A practical overview and example of qualifying for government COVID-19 funding

A practical overview and example of qualifying for government COVID-19 funding

Colin: First off, my name is Colin Green. I'm one of our tax partners at Gowling WLG and it's my great pleasure to introduce our co-presenters today. First, my partner and friend, Roberto Aburto. Roberto is a municipal and litigation tax partner at Gowling WLG. Is a fun fact about Roberto. He hosts an award winning podcast on diversity and inclusion in the legal market. Second, my friend, colleague, Chad Saikeley, partner and head of tax at GGFL. Fun fact about Chad, is Chad gets as excited for new government measures as he does with respect to the release of new seasons of Ozark, on Netflix. Very proud of his dual professional loves. Third, my friend and colleague, Natalie Evens, partner and head of assurance at GGFL. True Canadian, Natalie takes great pride in her deep favouritism for the winter season to facilitate her love of downhill skiing, and when ... frequently gets in the way of interpreting same, but she doesn't hold it against all of us tax nerds, which we greatly appreciate.

Brief word before we launch into our presentation. The first portion is mine. You'll have to forgive me for introducing myself and I will be going through it relatively quickly because we anticipate a high degree of familiarity with presentees and attendees with the topics at this point and time, however, there's a working example section that Chad will be dealing with, in which we'll go into greater detail. Further, I note that the slides will be posted. So don't worry. There will be a relatively high tempo in speed but that is by design so that we have more time to address the materials in greater depth at the appropriate locations. With that, let's begin. Next slide, please.

Here you'll see an overview of the topics we're aiming to speak and there's a lot of acronym mumbo jumbo so we'll try and pull those apart in terms of speaking of what we're referring to when we refer to CEWS, CERB, CEBA, CECRA we'll take apart, we'll look at the application pieces. From there we'll review a hypothetical example of the various programs. We'll discuss cash flow management commentary, and then we'll get in some risk management, context we'll want to consider. Next, please.

As always, a legal disclaimer. In brief, we can't provide you legal advice without access to your facts and a proper engagement, so this is for educational purposes only, without regard to specific context. Next slide, please.

Brief survey, again, of the work and some port programs that are available. You'll see that there's a range of components that are out there. From work sharing to the wage subsidy to the emergency response benefit, CECRA in terms of commercial loans and then the commercial rent relief as well. Next slide.

I'm going to try and provide some synopsis overview with respect to each of the programs in terms of how they fit together and how they work. Starting with work sharing. The key thing to understand is this effectively an extension of EI. It's a 3-way tripartite agreement between the employees, the employer and Service Canada, and it effectively allows EI to pay for hours not worked by employees. As you'll see there's additional context in terms of an approval process, we no longer require proof of downturn and it no longer requires a recovery plan. Next slide. This context, this expanded program is effectively available, even retroactively from March 15, 2020 to March 14, 2021, across all industries. There's an expansion agreement effectively all the way out to 76 weeks in terms of 38 weeks. Slide, please. The eligibility requirements are you have to be year round in business for Canada, privately business, and have at least two employees in the work sharing unit for which you want to apply. Slide, please. What doesn't apply? This is not an appropriate tool for a labour dispute, seasonal shortage or some form of pre-existing production slow down or decrease in business activity. Although at this point there's a fairly wide latitude for how this is being used. Slide. It permits year round permanent full-time to have a reduced quantum of work, access to EI benefits and this provides a positive outcome for all parties. Effectively, EI can be used to pay the employees for the period of time for which they are not working. The primary advantage for the employer is maintaining full employability. Slide. In terms of ineligible components we've noted seasonal employees, casual on-call and it's not meant for senior executives, outside sale reps, cap and sales force, things of that nature. Slide, please. The core observation we speak to is that this, of course, reduces the amount dollar for dollar and subsidy that's available from an EI perspective. If you apply for CEWS, what you should be doing is looking at the two comparison examples to see which will put you better off ahead, and we're finding, as an aside, that many employers, organizations, are working with CEWS because of the anticipated flexibility that will come with that, in terms of government funding. Effectively, you want to maintain your team at full employability, maintain your working with the government will pay the cost of so doing while you're working and that can help off-set that revenue hit. Slide, please. Again, it's only available to employees earning $63,500.00 or less. So this is where you may have a broader based employee group as opposed to significant high end earners in a different category. Work sharing does not reduce eligibility for regular EI and there is a 30 day waiting period. So, again, this should be part of your legal accounting plan that you're working with, collectively, to figure out how it will impact your application for government programs, your cash flow, your communication program and you're exposure components, both internally. What's your plan for communicating with your employees? What are your benchmarks? And externally, communicating with your suppliers, your banks, your commercial lenders, it's something that should be stitched together collectively. Slide.

