Since the regulatory framework in Ontario places the OCS in the middle of the supply chain, the Program cannot fully circumvent the OCS or be structured as a direct pass-through from LP to Retailer.  However, the Program does allow Retailers and Licensed Producers to develop relationships and interact directly. The Program will also allow some Retailers to carry unique product offerings, as compared to their competitors, and will also allow LPs to provide branded products that feature the Retailer’s brand.  LPs will have to work with the OCS to ensure that any obligations they have to Retailers are met, determine the product quantity needed, and ensure that the proper inventory method is used.

In connection with the introduction of the Program, the Alcohol and Gaming Commission of Ontario (the “AGCO”) has updated its standards regarding the provision of inducements from LPs to Retailers. A guidance document, Inducement Rules for Licensed Cannabis Retailers, was released to clarify the changes to the AGCO’s Registrar’s Standards for Cannabis Retail.[2] The changes detail the continued general rule against material inducements, but also highlight new exceptions to this rule. This article will review these new exceptions including with regard to the practice of “white labelling.”

Rule Against Material Inducements

The Registrar’s Standards for Cannabis Retail (the “Standards”) prohibit Retailers from entering into agreements with LPs and their representatives for items, benefits, payments, or services in exchange for the promotion or increased sale of a particular product by the Retailer or its employees.[3] In other words, LPs are prohibited from approaching Retailers and offering them any incentives to promote that LP’s product over other products sold by the Retailer. An example of this would be a Retailer entering into an agreement with an LP whereby the Retailer agrees to promote and increase sales of that LP’s product in exchange for exclusive product features. The provision of exclusive product features would be considered a material inducement by the AGCO and, as such, would be prohibited.

Other prohibited activities or inducements include: the sale of in-store or online advertising space; the provision of cannabis samples for sensory display purposes; the provision of fixtures or physical assets; the provision of items essential to the operation of the business; sales incentives; cash or rebates; travel or accommodation for education or training; and monetary compensation for education or training.[4]

The Exceptions to the Rule:

While the AGCO’s general rule prohibits the provision of material inducements by LPs to Retailers, a few important exceptions do exist, the most important of those being (1) the allowance of items, benefits, or services of nominal value, and (2) the allowance of “white-labelling”.

• Items, Benefits, or Services of Nominal Value:

Retailers may enter into agreements with LPs or their representatives for items, benefits, or services of nominal value. Nominal value items are defined as those of inconsequential value (unlike the prohibited financial and material inducements). The AGCO has not prescribed a specific monetary value above which an item would not be considered “nominal”.  Instead, the AGCO has advised that it will consider the following factors in determining whether the benefit or item would be considered nominal;

• Would a licensee be likely to change their behaviour toward an LP or the LP’s product after receiving the item, benefit, or service?
• Are the items, benefits, or services valued at an amount that would defray the Retailer’s operational costs?
• How many items, benefits, or services have been provided over what period of time? [5]

Retailers should consider these questions when entering into any type of agreement with an LP to ensure that they are not receiving inducements that might be considered material and would, therefore, be prohibited by the Regulations.

• Items, Benefits, and Services Related to Education or Training:

Retailers may accept items, benefits, or services from LPs that are related to education or training. This may include education or training sessions or materials, meals and refreshments during the education or training, and cannabis product samples directly related to education or training. [6]

• Ownership Interest and Franchise Agreements:

Retailers and LPs are permitted to enter into financing, leasing, and franchise agreements. A copy of any such agreement must be disclosed to and approved by the AGCO.  All agreements must comply with the Cannabis License Act, 2018 (CLA)[7] and the Standards. Note that the AGCO will not provide any commentary or explanation regarding its decision to accept or reject a proposed agreement.  As such, it is important that Retailers familiarize themselves with the Standards.

• Store Brand Cannabis Products (White Labelling)

Agreements between Retailers and LPs for store-branded cannabis products (also known as white labels, private labels, and in-house/house brands) are also permitted (“White Label Agreements”).  White Label Agreements allow Retailers to partner with LPs to develop products that include that Retailer’s specific brand. This involves Retailers entering into contractual agreements with LPs for the manufacture and sale of products that are specifically branded for that retail store.[8]  These types of agreements are subject to the same review process by the AGCO as mentioned above.  Retailers should be aware that any branded products will remain available for any other retailer to purchase on the OCS’ “flow-through catalogue,” provided they are part of the Program.

While these agreements are permitted, the AGCO does place certain constraints on their contents.  Retailers and LPs should be cognizant of these rules before entering into any such agreement and seeking AGCO approval.  In particular, White Label Agreements must not:

• Define the amount of product from the LP or its affiliates that must be offered for sale by the Retailer;
• Require a defined amount of display space at the retail space to be dedicated to products from the LP or its affiliates;
• Provide merchandising, marketing, or promotional activities to the LP or its affiliates; or
• Restrict the LP’s ability to have its products sold at other retail stores, or the Retailer’s ability to sell products produced by other LPs (or their affiliates). [9]

White Label Agreements and the Program are intended to benefit smaller LPs and Retailers, as they will enable the OCS to offer more products to Retailers, including products that have a short shelf life or are slower-moving.  It is important that Retailers and LPs monitor how the industry reacts to these changes. White Label Agreements also allow Retailers to further differentiate themselves from their competitors and to build brand loyalty and awareness.

Key Takeaways:

Given the rapid evolution of the cannabis industry, Retailers and LPs alike need to ensure they are familiar with and current on industry developments. The introduction of the OCS’s flow-through program and subsequent changes to the relevant regulations regarding material inducements are two such developments.  Both provide additional growth opportunities for LPs and Retailers but also present a minefield of potential pitfalls if the rules are not properly understood.  Becoming well-versed in the OCS’s Program and the AGCO’s rules regarding material inducements is crucial for Retailers and LPs who want to be able to avail themselves of these new opportunities without costly hiccups.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She is the head of the firm’s cannabis practice area. Please contact Anna at 416.572.7322 or athompson-amadei@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Don Houston, Sotos LLP

Don is one of our articling students for the 2022-2023 term.

[1] Brown, David. “Ontario’s New Flow-Through Model and Product Call Timeline, Comes with Pros and Cons, Says Producers and Retailers.” Stratcann September 1, 2021. https://stratcann.com/insight/ontarios-new-flow-through-model-and-product-call-timeline-comes-with-pros-and-cons-say-producers-and-retailers/
[2] Brown, David. “Ontario Chamber of Commerce Concerned with Province’s Plan to Ban In-House Cannabis Brands and Products” Stratcann March 4, 2022 https://stratcann.com/news/ontario-chamber-of-commerce-concerned-with-provinces-plan-to-ban-in-house-cannabis-brands-and-products/
[3] “Cannabis Retail Regulation Guide” Alcohol and Gaming Commission of Ontario https://www.agco.ca/book/export/html/19736
[4] “ Guidance Document- Inducements Rules for Licensed Cannabis Retailers” Alcohol and Gaming Commission of Ontario https://www.agco.ca/guidance-document-inducements-rules-licensed-cannabis-retailers
[5] Ibid
[6] Ibid
[7] Cannabis Licence Act, 2018, S.O 2018, C.12, SCHED 2.
[8] Maurer, Matt, “The “Return” of White-Labelling is a win-win-win for LPs, Retailers, and Consumers” Grow Opportunity. June 1, 2012.      https://growthopportunity,ca/legal-matters-2/?utm_source=rss&utm_medium=rss&utm_campagin=legal-matters-2
[9] Supra, note 4

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1. New Financing Amounts

The maximum loan amount for a borrower has been increased from $1 to $1.15 million,  which includes:

• $1 million for term loans of which a maximum of $500,000 is comprised of (1) equipment and leasehold improvements of up to $350,000; and (2) $150,000 for intangible assets and working capital costs.

and

• $150,000 for lines of credit for working capital costs. This would be over and above the $150,000 that can be used for working capital costs under the term loan product (above).

