of Commons is in recess and not expected to reconvene until September 2021. Companies should consider disclosure within the financial statements and MD&A to reflect the uncertainty of the terms of the CEWS program and potential clawbacks. Engagement teams should consider consulting with ACS if they have clients which might be impacted.
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