This takes us to CEWS and this is one of our primary program components, the temporary wage subsidy. Again, when I refer to CEWS, that's what we're referring to. So this comes out, it's rolled out April 1, 2020, by Finance Minister Bill Morneau. It's a 71 billion dollar subsidy, slide, and this is unlike anything we've seen in recent times, in terms of policy programming, because it's so different in terms of its scope and application. The front end I would refer to the announced 10% wage subsidy but this goes far beyond that, both in terms of who it applies to and the depth of application. Just in virtue of the fact that there's no cap on the number of employees. Eligible employers can apply for both CEWS and the previously announced 10% subsidy. Again, the subsidy that's received will reduce the amount that an employer can otherwise get under CEWS. So, from a cash flow perspective, again, we ... Slide. The key difference is the 10% was subsidy program is more limited. It provides for $25,000.00 maximum for employer whereas CEWS does not have an employer max. So if you meet the criteria under CEWS you can have 2,000 employees, provided they meet the requirements. Again, I'm providing a high level to this so I anticipate we may have questions and Chad will be looking at this in terms of a practical example. Slide. Eligible employers are given a temporary wage subsidy so we see the cap as being 75% of the remuneration paid for a 3 month period. Each month period separate of course. But $847.00 per week per employee or, two, 75% of the employees pre-crisis weekly remuneration. As an observation we note that this could actually cover 100% of the eligible remuneration paid to an employee if that remuneration has already been dropped to pre-crisis level. So this is a very powerful lending tool that applies in a variety of very wide instances that can be used to help employers maintain employability, to help make ... in terms of looking at their approach. The subsidy, as discussed, is backdated to March 15, 2020. Slide. Arms lengths employees are limited to avoid monkeying with the system, to $847.00 a week, or 75% of the employees pre-crisis remuneration. Slide. Eligible remuneration includes working in Canada, it includes, we discussed non-arms length employees and employers can put employees back on payroll, retroactively, to claim CEWS. Now, there are a number of tactical points that end up being worked with this. If you know that you're going to have to truncate your workforce, this is something that can be used with proper representation and advice from an employment specialist to consider asking how does this release your severance component. Does this give you time to see whether severance will be required and what other form of payables do you have? Again, we can't give the specifics on a mechanical basis on this call but you can use this program to help give your employees a bridge and your organization a bridge as well at the same time. It kind of provides additional flexibility and planning options. As we discussed, it includes salary, wages and other forms of remuneration. It excludes severance pay, the value of stock option benefits and non-cash benefits ... Slide. The real takeaway point here is, aside from the flexibility, is the fact that's there no overall cap. It let's you apply ... to employees, and again, this is for employees. If you're dealing with an independent contractor, or cap and sales force, you'd be dealing with CERB, which we'll discuss in a second. Slide. CEWS is available, as we said, to any type of employer, individual partnership, corporation, NPO. It's very, very broad in this application. Slide. Qualification requirement, and this is critical, for that first period a reduction of just 15% of revenue in March, and again Chad will look at how there's flexibility and how you get to your revenue numbers, in terms of the methodology, and 30% for April or May of the 20 same or looking at your average to the same month period from the preceding year, or the average of Jan, February in 2020. Again, employers are encouraged to make their best effort to top up the employee salary but that's not a requirement. So you have flexibility in terms of the both the time period that you're looking at, consolidated components, which Chad will address, and they your method as well. Slide. In terms of applying you should be using the my portal business account. We've been advised that the timeline is 2 to 5 weeks. The goals are ... to maintain employment and the challenge is there will be a lag between the application time of the payment. So this is something that we would strongly suggest an employer should be factoring into the cash flow analysis to know how they will bridge that gap in terms of that time period. Further to this, this effectively provides if you apply, a 3 month bridging process that you want to be having if your long term funding plans carry out beyond that as well. Slide. As we discussed, this is included in the employer's income as business deduction for when the CEWS amount remuneration is paid through to the employee. Slide. Next step is you would want to ensure your register for direct deposit and use some of the records to show the appropriate 15 or 30% reduction. As we'll see there's components and flexibility in terms of if you're dealing with cash for accrue accounting, are you looking at which period, are you consolidating? There's a significant number of tactical considerations you'll want to consider. Slide.

This brings us to CERB. A lot less powerful in terms of it's application. In instances where employers are dealing with the cap and sales force, independent contractors, that this is something they should be aware of. We deal with a $500.00 a week application program for up to 16 weeks. The application's open April 6, 2020. The applicants re-apply every 4 weeks and the benefits are taxable. Slide. ... applicants had stopped working because of COVID-19 they are eligible for EI, regular sickness benefits, and there is now de minimis minimum of $1,000.00. So you can still apply for this program if you earned only $1,000.00 in that contributing period. You had income of at least $5,000.00 in 2019 or the 12 month period prior to the date of the application, and you are, or will be, without employment or self-employment income for at least 14 consecutive days in the initial 4 week period. Slide. Again, the $5,000.00 income requirement can be from any one of a number of a different sources, including self-employment, maternity, parental benefits, there's a very wide scope. Slide. Terms of applying. Again, online with CRA my account is what we would recommend is the desired approach. Slide.

This one's fairly new. The Canada Emergency Commercial Rent Assistance program, CECRA, and this is a Federal government program in conjunction with Province and Territories, rents are lowered by 75%, by affected small businesses that pay less than $50,000.00 a month in rent, and have temporarily ceased operations or experienced at least 70% drop in pre-COVID revenue. NPO's and charities can also receive the benefit but the primary focus here is on small business. Slide. What we have is a structure where we provide forgivable loans to qualifying commercial property owners to cover 50% of the 3 monthly payments. The loans are forgiven if the mortgaged property owner agrees to reduce the rent by 75% for the 3 months until which, during such a term, a term not to evict is included. We expect that this may be expanded to non-mortgaged properties but we don't have that context right now. The small business tenant would cover the remainder and it is expected to be operational by mid-May. Slide.