2. Term Loans

The amendments include two new financing classes – intangible assets and working capital costs can now be financed as term loans.  Intangible assets are defined as non-monetary assets without physical substance that can be sold, transferred, licensed, rented or exchanged or that arise from a contractual or other legal right.  This includes franchise fees, goodwill, incorporation costs and permits and licenses.

Maximum Loan Term

All term loans used to finance real property, leasehold improvements, equipment and intangible assets and working capital costs can now be made for a maximum of 15 years.  Equipment and leasehold improvement loans that are already registered (or disbursed and not registered) can be amended to the new 15 year term.

Appraisal of Eligible Expenditures

The time period to finance expenditures or commitments for any term loan has been increased from 180 days to 365 days prior to the date the term loan is approved.  If the lender is required to obtain an appraisal to finance a term loan, the date that the appraisal is made has been changed from 180 days before the term loan is approved to 365 days before the term loan is disbursed.

Security

For real property and equipment term loans, lenders must continue to take security in the assets financed.  Lenders must take security in any assets of the small business for the value of the loan for the following items:  leasehold improvement, computer software, website, intangible assets and working capital costs.

3. Line of Credit

Eligible businesses can now access a line of credit to be used for working capital costs (costs necessary to cover the day-to-day operating expenses of the business). Examples include: inventory, expenses related to the creation and development of software and websites, printed materials, professional fees (e.g. legal, accounting, appraisal), research and development costs, payroll and rent.  The line of credit may be used to pay for ongoing expenditures or commitments that arise or were invoiced no more than 365 days prior to the date that the line of credit was authorized. Lenders will be required to take security in any assets of the small business for the authorized amount of the line of credit.

Term and Renewal

The maximum term for the line of credit is 5 years beginning on the day after the line of credit is opened by the lender.  Prior to the end of the 5 year term, borrowers will have the following 3 options:

1. Re-register the line of credit for a new period of 5 years. In this case, a new registration form and a registration fee of 2% on the renewed authorized line of credit amount must be submitted to the CSBFP.
2. Borrowers can also convert the line of credit amount to a CSBFP term loan with a maximum 10-year CSBFP coverage. Any such term loan would need to meet the following conditions:

• • The interest rate must not be greater than the prime rate plus 5%;
  • The terms of the loan conversion must be set out in a document signed by the lender and the borrower and that provides a minimum of one principal and interest payment each year, with the first payment scheduled to be made within one year of the date of the conversion; and
  • The borrower and lender must enter into an agreement to repay the balance of the line of credit with a conventional loan.

3. The borrower and lender may enter into an agreement to repay the balance of the line of credit with a conventional loan.

Claim Process Documents and CSBFP Liability

Lenders must submit an attestation form signed by the borrower at the time the line of credit is registered stating that (1) the line of credit is to be used to pay for working capital costs of the day-to-day operational expenses of the small business, and (2) the expenses paid through the line of credit did not arise (and were not invoiced) more than 365 days before the line of credit was authorized.

The CSBFP’s liability for lines of credit for a lender is limited to 15% of the total amount of the lines of credit authorized and registered by that lender, separate and apart from a lender’s liability calculation for its registered term loans.

.   .   .

As noted above, one of the most significant changes for franchisees and franchisors is that franchise fees can now be financed under the CSBFP.  Prior to these changes, franchise fees were ineligible for financing under the program and had to be paid for out-of-pocket or through other credit products offered by financial institutions.

At Sotos LLP, we advise franchisors on all aspects of their franchise sales process including how to inform prospective franchisees on the availability of financing. We also help franchisors establish lending programs offered by preferred financial institutions to their prospective franchisees. We also assist prospective franchisees in their purchases of franchises. We would be happy to assist to provide tailored advice relating to the changes created to this important financing program. Please contact Anna Thompson-Amadei (athompson-amadei@sotos.ca) or John Yiokaris (jyiokaris@sotos.ca).

[1] https://ised-isde.canada.ca/site/canada-small-business-financing-program/en/find-loan-your-small-business/about-program/helping-small-businesses-get-loans
[2] https://ised-isde.canada.ca/site/canada-small-business-financing-program/en/documentation-centre/bulletins/2022-changes-canada-small-business-financing-program

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The six items being banned by the Regulations include: (1) checkout bags, (2) cutlery, (3) foodservice ware made from or containing problematic plastics that are hard to recycle, (4) ring carriers, (5) stir sticks, and (6) straws (with some exceptions, see below).

Business owners should be aware of the following key dates:

• The prohibition on the manufacture and import of checkout bags, cutlery, foodservice ware, straws (not packaged with a beverage container), and stir sticks will come into effect as of December 20, 2022.
• The prohibition on the sale of checkout bags, cutlery, foodservice ware, straws (not packaged with a beverage container), and stir sticks will be effective as of December 20, 2023. This will grant businesses 1 year to deplete existing stock.
• A ban on ring carrier manufacturing and import will be effective as of June 20, 2023.
• A ban on the sale of ring carriers and straws packaged with beverage containers (e.g. juice boxes) will come into effect as of June 20, 2024.
• A ban on the export of all six items by December 20, 2025. Note that banning exports was added to the final regulation, as it was not included in the government’s original proposal.

The Regulations include a number of exceptions to the ban, which exceptions include:

• Single-use straws for accessibility: The Regulations permit hospitals, medical facilities and long-term care facilities to sell single-use plastic flexible straws to patients or residents.
• Waste and bags for containing waste: The Regulations do not apply to plastic manufactured items that are waste, nor to items that are intended to hold waste (and do not meet the definition of single-use checkout bags).
• Products in transit: The Regulations do not apply to plastic manufactured items that are transiting through Canada. Whether a single-use plastic product is considered “in transit” is determined based on the final shipping destination of the product.

The announcement concludes almost 2 years of consultations with provincial and municipal governments, industry and individual Canadians. The public consultation process included a Science Assessment of Plastic Pollution, a discussion paper on an integrated management approach to plastic products, and a draft regulation.

During the press conference announcing the publication of the Regulations, Minister Guilbeault stated that Canada is not opposed to restricting additional items in the future. He also acknowledged that the plastic pollution problem cannot be solved through bans alone and that other actions are necessary to reach the government’s goal of zero plastic waste by 2030.

