A non-arm's length relationship is suggested when... the employer uses the employee's property or assets to conduct business and offers compensation for rent or utilities in a way that is common to current market-place practices. This is particularly true in the case of employees who are shareholders, since they are often employed in executive or managerial positions. For further information on the changes below or other tax matters, please contact one of the authors above or any member of our The Canada Emergency Wage Subsidy (CEWS) was first announced by the federal government on March 27, 2020. An employer in the open labor market hires employees to perform services that are necessary and important to the business operation.If an employer hires an employee to perform services that are important to the business operation, it may indicate an arm's length relationship.On the other hand, if an employer hires an employee to perform services that are unimportant or extraneous to the business operation, it may indicate a non-arm's length relationship.It is also important that the remuneration paid is in accordance with the nature and importance of the work performed.The following chart provides examples of employment circumstances that affect this factor:Determining if an employee who exercises another corporate responsibility for the corporation is dealing at arm's length with the employer involves the same considerations as with any other employment relationship. Deal Breaker: An issue that, if left unresolved, prompts one party to discontinue discussions. Our clients include industry and business leaders in all segments of the market and at various stages in the growth of their businesses. This relief measure is presumably intended to accommodate corporate structures that separate the work force into a separate entity (e.g., in a service or management company) from the revenue generating activities or where there is a central marketing entity that buys the goods or services from affiliates and sells them into the market. It is common in joint ventures for employees to be engaged by a special purpose entity (the JV Employer). For example, assuming that an existing employee earned a salary of $1,000 per week prior to the COVID-19 crisis, and only $750 during the crisis, the employer would still be entitled to a subsidy of $750 per week.If the employee is paid less than 75% of their pre-crisis wages, the subsidy will be capped at the greater of the actual wages paid and $847 per week. Non-arm’s length transactions are transactions that exist between people who already have an existing relationship. Conversely, if some business units have suffered dramatically (in excess of the 15% or 30% threshold) and others have only seen mild reductions below the eligibility thresholds, the consolidation method could allow all business units that might otherwise not qualify to access the subsidy.Whether the consolidation approach will be beneficial to a corporate group will depend on the operating structure (including the level of integration between the business units) and the impact of the current circumstances on the revenues of each affiliate.Eligible entities that earn all or substantially all of their revenue from one or more non-arm’s length persons or partnerships, can jointly elect to determine the Required Revenue Reduction by reference to the qualifying revenue of the non-arm’s length persons or partnerships from whom they earn the income. It also provides information on what the Canada Revenue Agency (CRA) looks at when determining whether or not an employee and an employer are dealing with each other at arm's length for the purposes of the Employment Insurance Act (EIA).It is important to determine whether or not the parties are dealing at arm's length because, if they are not, the employment may not be insurable under paragraph 5(2)(i) of the Employees are related to their employer if they are related by marriage (including common-law partnerships), adoption, or blood (parents, brothers, sisters, or children). The analysis of all the circumstances of the employment is necessary to establish if it is reasonable to conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. Each category is discussed below. This additional subsidy will not be available for employees who are on leave with pay for only a portion of the week.Employers can claim the subsidy if they have suffered a drop of at least 15% in their qualifying revenues in March 2020 and 30% in April and May as compared to the prior reference period.An eligible entity’s qualifying revenue for a prior reference period or a current reference period will be its revenue in Canada earned from arm’s length sources, arising from ordinary course activities such as the sale of goods, the rendering of services and the use by others of resources of the employer. Subsidy Limits for Non-Arm`s Length Employees. For these employees the amount of the subsidy will be limited to the lesser of (i) 75% of the pre-crisis remuneration and (ii) a maximum subsidy of $847 per week. Non-Arm’s Length Transaction. For example, assuming that an existing employee earns a salary of $1,000 per week prior to the crisis and, only $600 during the crisis, the employer would only be entitled to a subsidy of $600.The “pre-crisis remuneration” for an employee is referred to in the legislation as the “baseline remuneration” and is defined as the average weekly remuneration paid between January 1 and March 15, inclusive, excluding any seven-day period in respect of which the employee did not receive remuneration.

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