Lastly, the Emergency Business Account loans. As discussed, this is a $40,000.00 component, guaranteed by the government, interest free for the first year. The purpose is to help operating costs during a period when revenues have been reduced or truncated. If you're repaying prior to December 31, 2022, it will result in the loan forgiveness of up to $10,000.00. Slide. The eligibility requirements are showing that there's a $20,000.00 to 1.5 million dollar payroll, paid out in 2019. Slide. I'm going to be very brief just due to time but note that there are slides here that provide overview with respect to the pushed out tax filing deadline. Individuals deferred to June 1, 2020. Payment date for any income tax balances, again, due August 31, 2020. Business defer until to June 30, 2020, payments of GST and custom and duties, and defer until after August 31, 2020, payments of income tax owing, again, for businesses. Slide.

In conclusion, what hopefully you're taking away from this first point is that there's a variety of planning options that are out there. We're going to get into greater detail as to they how interact to let you facilitate your best funding plan, but the key point is you want to be strategic in terms of reviewing the planning points that are there, the manner in which they intersect in terms of how you can apply, what approach you want to take, and, three, how you're dealing with that in terms of communicating internally with your team and your employees, and externally, ... to your suppliers, your financers, your backers, the entirety of your organization. Thank you.

Chad: Thank you, Colin. So, I'm going to be going over the mechanics of the CEWS and CECRA. I put that in question marks because we don't know yet any of the real details, the true details, of CECRA, that's the commercial rental assistance program. In terms of how to actually calculate what 75% revenue reduction is, l can only assume that it's going to be somewhat similar to the revenue reduction calculations and the rules around the CEWS, the 75% subsidy. So, important to go over that. The other thing that is important to understand is there's two calculations when you're calculating the CEWS, that 75% subsidy. The first calculation's very key. That's actually calculating the revenue reduction. So how do you actually know whether or not you qualify for this. Very key. That's where I would say would be most of the risk related to this application, would be about that, itself. Whether or not you qualify. The second calculation should be much more straightforward and CRA has tools online for you to calculate that. They actually have an Excel workbook that you could download and that would be calculating the subsidy itself based on the remuneration paid to your employees. Next slide, please. If we're looking at this then, I'm going to ... before getting into the actual example itself, it's important that we understand revenue and how to calculate revenue. They way we look at this is basically breaking it down into four stages. Number one is the method of, I guess, treatment to use. Whether it's accrual or cash. After that there's the adjustments that you're required to make to revenue, or that you may potentially want to make in consideration to revenue. Then there's whether or not to consolidate. And, lastly, the comparable periods. So how do you actually know whether or not you meet the revenue reduced requirements.

So, if you could go to the next step, please. Next slide. To go over method. I guess a theme around CEWS, this whole program, it's flexibility. I'm going to be bringing this up throughout my chat here because there's a lot of flexibility throughout. Very surprising, it's not something that, as tax professionals that we're used to seeing, that a government would actually allow for a number of different choices for people to make in order to be able to fall into qualification of this program. Very, very surprising. At the same time too, it's great to see, very positive because apparently what they're trying to do is they're trying to help, I believe, the public as much as possible in trying to mist situations where certain businesses are slipping through the cracks. So we're going to see a lot of flexibility here. Under method, for example, you have a choice of using either the accrual method of accounting or the cash method. The accrual method is basically what we mostly know, as accounting general rules, and would include in your revenue sales and accounts. So, AR, or even work in process. I'll refer to that as WIP. WIP process is basically work actually performed but not yet billed for revenue and therefore not in AR. But it's still treated as revenue. Then there's the cash method. Very straightforward. It's based on actual cash receipts. It's important to realize though that whatever method you choose, you're required to follow the same method for all qualifying periods. So you're going to want to be strategic here. The best sort of set up companies for this, and prepare companies for this, would be the ones that are looking ahead, 2, 3 months, for the duration of this program. Currently it's for 3 months. March to April, April to May, May to June. It may get extended but if you're looking ahead to sort of see where your revenues of past collections may be, as much as possible, it could give you a bit of a sense of potentially which method you could actually go with. It we move onto the next step, once you've figured out the method, you want to look at the adjustments for revenue. You're going to want to adjust for basically, and this is mainly for the accrual method, items that are not in the ordinary course of activities. Actually, this would be both accrual and cash, but what that would mean would be, for example, sale of capital items. For example, if you're selling a building, and you're not in the business of selling property, that would not be the ordinary course of activities for your business, so you'd want to exclude that. Likewise, selling a piece of equipment, would be similar. Extraordinary items, by it's name, you should not be seeing that too often, but what it includes insurance proceeds and also expropriation. They would have to be excluded. Revenue from non-arms lengths parties is, maybe one of the more common revenue line items, especially for people that have a , or part of a different, or affiliated with companies. You're going to want to make sure that you exclude that. An example would be if you have a real estate company that owns the real estate that houses the operations for your operating company, and if there's ... rent that's being charged, you're going to need to exclude that. As well as the related subsidies received or receivables. Under the accrual method you would typically accrue for expected subsidy to be received, such as this. They obviously want you to exclude that. Adjustments to revenue. So this is where you're going to want to be thinking strategically here, under the accrual method. You've got to think as though this would be your regular year end process. What I mean by that is if we're calculating this for March, for example, let's say March is not your typical year end, you would not necessarily go through certain adjustments at the end of March, that you normally would be for any typical year end. Such as, and the key would be, if I use WIP for example, there'd be certain WIP or work that's performed that you believe you will never be able to recover on. Whether that's a professional services business or a construction business, work that's actually performed and if you feel that you will not recover it, usually at year end you would go through and have that written off. You should be doing that in March, let's say of 2020, which would help you to potentially get you closer to meeting the requirements of the 15% revenue reduction for the month of March, or 30% thereafter. So you certainly going to want to think about that.