The Regulations are part of a larger movement, as outlined in Canada’s Zero Plastic Waste Agenda, which includes developing targets, standards and further regulations aimed at eliminating plastic pollution in Canada in the years to come.[2]  Businesses should continue to evolve to meet new requirements and find alternatives to single-use plastics being produced, sold or used in their operations, including researching, testing and comparing alternative products and contacting existing suppliers to determine if they have suitable product offering capabilities.   Lastly, businesses should refer to the government’s guidance document, which is intended to help businesses and organizations adapt to the proposed requirements and outlines important considerations for businesses navigating alternative products or systems. [3]  Business owners should familiarize themselves with this guide to ensure that their business decisions are aligned with the new Regulations and industry best practices.

At Sotos LLP, our team of industry experts has provided strategic advice to business owners in the development of best practices that respond to and address issues arising from the ever-evolving legal landscape for over 40 years.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

Read part I and II of this article. 

[1] https://www.canada.ca/en/environment-climate-change/news/2022/06/government-of-canada-delivers-on-commitment-to-ban-harmful-single-use-plastics.html
[2] https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/reduce-plastic-waste/canada-action.html
[3] https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/consultations/proposed-single-use-plastics-prohibition-regulations-consultation-document.html

The post Single-Use Plastics Ban – Update III appeared first on Sotos LLP.

The government has asked stakeholders, partners, and Canadians to participate in the consultation period, which will run to March 5, 2022.  The plastics ban is slated to be implemented by the end of next year after the government has completed its review and consideration of comments from these consultations.[1]

Environment and Climate Change Minister Steven Guilbeault has said “Smart, clear and collaborative regulations will help drive innovation across the country as reusable and easier-to-recycle items take their place in our economy.” In November 2021, the government announced plans to invest $3.5 million in Montreal-based clean-tech company Polystyvert.[2]

While the ban of single-use plastic manufacturing and import is expected to come into force one year after the proposed regulations are registered, the manufacture and import of single-use plastics for the purposes of subsequent export outside of Canada is not subject to the proposed regulations.  The prohibition on the sale of single-use plastics is expected to come into force two years after the proposed regulations are registered.[3]

The federal government, as well as provincial and municipal governments, are likely to continue to expand and develop future regulations that will result in more plastic products and packaging being banned, or at least restricted.  It is imperative that businesses continue to evolve accordingly and consider alternatives to single-use plastics being produced, sold, or used in their operations.  While these regulations are almost 2 years away from being implemented, businesses can start taking steps to prepare. Namely:

• Consider current product offerings and whether or not they will still be sustainable as a result of the single-use plastics ban.
• Begin researching, testing, and comparing alternative products.
• Contact existing suppliers to determine if they have suitable product offering capabilities and, if not, begin researching alternative suppliers.

Further, the government has developed a guidance document to help businesses and organizations adapt to the proposed requirements.  The document outlines important considerations for businesses navigating alternative products or systems from those single-use plastics that the new legislation will ban.  It also provides a “management framework for single-use plastics”, which outlines the three steps that the government follows in assessing the environmental impact of a single-use plastic item. [4]  Business owners should familiarize themselves with this guide in order to align their business decisions with industry best practices.

At Sotos LLP, our team of industry experts has been helping business owners in the development of best practices that respond to and address issues arising from the ever-evolving legal landscape.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

Read part I and III of this article. 

[1] https://www.canada.ca/en/environment-climate-change/news/2021/12/government-of-canada-moving-forward-with-banning-harmful-single-use-plastics0.html
[2] https://www.canada.ca/en/innovation-science-economic-development/news/2021/11/government-of-canada-supports-leading-edge-company-specializing-in-polystyrene-recycling-that-helps-protect-the-environment.html
[3] https://www.gazette.gc.ca/rp-pr/p1/2021/2021-12-25/html/reg2-eng.html
[4] https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/consultations/proposed-single-use-plastics-prohibition-regulations-consultation-document.html

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Another change that came into effect is the ratification and implementation of the Madrid Protocol (concerning the International Registration of Marks).  The Madrid Protocol is an international system that allows applicants to file a single application for the registration of a trademark with the World Intellectual Property Organization and designate multiple other member countries – resulting in an “international registration”.  This effectively means that applicants from around the world can apply for protection of a trademark in up to 125 countries in one single application.

Third Party Trademark Research and Protection Services

Given the changes to the Act discussed above, and the rapidly evolving trademark landscape, brand owners, both domestic and international, should consider engaging companies that offer trademark research and protection services.   These service providers generally offer a wide range of services that can be tailored for the individual needs and concerns of brand owners, including monitoring and notification services.

Third party trademark research and protection services generally include:

• Worldwide trademark monitoring (the service provider will provide reporting on word and design marks internationally);
• Worldwide ownership monitoring (the service provider will report on competitors’ activities, their use of trademarks, and monitor and report on the use of the client’s own trademarks worldwide);
• USPTO Pending Application monitoring (the service provider will compare the client’s pending application against newly filed applications on a weekly basis,  and notify the client of any potential conflicts before the client’s trademark is published for opposition);
• USPTO Official Gazette monitoring (the service provider will monitor the newly published USPTO trademark applications and identify the client of any potential conflicts);
• Domain Name monitoring (the service provider will monitoring and reporting on any relevant domain names as they become available); and
• Auction monitoring (the service provider will monitor the sale of the client’s branded goods on eBay, Alibaba and Taobao auction sites globally, in order to identify potential counterfeiters).

Trademarks are some of the most valuable intellectual property that businesses, especially franchisors, may own.  At Sotos LLP, we have acted for hundreds of trademark owners in every aspect of protecting their intellectual property for more than 40 years. We have extensive knowledge of intellectual property issues, and regularly act in the procurement and licensing of trademarks, as well as in defending our clients’ trademarks rights and opposing trademark applications on behalf of our clients.

Please contact the writer at athompson-amadei@sotos.ca or John Yiokaris at  jyiokaris@sotos.ca to discuss your intellectual property and trademark issues.

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Sotos LLP will continue to monitor government announcements and we will update and circulate this Informational Circular as warranted.

1. Ontario Small Business Support Grant

Applications are open for the new Ontario Small Business Support Grant (“OSBS”).  The OSBS is available for small businesses that have been required to close or significantly restrict services under the province-wide shutdown effective December 26, 2020.

The grant starts at $10,000 for all eligible businesses, and provides all eligible businesses with funding to a maximum of $20,000 to cover decreased revenue expected as a result of the province-wide shutdown.

Businesses can use the support however they choose (for example, to pay employee wages or to assist in maintaining their inventory).

Applicants must demonstrate that they experienced a revenue decline of at least 20% when comparing their monthly revenue in April 2020 to that of April 2019.  The government has explained that this time period was selected because it reflects the impact of the public health measures taken in the spring of 2020, and as such, provides a representation of the possible impact of these measures on small businesses.[1] Businesses that were established since April 2019 are also eligible provided they meet the other eligibility criteria.  In order to receive OSBS, small businesses must meet the following criteria:

• be required to close or restrict services subject to the province-wide shutdown that went into effect on December 26 2020;
• have fewer than 100 employees at the enterprise level; and
• have a Canada Revenue Agency (“CRA”) business number.