Next slide, please. So now to go over consolidation. Here again, we're going to see a lot of flexibility. This surprised me. l did not expect this at all but, again, it's understandable why they're trying to do this. They're really trying to be helpful and this isn't a typical release of new tax legislation. Where the flexibility comes here is, if you did have an affiliated group of corporations or businesses, for example, you could look at applying for this or meeting the eligibility criteria per company. So that's 15% or 30%. You could look at it per company, or, if you have a few companies in your affiliated group that have done poorly, and another few that have not done as poor, you could look at potentially consolidating the group, and looking if the group as a whole would meet that 15% revenue reduction or 30% revenue reduction. If so, you could apply the CEWS to all of the employees throughout the affiliated group. Very beneficial. Applies to joint ventures as well or co-tenancies as well, we see that a lot. As well as partnerships. There's also a very limited restrictions to the consolidation. When I first saw this I thought, okay, there must be certain other restrictions such as a requirement that you would have had to previously consolidate your financials before. That's not a requirement. Nor is there a requirement for the businesses to be in the same or similar type of business. Again, that's a surprise but a welcome surprise.

Next slide, please. Now to go over the comparable period. So now that we've calculated the revenues, now you've got to figure out whether or not you meet the revenue reduction. Again, flexibility here. Because you could compare it to the same colour of month of 2019, or the average of January, February 2020. So that's meant to address the January, February part. It's meant to address some of the high growth set up businesses. When they first came out with these rules, before it was actually released, the details were released, there was a lot of concern that companies that are in high growth situations would not be able to meet this. An example, a client of mine who's doubled in size from last year to this year, and actually doubled their head count from year to year, they got hit hard from COVID-19 but if they were to compare it to 2019, March 2019, they wouldn't be showing a 15% revenue reduction. But if they compared it January, February 2020, they all of sudden meet it. And they should be able to actually access this because this is allowing them to keep their employees employed. So that's the whole point of this program. That was a welcome change. It could also be very beneficial for businesses with seasonal revenue. What I mean by that is if you seasonally have, I guess January, February with really high revenues compared to March, April, May, it could be beneficial for you to compare it to January, February 2020, as opposed to going back to March 2019. Again, you're required to follow the same basis of comparison for all claim periods. So if you are using Jan, Feb, you're going to have to continue with that basis. Next slide, please.

So now to go through the practical example. Certain relief programs look mainly to CEWS. I'll give you facts of an actual client case of mine. They're an affiliated group of corporations. They've got eleven operating companies for passive corporations, three of them being real estate, one being investment holdco. They're all Canadian controlled private corporations, so CCPC's. As an associated group they had less than 15 million dollars of taxable capital in 2019. That will be relevant in the following slides. The operating results for March were varied. Some companies were actually hit hard. Others experienced small reductions and others experienced increased revenues. All but one operating company had salaries in 2019, between the $20,000.00 and 1.5 million dollar range, and in total they had 142 employees with an average salary of $61,000.00. If we go to the next slide, we'll see the actual calculation here. Obviously I didn't want to throw in 15 different columns for different companies, so what I did is I just took three operating companies, one passive company, and total. So if you can see here, we listed out where you'd want to show three different rows of revenues. Number one, you're going to want to show January, February average, 2020. So we've got that at the top line. Then you're going to want to compare it to March 2019 and then you throw in your current years', March, and the results there. After that, you're going to want to compare, individually and as a group. You want to compare to Jan, Feb and you can see if we're comparing to January and February, and we're only looking at this as individual companies, only Offco B would be actually fit the criteria for the CEWS, the 75% subsidy. As a group, it's minus 12%, so you wouldn't be able to meet the criteria based on that comparable method. But if you compare to 2019, you can see individually you've got two companies, Offco A and Offco B, that would qualify but if you consolidate it's minus 29%, so that's greater than 15% revenue reduction. So in this particular case, my client's case, they were apply the CEWS, using the consolidated basis, to all of their employees across all companies. What that meant to them is an approximate per week wage subsidy of $120,000.00. And that's a $120,000.00 straight to the bottom line, absolutely significant, especially at a time like this. Just want to caution you. Colin did make a mention of this. But you must utilize the 10% wage subsidy if you qualify. The way the CEWS is written, if you qualify for it, whether or not you've actually benefited from it, if you qualify for the 10% subsidy, you're only going to get 65% of the CEWS. They're going to automatically reduce it. Not a big deal if you've missed taking advantage of the 10% subsidy because you have until the end of the year to benefit from it. But just remember that. So you're going to want to make sure to apply for it when you can, which is upon payroll remittances, so that you don't miss the deadline. Next slide, please.

The other relief programs, applying to the same client example and the same fact pattern. The TWS, the Temporary Wage Subsidy of 10%, they qualify as they are all CCPC's, so Canadian controlled private corporations with less than 15 million dollars of taxable capital in 2019. So they had to apply for that as well. The CEBA, that's the $40,000.00 loan account from banks. Just remember that's all but one operating company, they have different operating companies, with 2019 salaries between $20,000.00 and 1.5 million. So there's eleven operating companies therefore so $400,000.00 was actually received, potentially a hundred thousand dollars forgiven, if they repay $300,000.00 by the end of December 31^st, 2022. They've got over a year and a half to do that. So quite beneficial there. They're also able to take advantage of BDC program through the government relief measures and receive an additional 2 million dollars of additional financing. And the CECRA, that's the Commercial Rent Assistance, they likely won't benefit because right now, as we're currently being told, they won't because their operations have ceased and their revenue drop is less than 7%. I believe that's it. I'll pass it over to Natalie.