Businesses are not eligible if they were already required to close prior to the modified Stage 2 measures that were introduced on October 10, 2020, or if they are essential businesses permitted to operate with capacity restrictions (e.g., discount and big box stores selling groceries, supermarkets, grocery stores, convenience stores, pharmacies, and beer, wine and liquor stores).[2]

On March 24, 2021 the government announced a second round of support through the OSBS.  Businesses that were determined as eligible for the first round will automatically be entitled to a second payment in the same amount as the first payment.

2. Rebates for PPE and Property Taxes

The Government of Ontario is providing businesses a one time grant of up to $1,000 to assist with the cost of personal protection equipment (“PPE”). To be eligible, businesses must have between 2 and 19 employees and be in one of the following sectors: retail, accommodation and food services, repair and maintenance, personal and laundry services, gyms and yoga studios, and arts, entertainment and recreation.

Applicants are required to submit receipts or proof of costs for PPE purchased since March 17, 2020.  This includes: gloves, gowns, face shields, eye protection, masks, sanitizer, sanitizing wipes, thermometers, temperature monitors or cameras, physical changes (including the installation of hand sanitizer stations and plexiglass dividers) and signs to guide or inform customers and employees.

Eligible businesses may also apply for rebates of municipal and education property taxes. Funding will cover the entire length of time that regionally targeted public health restrictions are in place.

In order to apply, applicants will need to provide general business information (for example, CRA business number) and their banking information (for example, banking institution, account number, branch code).  Further, they will need to submit proof of costs – meaning their property tax bills (or proof of costs associated with property taxes).[3]

3. COVID-19 Energy Assistance Program for Small Business

The COVID-19 Energy Assistance Program for Small Business (“CEAP”) provides a one-time, on-bill credit to eligible small business and registered charity customers. Small business and registered charity customers may be eligible for up to $1,500 in support to be paid towards their electricity, unit sub-meter provider (“USMP”) or natural gas bills (both or separately).

In order to be eligible for CEAP, small businesses and registered charities must have an active account with an electricity distributor, USMP or a natural gas distributor, and the applicant’s account must meet certain usage criteria. The applicant must also have a registered business number or charitable registration number for the small business or registered charity operating out of the premises.  Further, the applicant must have overdue amounts owing from one or more electricity or gas bills since March 17, 2020. [4]

Funding for CEAP is limited, and utilities are expected to process applications in the order in which they are received. As such, submitting an application for CEAP does not guarantee funding. Applicants who applied and received CEAP support in 2020 can apply for the increased funding amount.  Applicants must apply through their utility provider.

4. Pausing Commercial Evictions

The Government of Ontario has temporarily banned evictions for tenants who have been approved for the Canada Emergency Rent Subsidy (“CERS”).  Any such tenant (with proof of approval) will be protected from eviction for a 12-week period from the date of approval. If a tenant re-applies for a new CERS payment, the 12-week ban is effectively restarted from the date of the new CERS approval.

Tenants must provide their landlord with proof of each new approval. The last possible date a CERS-approved tenant could be protected from eviction is April 22, 2022.[5]

5. Employer Health Tax relief

The Employer Health Tax (“EHT”) is a payroll tax on remuneration paid to employees and former employees.  Due to the outbreak of COVID-19, the Government of Ontario has increased the EHT exemption from $490,000 to $1,000,000 permanently.

To be eligible for the tax exemption, employers must be “eligible employers” as defined under the EHT Act. As such, employers who have a municipal representative on their board of directors, or who are under the control of any level of government, are generally not eligible employers.  Further, employers normally cannot claim the exemption if their Ontario payroll for the year (including the payroll of any associated employers) is over $5 million (except for eligible employers).[6]

6. Regional Opportunities Investment Tax Credit

The Regional Opportunities Investment Tax Credit is a 10% refundable corporate income tax credit for capital investments. The tax credit has a cap of $500,000 and is available for expenditures in excess of $50,000.  It is available to Canadian-controlled private corporations who make qualifying investments that became available for use on or after March 25, 2020.  Examples include expenditures for constructing, renovating, or acquiring eligible commercial and industrial buildings and other assets in designated Ontario regions.[7]

At Sotos LLP, our team of experts has been advising businesses in the automotive, restaurant, grocery, personal, home and professional services, hotel, retail and cannabis sectors as they face challenging economic and financial issues relating to the current pandemic. Please contact us if you wish to discuss your eligibility for any of the government assistance programs, and to determine an effective approach to combatting business challenges caused by the outbreak of COVID-19.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

[1] https://www.ontario.ca/page/businesses-get-help-covid-19-costs#section-1

[2] https://www.ontario.ca/page/businesses-get-help-covid-19-costs#section-0

[3] https://www.ontario.ca/page/businesses-get-help-covid-19-costs#section-1

[4] https://www.oeb.ca/rates-and-your-bill/covid-19-energy-assistance-programs/covid-19-energy-assistance-program-small

[5] https://www.ontario.ca/page/renting-commercial-property-ontario#section-1

[6] https://www.fin.gov.on.ca/en/tax/eht/index.html

[7] https://www.ontario.ca/page/regional-opportunities-investment-tax-credit

The post Ontario – Covid-19 Assistance appeared first on Sotos LLP.

The federal government has introduced the Canada Emergency Rent Subsidy (“CERS”) which has replaced the Canada Emergency Commercial Rent Assistance.  CERS will be available retroactively to September 27, 2020 until June 2021, and the current parameters will apply until June 5, 2021.

CERS takes landlords out the equation by delivering aid directly to applicants. The subsidy is available on a sliding scale – the amount of the subsidy that eligible organizations receive will be proportional to the amount of their revenue losses.  The maximum base rate subsidy is 65% for organizations with a revenue drop of 70% or more. The base rate then declines to a rate of 40% for organizations with a revenue drop 50%, and gradually reduces to 0% for organizations that have not experienced a decline in revenues. The federal government’s CERS website provides a calculator that applicants can use to calculate the amount they can apply for.[1]

Eligible expenses include commercial rent, property taxes, property insurance, and interest on commercial mortgages for a qualifying property, less any subleasing revenues.[2]  Further, only expenses paid under rental agreements in writing that were entered into before October 9, 2020 (and continuations of those agreements) and are related to real property located in Canada are eligible.  If the applicant has not paid the amounts due for the eligible expenses yet, they must attest that these amounts will be paid within 60 days of receiving the rent subsidy payment.

Non-eligible expenses include any expenses that were paid or payable to non-arm’s length entities[3] or for a timeframe that falls outside of the claim period.  Qualifying properties include any buildings or land in Canada that the applicant’s business or organization owns or rents and uses during the course of ordinary activities.  Properties that do not qualify include: residential properties, properties used to earn rental income from arm’s-length parties or any properties that are primarily used to earn rental income directly or indirectly from a non-arm’s length party, that are primarily used by that party to earn rental income.[4]

Expenses for each qualifying period will be capped at $75,000 per location and be subject to an overall cap of $300,000 that would be shared among affiliated entities.

Eligible entities include individuals, taxable corporations, trusts, and non-profit organizations and registered charities.  In order to be eligible, organizations must meet one of the following criteria:

1. Have a payroll account as of March 15, 2020 or have been using a payroll service provider;
2. Have a business number as of September 27, 2020 (and satisfy the Canada Revenue Agency that it is a bona fide rent subsidy claim); or
3. Meet other conditions that may be prescribed in the future.

For the purposes of calculating the CEWS, an entity’s revenue is its revenue from its ordinary activities (in Canada) earned from arm’s-length sources, determined using its normal accounting practices. Revenues from extraordinary items and amounts on account of capital are not counted.  Special rules will be provided in order to take into account certain non-arm’s-length transactions – for example, where an entity sells all of its output to a related company that in turn earns arm’s length revenue.

[5]

Applicants can apply for the rent subsidy retroactively for any period up to 180 days after that period has ended.

Lockdown Support

The new Lockdown Support will provide a 25% top-up as additional support to businesses with locations that are temporarily forced to close or have their business activities significantly restricted by a public health order issued by a federal, provincial, or municipal government, or a local health authority.  This includes situations where the organizations has had to shutdown as a result of an outbreak of COVID-19.

In order to qualify for the Lockdown Support, a business must:

1. have a base rent subsidy rate of more than 0% for the claim period;
2. qualify for the base CERS; and
3. be required to completely shut the location down; or cease some or all of the activities at the location and it must be reasonable to conclude that the ceased activities were responsible for at least 25% of the revenues of your business at that location.

In order to apply, a public health order must be limited based on one of these factors: geographical boundaries, type of business or other activity or risk associated with a particular location.  It must also result in sanctions or be an offence if the business not does comply.[6]

All applications must be made on or before 180 days after the end of the qualifying period. [7] Applicants can apply for CERS as of November 23, 2020.

At Sotos LLP, our team of experts has been advising businesses in the automotive, restaurant, grocery, personal, home and professional services, hotel, retail and cannabis sectors as they face challenging economic and financial issues relating to the current pandemic. Please contact us if you wish to discuss your eligibility for any of the government assistance programs, and to determine an effective approach to combatting business challenges caused by the outbreak of COVID-19.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

[1] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy/cers-calculate-subsidy-amount.html#h-3
[2] Note that any sales tax component of these costs would not be an eligible expense.
[3] Note that on February 24, 2021, the government announced a proposed change to amend the rules in the Income Tax Act so that Lockdown Support would be available in situations where the activities of a party not dealing at arm’s length are required to cease as a result of a “public health restriction”, that party rents the property from the entity, and all other conditions for the Lockdown Support are met.
[4] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy/cers-expenses-claim.html
[5] https://www.canada.ca/en/department-finance/news/2020/11/canada-emergency-rent-subsidy.html
[6] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy/cers-calculate-subsidy-amount.html
[7] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy/cers-how-apply.html

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The legislation will ban single-use plastic items for which there is evidence that the items are found in the environment, as well as items that have readily available alternatives.  Based on this criteria, the Government proposes to ban the following items:

• plastic checkout bags
• straws
• stir sticks
• six-pack rings
• cutlery
• food ware made from hard-to-recycle plastics

The Government also proposes to establish recycled content requirements in products and packaging.

The ban will be instituted by introducing an order to add “plastic manufactured items” to Schedule 1 of the Canadian Environmental Protection Act, 1999 (“CEPA”).  CEPA is the Government’s principal law for addressing pollution, and includes tools to address plastic pollution at different stages of the lifecycle of plastic manufactured items, such as manufacturing, imports, sale, use and disposal.

While the ongoing COVID-19 pandemic has increased consumer demand for takeout and delivery and, as such, has made the need for single-use items more important than ever before, Environment Minister Jonathan Wilkinson has stated that the federal government will work with grocers and industry leaders to keep more plastic in the economy through recycling.  When asked how small businesses will handle the shift, Wilkinson stated that the government was careful to choose items with environmentally-friendly alternatives that already exist on the market.[2]  In response to the ban, Restaurants Canada has stated that it will continue to advocate for policies that avoid any undue burden on businesses that rely on single-use items to provide takeout and delivery services.[3]

At Sotos LLP, our team of industry experts has been advising food and beverage business owners in the development of best practices that respond to and address issues arising from the ever-evolving legal landscape.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

Read part II and III of this article. 

[1] https://www.canada.ca/en/environment-climate-change/news/2020/10/canada-one-step-closer-to-zero-plastic-waste-by-2030.html

[2] https://www.cbc.ca/news/politics/single-use-plastics-1.5753327

[3] https://www.restaurantscanada.org/industry-news/advocacy-update-single-use-items/#:~:text=As%20part%20of%20a%20plan,Replaceable%20with%20readily%20available%20alternatives

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The Act does not define “bad faith” and, as these changes are so recent, this section of the Act has not yet been adjudicated upon. However, the concept of bad faith has been explored in past Trademarks Opposition Board (the “Board”) opposition proceedings in the context of the opposition ground of non-compliance with Section 30(i) of the former Act (which required an applicant to confirm that it was entitled to use the mark) and in addressing the bona fides of claims to use or proposed use in Canada (Sections 30(b) and (e) of the former Act).  We can, therefore, look to these past decisions to provide guidance on how the Board may choose to interpret and apply the new ground of opposition. We can also look to decisions in other common law jurisdictions, as well as the Canadian Internet Registration Authority’s (“CIRA”) domain name Dispute Resolution Policy.

Trademarks Opposition Board

Section 30(i) of the former Act required an applicant to attest that it was entitled to use the mark.  This section was used to address situations wherein the applicant must have been aware of another’s prior rights in a confusingly similar mark, as well as situations where the adoption and use of the mark involved “bad faith”.  In Restaurant Development Group LLC v Vescio Group Inc. (2016/05/31), the Board concluded that a person may file an application for a trademark in Canada which it knows has been used in another country, and this does not necessarily constitute bad faith.  In this case, the opponent was not able to provide sufficient evidence that the Applicant would have known that the opponent’s identical trademark had been used, made known or had a reputation in Canada, such that the applicant could not have stated it was entitled to use the mark in Canada.[1]

In Arcadia Group Brands Limited and Top Shop / Top Man Limited v Isaac Bennet Sales Agencies Inc. (2018/01/19), the Board determined that the fact that the applicant might have been aware of the opponent’s use and registration of its trademark elsewhere was not sufficient by itself to suggest bad faith.  However, the opponent pointed to several cases where the application was found to have been filed in bad faith, one of which being Cerverceria Modelo SA de CV v Marcon.[2]  In that case, the grounds of opposition included confusion grounds, and the opponent specifically pointed to the applicant’s pattern of filing, by raising non-compliance with Section 30(i), and stating that the applicant did not “have a belief that he was entitled to use given that in and about the time he filed the application he also filed a number of other applications for trade-marks which are well known both in Canada and worldwide and are the subject of existing trade-mark registrations in Canada”.