Natalie: Thanks so much, Chad. That's a lot of information, and we're moving really quickly but relative to the subsidies and the relief programs available, it can have a huge impact on your cashflow. There's more to it than just everything that you've heard and I want to bring into context of cashflow. What will you do if you qualify and receive the money? Equally as important, what will you do if you do not receive the subsidy or relief available? Next slide, please. I think it's important to acknowledge a little bit of what happened because it was very, very sudden. We had a shift in focus that was immediate. It went from a long term strategic business focus to something that was very short term, weather the storm. What do we do now? We're faced with uncertainty. We've gone onto survival mode a little bit. The cash inflows have greatly decreased in many cases. The cash outflow, in equally as many cases, has remained fairly consistent and so those two things are competing with one another, and so we react. Whenever we react end up in a crisis mode, we're trying to stem the bleed, we need to make sure that we take the time to make informed decisions. What do we talk about next? We talk about cash management. Next, please.

Managing uncertainty and avoiding the chaos. So what you see in front of you is a process that is fairly intuitive, of course, and fairly simple, but I thought it was important and beared reminding. I'm going to use this process throughout the rest of my chat, my presentation. I'm going to look at each of the quadrants differently. So, why the process? Because as I mentioned, we want to avoid the chaos and we want to manage uncertainty. Becoming overwhelmed by the sheer amount of demand on our resources, on our time, etcetera, it can drive us to react, as I mentioned earlier, into that survival mode and make decisions that may not turn out to be the best ones. I feel that having a process in place allows us to be more thoughtful and end up in a better position as a result. Next slide, please.

That first quadrant is around setting objectives. The reason I think this is so important, and it's probably something that your advisors would ask you on a regular basis, whether you're doing any planning or just making some important decisions, trying to get through something, is where do you want to end up at the end? Before you decide how to get there, you need to know where you want to land. If you don't know where you want to land you may not land there and it may be a bit too late. You will have gone down the wrong road. I think it's important to set objectives and meeting your objectives will help you thrive as a business after recovery. Important that I use the word thrive because, again, that survival mode forces people into thinking we just want to survive this, and that's true but if you could thrive how great would that be? Setting objectives will help you get there a little bit more closely. In terms of objectives, and it's going to be different for everybody, and some may be the same but I think in terms of do I want to keep my team as employed as possible throughout the pandemic crisis that we're faced with? Do I want to focus on relationships with my suppliers and vendors and leverage them as best as I can? Do I want to offer support to my clients because I know they're struggling as well, and that can even reach as far my client's clients. Which is something that I'm always trying to keep, in my own mind, dealing with my own clients. Certainly, to the context of the webinar, maximizing the relief programs available will have a huge, huge impact on that cash inflow component that I referenced towards the beginning of my slides. The important part relative to objectives is to always keep them in mind. Don't let them get too far away from you because they will become your guiding principal. It's okay to be flexible, in fact I think it's important to be flexible whenever you're faced with so much uncertainty and volatility, maintain your flexibility. But don't lose sight of what those objectives are. Next slide, please.

So making decisions. From an a cashflow perspective there's really only two main buckets here. The first one is cash inflow. How do I maximize it? As I mentioned in the beginning, cashflow coming in can be greatly decreased, and how do I maximize that such that there's less stress there? And certainly as it relates to the cash outflow. You have customers and clients and it's important to make sure that you reach out to them on your collections of the balances they have with you. It's not a fun job, but I don't personally know many people who enjoy doing it, but I think it's really critical. If you a have a process in place to already do this, fantastic. You're already a step ahead. If you don't, it's a good time to start thinking about that and putting one into place. But the most important thing is reaching out and having those conversations so that you can make sure that, number one, the cash continues to flow in, but number two, you can also understand where your clients and customers are under the current crisis as well, and how can you work together and support one another. So, assessing credit in the short term to, existing credit facilities. Many businesses have lines of credit. If you have room available, if you could reach out and get an extension for a little bit more room on that line of credit, it's helpful. I know that banks are willing to work with their customers. This is a fairly easy, it's a low hanging fruit so to speak. Or accessing the short term through the relief programs. CEBA was mentioned. CECRA was mentioned. I'm speaking from a business perspective, of course. Those are all really important things to consider whenever you're making decisions. There's some other government subsidies available. It's important to see what your business qualifies for, and I'm just going to put a blanket statement out there, this is really complicated stuff. In terms of understanding the rules and how they might apply to you is really important and the devil is in the details. I know Roberto will be talking that later and I'll leave it to him. Talk to your advisors if you have any uncertainty around the rules. So, cash outflow. Every dollar counts. We want to make sure that each one is working hard for you to make sure that you reach your objectives as efficiently as possible. Again, that's making your money work for you. I'm sure that everyone has already focused on things like cutting your discretionary spending. Is it really necessary? Is it going to help me reach my objectives? Whatever they might be. Cutting labour costs. Taking advantage of some of the work sharing programs or other things that are out there. Might be something that may align with your objectives. Maybe not but something to be considered. Reaching out to see if there are any other things available. Like abatements, for example. So, a reduction in those cash outflows. CECRA might be one if you can work with your landlords, and again, we're still learning about it but if there's an ability to have an abatement in your rent, that could be a big win as far as minimizing cash outflow. Discounts with your suppliers, potentially, and one that I find often gets missed sometimes, is taking advantage of some of the other payment deferrals. Again, some of the abatements, before I move on from there, long term contracts, fixed price contracts. If you reach out to your lenders and suppliers, I haven't found it unusual that in the interest of continuing your relationship with you instead of you just cancelling that contract and not using their product or service anymore, that they're willing to provide an abatement. It's important, again, to have those conversations. Just going to talk about some of the other relief measures available. If you go to the next slide, please.

Some have been talked about in a bit more detail already. Colin mentioned at the beginning some of the Federal relief programs, deferral and HST and corporate tax payments and installments, for example. Potential areas of Provincial relief. Again, my home is in Ottawa, Ontario, so I've prepared the slide on that basis of course. Please reach out whatever area is relevant to you and your business to make sure that these are consistent and how it might apply to you. But, WSIB payments, there's an ability to defer your payments on WSIB without sacrificing your coverage. The temporary increase in many Provinces for EHT. The exemption threshold for 2020 in Ontario, for example, it's gone from $490, from 2019, up to a million dollars in 2020, amongst the group of companies and that's a big, big help. Deferral of Provincial sales tax payments. So in Ontario, HST. Places like Quebec, QST, have followed the Federal lead on the tax deferrals. Potential areas of municipal relief. You might have the ability to defer some of your utility payments, property tax payments. In some places those things have ended the deferral period but there might be some other hardship programs available that you might qualify for and should consider. So, again, reach out to the area that's appropriate to you and your business to get the details. I believe that Roberto will be touching on this, as I mentioned earlier. Next slide, please.

Take action. All of this takes a lot of effort. Blood, sweat and tears so to speak. But taking action and decision making happen simultaneously. They work together. So I know I've got them in separate quadrants but I want to acknowledge the fact that these things are very well intertwined. It's important, as soon as possible, and I keep referring to communication and reaching out to whoever your stakeholders are, for example, banks, landlords, clients, employees, etcetera. I know that Colin and Chad have made reference to the same thing and we keep hitting on it because it is so important. Making your calculations. Right? So, getting solid behind the fact that you are eligible for some of these subsidies is critical and it may take some time for you to pull that together. Sometimes it's really simple, sometimes it's not so simple. Again, the details are really important. So make sure that you are on top of that. Get registered for your my business account. Make sure you're access has been granted to you and that you're able to access that. Reach out to your advisors for guidance. Again, I can't reiterate that enough only because it can be so complicated. If you've been brave enough to dive into the legislation, it's an interesting read, and the interpretation of it, professionals get together and talk about how do we interpret that. It can be complicated. So make sure you take advantage of your advisor group and get your questions answered. But before I move on from here, the one thing that I really want to highlight too, is understanding some of the fine print of all of these relief programs, subsidies, deferrals, abatements, etcetera, I need you to understand what the fine print is. Because there could be a cost to taking advantage of some of these things. Relative to taking a deferral. Is that going to attract additional interest to me, for example. What happens if I don't make that deferred deadline? What if I don't make that payment? What does it mean? Does the interest rate kick in? Does the interest rate go up? Does it affect a payment plan or an agreement that I already had in place? There's a lot of different considerations to be made and the fine print is important. So please don't ignore it because it will end up being a surprise later and we're trying to avoid surprises, certainly when we're faced with such uncertainty and volatility.

Roberto: Okay. Great and thanks, Natalie. Again, my name's Roberto, litigator with a focus on real property disputes and you folks may be wondering why the heck do I need to hear from a litigator today. But from the risk management perspective it's really fitting. It has a nice synergy with sort of step 2 of Natalie's analysis, as you're making your decisions. Making sure you've got the right inputs because there are some unique circumstances, as they relate to risk management, that have resulted from COVID-19. We'll talk about some of those approaches and making sure that you're reviewing your commercial contracts. It's a been a theme throughout for from all the presenters about communicating with your stakeholders. We'll talk a little bit about the employment context in talking about some of the cost saving programs. Getting in the weeds a little bit further. Next slide.

In particular, when you're looking at your commercial contracts, there are certain clauses that are having their day in terms of legal disputes. Excusable conditions, delay clauses, relief clauses and force majeure clauses. Some of the clauses where people have supply agreements and it's dependent on a certain volume of sales. If you're delivering potatoes to restaurants right now it's not a good day and that may be impacting some of the specific clauses in the contracts. Force majeure clauses are clauses that really have not had a lot of courts interpret them. Not a legal attention but as mentioned they are having their day. Force majeure clauses are generally included in contracts to account for circumstances where a party cannot perform the contract due to circumstances beyond it's control. Which would not rise to the level of the doctrine of frustration. I'll talk a little bit about frustration but, essentially, for frustration that's going to be the contract to an end. Force majeure clauses are more specific in terms of pertaining maybe to only some conditions. It can be all conditions but it's a specific provision that's going to have precise language. So if we go the next slide.