The Board underwent a detailed analysis of what factors could indicate the presence of bad faith.  Specifically, the Board considered:

• The prior use and registration of the identical mark for identical goods by the opponent in Canada;
• The applicant’s knowledge of the opponent’s mark and of its prior use in Canada;
• The applicant’s pattern of applying for a series of third party, and arguably well-known, registered marks in Canada for related goods with no or minimal commencement of use for any of them; and
• The lack of professional experience and concrete business plans related to the applied for goods and services.

CIRA’s domain name Dispute Resolution Policy CDRP)

Under CIRA’s Dispute Resolution Policy, whether the registrant registered the contested domain name in bad faith is one of the elements that must be established in order to prevail in a domain name dispute.  Specifically, Section 3.5 of the Dispute Resolution Policy lists a number of circumstances, any one of which will be evidence that the domain name was registered in bad faith.  These include: intent to traffic, intent to usurp legitimate rights, intent to disrupt business and intent to create confusion/divert traffic to the registrant’s website.[3]

As mentioned above, we can also look to other common law jurisdiction that have ruled on the opposition of bad faith in the context of trademark registrations for insight on how the Board might interpret this new section of the Act moving forward.

United Kingdom

“Bad faith” is not defined in the equivalent legislation in the UK.  However, in a 1999 decision, the court identified some elements of bad faith, including ‘dishonesty’ and ‘dealings which fall short of the standard of acceptable commercial behaviour’.[4]

When an applicant applies for a trademark in the UK, it must make a statement such that the trademark is being used by the applicant (or with his or her consent), in relation to those goods or services listed, or that the applicant has a bona fide intention that it should so be used.[5]  Therefore, if an applicant makes an application (i) in which the applicant has no intention to use the mark, (ii) that is broader in scope than the intended use of the mark, or (iii) in order to block others from making use of the mark, then a bad faith application may be found.[6]

In a 2018 UK decision, the plaintiff’s trademarks were found to be registered in bad faith because the plaintiff did not intend to use the trademarks in relation to all of the goods and services specified in the application.  The judge reasoned that if a trademark can be registered with no intention to use it in relation to all or some of the specified goods and services, and the registration cannot be attacked or limited on bad faith grounds, then the system will be open to abuse.[7]

European Union

The Court of Justice of the European Union has stated that when determining whether there was bad faith present in the context of a trademark application, consideration must be given to the applicant’s intention when the applicant applies for registration.   For example, the intention to prevent a third party from marketing a product can, in certain circumstances, be an element of bad faith, especially if the application was filed without intending to use the trademark with the sole objective of preventing a third party from entering the market.

Trademark professionals will be keeping a close eye as the case law in Canada develops and we begin to see whether this new bad faith ground of opposition will be effective in contending with ill intentioned applicants.

At Sotos LLP, we have acted for hundreds of trademark owners in every aspect of protecting their intellectual property for more than 40 years. We have extensive knowledge of intellectual property issues, and regularly act in the procurement and licensing of trademarks, as well as in defending our client’s trademarks rights and opposing trademark applications on our client’s behalf.

Please contact the writer at athompson-amadei@sotosllp.com or John Yiokaris at  jyiokaris@sotosllp.com to discuss your intellectual property and trademark issues.

[1] https://decisions.opic-cipo.gc.ca/tmob-comc/decisions/en/item/221761/index.do?q=Restaurant+Development+Group+LLC+v+Vescio+Group+Inc.+%282016%2F05%2F31%29

[2] Cerverceria Modelo SA de CV v Marcon (2008) 70 CPR (4th) 355 (TMOB)

[3] https://www.cira.ca/policy/domain-name/cira-domain-name-dispute-resolution-policy

[4] Gromax Plasticulture Ltd v Don & Low Nonwovens Ltd [1999] RPC

[5] Trade Marks Act 1994 c.26, s.32 (3) TMA

[6] DEMON ALE Trade Mark [2000] RPC, Ferrero SpA’s Trade Marks [2004] RPC 29, HTC Corp v One Max Ltd (O/486/17)

[7] http://www.bailii.org/ew/cases/EWHC/Ch/2018/155.html

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In response to the economic hardships caused by the outbreak of COVID-19, the government of Canada has passed legislation that establishes two wage subsidy programs that are aimed at assisting eligible employers, as well as certain measures to alleviate the pressures that businesses and employers are experiencing. Some of those measures were highlighted in an article prepared by Louis Sokolov of our firm as of March 19, 2020. An updated summary of the subsidies and the measures released to date is set out below.

Sotos LLP will continue to monitor government announcements and we will update and circulate this Informational Circular as warranted.

1. The Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (the “CEWS”) provides a subsidy of 75% of eligible remuneration that is paid by any eligible employer to each eligible employee, up to a maximum of $847 per week. The subsidy is intended to help eligible employers re-hire workers, prevent further job losses and ease back into normal operations.[1]

The CEWS was initially available for three 4 week periods from March 15, 2020 to June 6, 2020, and has been extended to June 30, 2021.

Eligible employers include individuals, trusts, taxable corporations and partnerships (consisting of 50% or more eligible employers), as well as non-profit organizations, registered charities and certain indigenous government-owned corporations.  Further, to be eligible, employers must have had a Canada Revenue Agency (“CRA”) payroll account on March 15, 2020 and have experienced a revenue drop. The amount of subsidy per employee is based on the size of the employer’s revenue drop.

For the purposes of the CEWS, an employer’s qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of its ordinary activities in Canada in a particular period.  Employers may calculate their revenues under either the accrual method or the cash method, but not a combination of both, and must use the same accounting method for all claims.

As of claim period 5 (July 5 to November 21, 2020), there is no minimum revenue drop required to qualify for the subsidy.  The rate that an employer’s revenue has dropped is only used to calculate how much subsidy they will receive for each period.  The federal government’s CEWS webpage provides an online calculator to establish the employer’s revenue drop for periods 5 and later while also calculating the amount of subsidy.

Subsidy rates vary, depending on how much the employer’s revenue has dropped.  Employers whose revenue dropped less than 30% can still qualify and also keep getting the subsidy as their employees return to work and their revenue improves.

As of claim period 5, there is also increased flexibility in how employers calculate their revenue drop.  Employers can use the current period’s revenue drop, or the previous period – whichever works most in their favour.  Even if the employer’s revenue has not dropped for the claim period, they can still qualify if their average revenue over the previous three months dropped by more than 50%.  Further, employees who were unpaid for 14 or more days may be included in the calculation.

Beginning in period 8 (September 27 to October 24), the top-up rate and base rate are calculated using the same one-month revenue drop.

Eligible remuneration can include salary, wages and other remuneration such as taxable benefits.  It does not include severance pay, or other items such as stock options.

For claim periods 1 to 4, employers must have demonstrated that their eligible revenue dropped by a minimum amount in order qualify for the subsidy, in which case the subsidy calculation used a fixed rate of 75%.  An employer’s revenue drop for a claim period is calculated by comparing the employer’s eligible revenue for the claim period month to the eligible revenue from a corresponding previous period.

The claim period is the period for which an eligible employer can claim the wage subsidy for remuneration paid to eligible employees.

The current reference period is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable prior reference period, to determine its revenue reduction.

The prior reference period, with respect to a claim period, is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable current reference period, to determine its revenue reduction. The applicable prior reference period in respect of a claim period will depend on the approach the eligible employer chooses to compare its revenue.