You see an example of a force majeure clause and you'll see that it talks about damages due to delay or non-performance, and then it talks about as a result of work stoppage, power or other mechanical failure, computer virus, natural disaster, governmental action, or communication disruptions. I sort of call this the laundry list method. Going to the next slide. The components of a force majeure clause, it will talk about what the parties are protected from, so it may have that laundry list approach. Or it may use the term acts of God. Always fun to read acts of God in a contract. It certainly makes it sound like a very fascinating interesting thing. The clause typically provides how risk is allocated. Not all force majeure clauses are equal and they may weigh more towards one party than the other. Then it typically relieves parties from some or all obligations, if the events occur. Next slide.

With any contractual analysis, one of the starting points is where's the jurisdiction and the governing law. So, for example, you'll see that Ontario law versus Quebec law, there's significant distinctions. Quebec being a civil jurisdiction law. Ontario is a common law jurisdiction. Depending on some of the general vendor contracts for licencing agreements, often the jurisdiction's in the United States, so the starting point is where is the jurisdiction, where's the governing law? Because the laws are going to be different in every jurisdiction. Force majeure clauses, generally in Canadian/US jurisdictions, not as significant variance but there can be some. Next slide. The elements of a force majeure clause are first, the qualification. Second, an impossible performance standard. So, not that it was difficult but it has to be impossible. Third, is foreseeability and the fourth is the remedy. So what's next? So moving to the next slide.

The first question is does this qualify? Well, as you're considering that, lawyers, we're going to parse it up. What is this? Is this the global pandemic as pronounced by the WHO? Is it a public health emergency? Is it government action, restrictions or regulations? Is it when the Quarantine Act is implemented? Is it when there is an emergency order? Does this qualify? You can see how there's a lot of different arguments for what this is and what this is, is probably different if you were Pearl Jam hosting a concert at the Canadian Tire Center versus open mike night at a local pub. Next slide.

The second question, which you'll see is linked to the first one, what was the cause? So you've got to link it to the region. Look at alternatives and was it a business decision versus government action. Does it meet the impossible performance standard? When you're looking, regionally, you've got to, again, wonder what is it that we're looking at here? Is it the day that the Ottawa Public Health sort of pronounced folks should not to go to work? Offices should be closed in sort of that Monday, Tuesday period where most commercial offices were shutdown? Was it the declaration of a state of emergency by the City of Ottawa? If you think that's the answer, well, the City of Kingston declared a state of emergency for a global climate crisis. If I was trying to cancel my order of photocopiers because of the climate crisis in Kingston a year ago, probably not going to meet the force majeure clause requirement. But, what was the cause? Well, I want to host a concert and we can't have group meetings of more than 5 people, that Provincial direction, I think that's going to be pretty clear that that's going to be a cause. At each point in time there's different arguments. But certainly there's going to be a lot of cases where COVID-19 is going to provide for a clause that would qualify in a lot of force majeure clauses. Next slide.

The third question is foreseeability. Did you see it coming? Again, if it's a supply contract for potatoes for a restaurant from 2 years ago, would you foresee a global pandemic at this time? I think it's fair to say that a lot of people didn't see this coming. If you did, I hope that you made some very clever stock market trades, and I would appreciate your advice going forward in that regard. There's going to be a lot of arguments that this was not foreseeable. That being said, again, it's a question of point in time. If I enter into a contract last week can I say it wasn't foreseeable because there's a global pandemic? Well, I think that's going to be a pretty tough case at that point in time. Next slide.

Then the question is what do you want? With this part, I think, there's sort of two parts to it. One is what is the legal entitlement? If you went to court, and went the full way, what could you get in a best case scenario? That's going to depend on your force majeure clause. Again, a lot of the clauses contemplate what the remedy is but could you also amend the contract? Could you change the time period? Is there a financial solution? Part of, as I indicated with Natalie's framework, talking about making the decision is having the right information input, because most advice that I provide in litigation, it doesn't go to trial or a full hearing. Most things settle and having knowledge of what your legal arguments are, positions you sometimes for settlement, so there can be pragmatic solutions that maybe they don't even fit within the parameters of what you would legally win at a trial. I've got a number of matters in the court right now where the solutions we're coming up with are not necessarily things that will be ordered by the court, but we're trying to find win/win situations or try and lessen the hard bell parties. So, again, from the remedy standpoint you look at the provision. It may provide specific remedies but, again, this can also be a chip of how does this play into a negotiation? The other thing that is sort of overlies all litigation advice I give is, sometimes it's helpful to punch the other side in the teeth. Sometimes in it's helpful to come up with a tough litigation position. And sometimes it's not. Sometimes it's nice to know that you've got it but sometimes you may be escalating. But all that to say is you need to consider the full context and it's never going to harm to at least have the information of what your options are. Next slide.

I alluded to the doctrine of frustration earlier. Really this is something that would be considered, it's a high bar. So a higher bar than an explicit force majeure clause, but if they're is no force majeure clause, or if the force majeure clause just simply doesn't fit. If it only talks about server breakdowns and it's not any broader than that, global pandemic's probably not going to fit into that clause. The doctrine of frustration applies where the contract, things have radically changed, things are radically different than what was undertaken by the contract. As a result, through the common law, the contract could be cancelled. But, again, this is bringing the entire contract to the end. Force majeure is just generally excusing certain obligations. Next slide.