[2]

* For claim periods 5 and later, applicants will calculate 2 revenue drops and use the higher result in their base rate calculation.  The baseline revenue is determined by the prior reference period that they choose – either General prior reference period (the eligible revenue earned in the corresponding month(s) in 2019), or Alternative prior reference period (the average of the eligible revenue earned in January and February, 2020).

For claims periods 1 to 4, an eligible employer must use the alternative approach if:

• on March 1, 2019, the eligible employer was not carrying on a business or otherwise carrying on its ordinary activities, or
• the eligible employer elects to use January and February 2020 as the prior reference period for all four of those claim periods.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 1 to 4.

For claim periods 5 to 10, where the eligible employer is using the general approach for the claim periods 1 to 4, it can continue to use the same approach for all of claim periods 5 to 10, or it can elect to apply the alternative approach for all of the claim periods 5 to 10. Where the eligible employer is using the alternative approach for the claim periods 1 to 4, it can elect to continue to use the alternative approach for all of the claim periods 5 to 10, or it can apply the general approach for all of the claim periods 5 to 10.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 5 to 10.

Top-Up

If employers were hit especially hard by the COVID-19 crisis, they can qualify for an additional top-up subsidy, based on their average drop for the previous 3 months, as follows:

(1) If the employer’s revenue has dropped by 70% or more over a three month span, they can qualify for the maximum 25% top-up.

(2) If the employer’s revenue has dropped by 50-69% over a three month span, they can qualify for a top-up that is 1.25 times their revenue drop percentage minus 50%.

Please note that for claim periods 1 to 4, employers cannot include employees who had 14 or more consecutive unpaid days in the period.

For periods 8, 9 and 10, the maximum weekly benefit per employee is $734.  The top-up rate is based on the higher revenue drop between either (1) the one-month revenue drop of the claim period month used to calculate the base rate; or (2) the average revenue drop of the three months prior to the claim period month.  Subsidy rates will be the same each period.

The program also offers a 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan.  These refunds would apply in respect of remuneration paid to furloughed employees in respect of weeks of a period where the employer is eligible for CEWS.

Applications for claim periods 1 to 10 are now open. Employers must apply for the CEWS through the CRA My Business Account portal or through the Web Forms application using their web access code.

2. Temporary Wage Subsidy

Organizations that do not qualify for the CEWS may still qualify for the Temporary Wage Subsidy (“TWS”).  The TWS is a three month subsidy that allows eligible employers to reduce the amount of payroll deductions they need to remit to the CRA.  It is equal to 10% of the remuneration paid from March 18 to before June 20, 2020, up to a maximum of $1,375 per employee and $25,000 per employer.  Those employers that are eligible for this measure are individuals (excluding trusts), partnerships[3] non-profit organizations, registered charities and Canadian-controlled private corporations that are eligible for the small business deduction.  Businesses that are eligible for this support can benefit by reducing their remittances of income tax withheld on their employees’ remuneration.[4]

For employers that are eligible for both the CEWS and TWS, any benefit from the TWS paid in a specific period will reduce the amount available to be claimed under the CEWS in that same period.  If employers are eligible for the TWS, but only want to participate in the CEWS, they are able to make a special election for the TWS to be equal to 0% of the paid remuneration.

3. Business Credit Availability Program (“BCAP”)

BCAP was introduced by the federal government to provide $65 billion of additional support through the Business Development Bank of Canada (“BDC”) and Export Development Canada (“EDC”).

The EDC Loan Guarantee for Small and Medium-Sized Enterprises allows financial institutions to issue operating credit and cash flow term loans of up to $6.25M to existing clients with 80% of the loans guaranteed by the EDC.  These loans are intended to be used for operational expenses and not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt.  Businesses from all sectors that were otherwise financially viable and revenue generating prior to the outbreak of COVID-19 are eligible to apply.  This program is now available at various financial institutions, including credit unions.[5]

The BDC Co-Lending Program for Small and Medium Enterprises provides term loans for both the operational and liquidity needs of businesses.  The loans may be used to make interest payments on existing debt. This program is available to businesses that were financially viable and revenue-generating prior to the COVID-19 outbreak. These loans are available in amounts between $1M and $12.5M, depending on the revenues of a business.[6]

The BDC’s Mid-Market Financing Program provides junior loans between $12.5M and $60M to medium-sized businesses (with annual revenues in excess of $100 million to $500 million) that have been particularly impacted by the COVID-19 pandemic and/or the recent decline in oil and gas prices.  This support is available until June, 2021 and is provided jointly by BDC and the business’ primary financial institution.[7]

For additional information on any of the BCAP programs or to apply, businesses should contact their primary lender, by phone or email, where they have a pre-existing relationship.[8]

4. Increased Access to Employment Insurance and Recovery Benefits

On August 20, 2020, the federal government announced that it would extend the Canada Emergency Response Benefit (“CERB”) into September, before it transitioned into a simplified Employment Insurance program (“EI”) as of September 27, 2020.

In order to qualify, individuals need to have completed a minimum of 120 hours of work in the last 52 weeks.  Qualified individuals receive a one-time insurable hours credit of (1) 300 insurable hours for claims for regular benefits (job loss) and (2) 480 insurable hours for claims for special benefits (sickness, maternity/paternity leave, compassionate care or family caregiver).  Applicants receive between a minimum $500 per week, and maximum $573 per week, depending on past earnings.

The unemployment rate in the region in which a claimant resides determines the number of hours of insurable employment the claimant needs to have accumulated in their qualifying period to be eligible for EI regular benefits, the number of weeks of EI regular benefits the claimant may be entitled to, and the number of best weeks of earnings that will be used to establish their weekly benefit rate.  The government uses a minimum unemployment rate of 13.1% for all EI economic regions in order to lower the hours required to qualify for EI regular benefits.  The government has also frozen the EI premium rate for employees at $1.58 per $100 of insurable earnings for two years.

The government also introduced a further  three recovery benefits:

1. Canada Recovery Benefit

Effective as of September 27, 2020, for one year, the Canada Recovery Benefit provides $500 per week for up to 26 weeks for workers who are not eligible for EI – mainly individuals who are self-employed, and including individuals who work in the gig economy (independent contractors, contract workers, on-call workers and temporary workers).  Claimants can continue to earn income from employment while receiving this benefit as long as they continue to meet the following requirements:

• be at least 15 years of age and have a valid Social Insurance Number (“SIN”);
• were not employed or self-employed for reasons related to COVID-19; or had a 50% reduction in average weekly income compared to the previous year due to COVID-19;
• be ineligible for EI;
• reside and were present in Canada;
• have had employment and/or self-employment income of at least $5,000 in 2019 or in 2020; and
• have not quit their job or reduced their hours voluntarily on or after September 27, 2020, unless it was reasonable to do so.