As we're talking about risk management, just sort of some of the other things to keep on an eye out for. You've had some discussion about real property liabilities for small to medium business. A lot of the times real property is the biggest of the liabilities. So for ownership, tenants, we've talked about communication and how critical that is. For tenants, sometimes the tenants carry the municipal tax rights of appeal and sometimes it lays with the landlord. So knowing that and knowing whether you've got options on that, in terms of reducing municipal taxes, that's somewhere you may be able to find a reduction in some liabilities. Next slide.

Natalie mentioned municipal tax deferral programs and we've got an article on it on the Gowling WLG COVID-19 website. The tax deferrals are highly contextual. It's going to be different in every municipality. Some municipalities don't have them at all. For example, there's different qualifications periods. Some of them have ended already. For example, in the City of Ottawa, if you were not current with your taxes you weren't eligible for the municipal tax deferral program. You're going to have to look at it by municipality, but again, your legal advisors, municipal tax consultants can help. Natalie mentioned hardship programs. Rebate programs as well are very highly underutilized in the Province. I know they were sort of scaled back down in the last few years so there's a lot less in terms of vacant land and that. But there are certain rebate programs particularly for different types of not profits. And again, it's very municipally contextual. If you're looking, again, at your real property tax liabilities, consider classification of a property, the valuation, consider that impact is assessing value on all properties in Ontario. Each assessor is dealing with thousands and thousands of properties through mass appraisal. It's not going to be a perfect art. There are going to be issues, mistakes, opportunities to reduce it and also there's the important that the Assessment Act provides not only does the tax assessment have to be related to the correct current value, but it also needs to be equitable. So there's a consideration of whether your taxes are similar to the taxes of your neighbours, of neighbouring properties, of other similar properties. Next slide.

With respect to employment issues it's a complicated topic. There's a whole lot there. The biggest piece is the same message that's gone throughout the presentation which is communicate and plan ahead. There are comprehensive resources for employment related issues, including Managing your Workforce Through Crisis webinar on the Gowling WLG website. Topics include temporary layoffs, Employment Standards Act, job protected leaves and remote work. Contextual analysis is required in each jurisdiction but that's to get out ahead of it and make sure you're communicating and having a clear plan of action. That is all we've got. Turn it over to Colin with respect to the questions.

Colin: ... Thank you Roberto and I thank you Natalie and Chad. We're going to run through some of the questions. At least the broad based ones very quickly. I apologize for not putting too many questions for a very talented panelists. It's just an issue of time. We'll go through a few of them and then I have one or two where, of course, you give the accountants the hardest possible questions. That's generally the way this works. Question, are the wage subsidy programs limited on corporate tax status? And no, per CEWS, they're not. For the much smaller 10% wage subsidy program, I actually believe there is a CCP requirement, but on general in terms of CEWS, I don't think they are. No. Is the wage subsidy applicable to both hourly and salary employees? Yes. If you meet the other requirements. What is the definition of an affiliated group? Technical to generally a group of corporations ultimately controlled by one person, or spouse. Regarding consolidations, do they have to be Canadian entities? Here, we don't obviously have the time to get into a technical cross border tax evaluation, but Canadian tax payers. You can have foreign entities that have registered as branches, and/or, have permanent establishments in Canada that are paying tax. If you're a Canadian tax payer we believe that's a requirement to be on the board. In terms of consolidations, again the question is do they have to be Canadian entities and we're indicating that they have to be Canadian tax payers. I'm going to pass it over to Chad to confirm. Chad, is that accurate on a consolidation piece.

Chad: Yes. They ultimately have to be Canadian tax payers. They don't need to be CCPC's, for purposes of the CEWS, at 75%, but they ultimately have to be Canadian tax payers.

Colin: Excellent. Very helpful. And then, Chad, question, if we qualify for period one, do we automatically qualify for period two?

Chad: Yes. Another very welcoming point as part of that. I see the reason for it. They basically said that they wanted to give some form of, I guess, information or comfort for employers to hire people. So if employers only had information and comfort on ... basis that may contribute from hiring people. But in this case, if you qualify for period one, you get period two. If you qualify for period two, you get period three.

Colin: ... we understand there's student benefit. Can you just provide some overview ... That's from May to August. Is that correct?

Chad: That's correct, yeah. On the CERB benefit. There's a separate measure for students on that. I guess for that benefit if they don't meet the CERB, which is get $2,000.00 a month based on $5,000.00 of income in the past year, there's a student benefit portion where they could get $1,000.00 a month. They can actually make up to $1,000.00 without hurting their chances of getting that conditional $1,000.00.

Colin: ...

Chad: Right.

Colin: Lastly, just in view of time requirements, ... eligibility. If we're comparing the 2019 to 2020 revenue decrease, are we looking at March 15, 2019 to April 11? Or are we looking at simple month ends on the comparison basis?

Chad: Yeah. There's a lot of questions being asked about this. It is a good question and it's not the clearest when you're reading through the legislation but basically what it is, when you're doing the comparisons, you're using a calendar month. You use calendar March 2020 to calendar, let's say, March 2019, or calendar April, but the periods, where they talk about periods of benefiting and receiving the subsidy, it would be based on what it's paid out to employees. So the remuneration from mid-month to mid-month. It's not always a 15^th of the month. It's about a full week period. So, yeah, that's were the confusion is. View the comparison, it's based on a month, calendar.

Colin: Thank you again. We want to take this moment to thank both our attendees, thank you again everyone for dropping in to listen to us. I wanted to thank my friends, Chad, Natalie and Roberto for joining us for this presentation. Hope everybody found it informative and we wish you the best. Thank you.

Chad: Thank you.