It is important to note that claimants will need to repay some or all of the benefit through their income tax return if their annual net income, excluding the Canada Recovery Benefit payment, is over $38,000.  Further, applicants cannot apply for or receive any of the following: Canada Recovery Sickness Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits or Quebec Parental Insurance Plan benefits.[9]

2. Canada Recovery Sickness Benefit

The Canada Recovery Sickness Benefit provides $500 per week for up to 2 weeks, for one year as of September 27, 2020, for workers who are unable to work at least 50% of the week because they are sick, must self-isolate due to the outbreak of COVID-19, or have any underlying conditions that, in the opinion of a medical practitioner, would make them susceptible to COVID-19.

In order to be eligible, workers need:

• to be a resident of Canada who is at least 15 years of age and has a valid SIN;
• to be employed or self-employed at the time of the application; and
• to have earned at least $5,000 in 2019 or 2020.

Workers will also need to have missed a minimum of 60% of their scheduled work in the week for which they claim the benefit, and cannot also claim other paid sick leave for that period. Further, applicants cannot apply for or receive any of the following: Canada Recovery Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[10]

3. Canada Recovery Caregiving Benefit

The new Canada Recovery Caregiver Benefit provides $500 per week, for up to 26 weeks, per household to eligible individuals.  In order to be eligible, individuals need to be residents of Canada, at least 15 years of age on the first day of the period for which they apply for the benefit, have a valid SIN, and

• be employed or self-employed on the day immediately preceding the period for which the application is made;
• have earned at least $5,000 in 2019 or 2020; and
• have been unable to work at least 50% of their normally scheduled work within a given week because of any of the following reasons:
  • they are caring for their child who is under 12 years old or a family member who needs supervised care because they are at home for one of the following reasons:
    • Their school, daycare, day program, or care facility is closed or unavailable to them due to COVID-19; or
    • Their regular care services are unavailable due to COVID-19; or
    • The person under their care is (1) sick with COVID-19 or has symptoms of COVID-19; (2) at risk of serious health complications if they get COVID-19, as advised by a medical professional; or (3) self-isolating due to COVID-19.

Further, applicants cannot be receiving paid leave from an employer for the same week, or be in receipt of another form of government assistance including: Canada Recovery Benefit, Canada Recovery Sickness Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[11]

5. The Canada Emergency Business Account

The Canada Emergency Business Account (“CEBA”) provides interest-free loans of up to $60,000 to small businesses and not-for-profits.  Applicants who have received the original $40,000 CEBA loan may apply for $20,000 in additional financing.  All applicants have until March 31, 2021 to apply for the $60,000 CEBA loan or the $20,000 expansion.  Half of this additional financing will be forgivable if repaid by December 31, 2022.[12]

Eligible applicants must meet the following criteria:

• Have an active CRA Business Number with an effective date of registration on or prior to March 1, 2020;
• Have an active business chequing/operating account with the lender at the time of applying for CEBA, or create a business chequing/operating account at their primary financial institution before applying;
• Have not previously used CEBA and must not apply for support under CEBA from any other financial institution; and
• Intend to continue to operate its business or to resume operations.

The application process follows one of two streams: (1) the Payroll Stream, and (2) the Non-Deferrable Expense Stream.

The Payroll Stream is for applicants with employment income paid in the 2019 calendar year between $20,000 and $1,500,000.  The Non-Deferrable Expenses Stream is for applicants with $20,000 or less in total employment income paid in the 2019 calendar year.  The application process differs for each stream.

These loans have 0% interest and require no minimum monthly principal payments until December 31, 2022.  There is also a $10,000 loan forgiveness available provided that the outstanding balance is fully paid on or before December 31, 2022.[13]

6. Economic Assistance Measures for Businesses and Employers

As part of Canada’s COVID-19 Economic Response plan, the government has announced other economic measures aimed at assisting businesses that include:

• The CRA extended the payment due date for 2019 individual tax returns and 2019 or 2020 corporation or trust returns, as well as for instalments payments, to September 30, 2020.
• The government has extended the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks.  Note that for employers and employees that are participating in a Work-Sharing program, employment insurance benefits received by employees through the program would reduce the benefit that the employer can receive under the CEWS.
• The federal government is providing $1.5 billion through the Regional Relief and Recovery Fund (“RRRF”) to assist businesses and organizations in sectors such as manufacturing, technology and tourism that are important to local economies.  The fund is specially targeted for those businesses and organizations that require assistance to recover from the effects of the COVID-19 pandemic, but have been unable to access other support measures.
• The Northern Business Relief Fund (“NBRF”) provides a non-repayable grant to small and medium-sized territorial businesses that were economically impacted by COVID-19 to help with ongoing operational costs.  The non-repayable grants range from $2,500 to a maximum of $100,000 and cover a maximum period of 4 months, retroactive to April 1, 2020.[14]
• The Large Employer Emergency Financing Facility (“LEEFF”) is administered by the Canada Enterprise Emergency Funding Corporation and is open to large Canadian employers who:

1. have a significant impact on Canada’s economy demonstrated by (i) having significant operations in Canada or (ii) supporting a significant workforce in Canada;
2. can generally demonstrate approximately $300M or more in annual revenues; and
3. require a minimum loan size of “about” $60M.[15]

LEEFF provides bridge financing to Canada’s largest employers when conventional financing is unavailable or insufficient.

• The government has extended time periods for temporary layoffs by up to six months in the Canada Labour Standards Regulations to allow employers more time to recall laid-off employees.  For employees laid off prior to March 31, 2020, the time period is extended by six months or to December 30, 2020, whichever comes first.  For employees laid off between March 31, 2020 and September 30, 2020, the time period is extended until December 30, 2020, unless a later recall date was provided in a written notice at the time of the layoff.[16]

At Sotos LLP, our team of experts has been advising businesses in the automotive, restaurant, grocery, personal, home and professional services, hotel, retail and cannabis sectors as they face challenging economic and financial issues relating to the current pandemic. Please contact us if you wish to discuss your eligibility for any of the government assistance programs, and to determine an effective approach to combatting business challenges caused by the outbreak of COVID-19.

[1] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html
[2] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-who-apply.html, https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-how-revenue-drop-subsidy-rate-calculated.html#basedrop
[3] Note that partnerships are only eligible if members of the partnership consist exclusively of individuals, registered charities, or Canadian-controlled private corporations eligible for the small business deduction.
[4] https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2020/april/temporary-wage-subsidy
[5] https://www.edc.ca/en/solutions/working-capital/bcap-guarantee.html
[6] https://www.bdc.ca/en/pages/co-lending-program.aspx
[7] https://www.bdc.ca/en/pages/mid-market-financing-program.aspx
[8]https://www.canada.ca/en/department-finance/programs/financial-sector-policy/business-credit-availability-program.html
[9] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-benefit/crb-who-apply.html
[10] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-sickness-benefit/crsb-who-apply.html
[11] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-caregiving-benefit/crcb-who-apply.html
[12] https://ceba-cuec.ca/
[13] https://ceba-cuec.ca/
[14] https://www.cannor.gc.ca/eng/1587153226618/1587153246025
[15] https://www.cdev.gc.ca/home-ceefc/
[16] https://www.canada.ca/en/employment-social-development/news/2020/06/the-government-of-canada-temporarily-extends-time-periods-given-to-employers-to-recall-employees-laid-off-due-to-the-covid-19-pandemic.html

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