In an effort to provide relief for businesses impacted by the COVID-19 pandemic, the federal government proposed the new Canada Emergency Rent Subsidy (“CERS”). The legislation is still receiving final approval, but once the legislation receives Royal Assent the new subsidy will be available retroactive to September 27, 2020 until June 2021.
The CERS program will not only provide government assistance to qualifying tenants, but also property owners for assistance with their mortgage payments, property taxes, and other fixed costs. Further, businesses can apply for the subsidy directly, with no requirement for landlords to participate in the program. Similar to the Canada Emergency Wages Subsidy (“CEWS”), the amount of subsidy available to a business is based on its revenue drop on a sliding scale with a maximum subsidy of 65% for eligible entities.
Entities eligible for the CERS is similar to that of the CEWS program. Eligible entities include individuals, taxable corporations and trusts, non-profit organizations and registered charities. Public institutions are generally not eligible for the subsidy. Certain other eligible entities also may qualify. Please consult with the CRA website or your tax advisor at Cameron Izard Snell LLP should your entity not be included in the above criteria.
In addition, an eligible entity must meet one of the following criteria:
- Have a business number as of September 27, 2020 (and satisfy the CRA that it is a bona fide rent subsidy claim);
- Have a payroll account as of March 15, 2020 or have been using a payroll service provider; or
- Meet other conditions that may be prescribed in the future.
Eligible expenses under the new rent subsidy for a location for a qualifying period include:
- Commercial rent
- Property taxes (including school and municipal taxes)
- Property insurance
- Interest on commercial mortgages (with certain limitations)
- Reduced by any sub-lease revenues
The sales tax component (GST/PST) of expenses are not eligible for the subsidy.
In addition, expenses are only eligible if an agreement to incur the expenses was entered into before October 9, 2020 and are limited to real property located in Canada.
Real property expenses that are not eligible would include:
- Expenses relating to residential property used by the taxpayer (i.e. a house or cottage)
- Payments made between non-arm’s length entities (i.e. to a related company in your group)
- Mortgage interest in respect of a property primarily used to earn, directly or indirectly, rental income from arms-length entities
Eligible expenses for each qualifying period are limited to $75,000 per location and an overall cap of $300,000 amongst an affiliated group of companies.
Calculation of Revenues
The maximum subsidy is 65% of eligible expenses, which is lowered on a sliding scale based on the entity’s revenues as shown in the following table.
|Revenue Decline||Base Subsidy Rate|
|70% or over||65%|
|50% to 69%||40% + (revenue drop – 50%) x 1.25|
|1% to 49%||Revenue drop x 0.8|
For example, if a local restaurant pays rent for their premises of $5,000 per month, and has experienced a revenue drop of 60% in September and October 2020 compared to the same months in 2019, the base subsidy rate would be calculated as follows:
Subsidy Rate: 40% + (60% – 50%) x 1.25 = 52.50%
The total monthly subsidy available to the business would be:
Total Subsidy Expected: $5,000 x 52.50% = $2,625
The calculation of decreased revenues mirrors those under the CEWS program. Revenues are calculated based on an entity’s normal accounting practices and include revenues from ordinary activities in Canada earned from non-arm’s length sources. Entities must exclude revenues earned from non-arm’s length sources in the calculation, except under specific circumstances. Please consult with your tax advisor at Cameron Izard Snell LLP if your business earns some or all of its income from non-arm’s length or related sources.
Drop-in-Revenues Test – Reference Periods
The drop-in-revenue test follows the same rules as the CEWS program. In order for an entity to determine their drop in revenues, they can either:
- General Approach – Compare monthly 2020 revenues year-over-year to the same month in 2019. i.e. October 2020 compared to October 2019; or,
- Alternative Approach – By comparing monthly 2020 revenues to an average of January and February 2020 revenues.
If an entity qualifies for the drop-in-revenue test in one month, they will automatically qualify in the next month.
Reference Periods – Periods 8 -10
|Periods||Qualifying Period||General Approach||Alternative Approach|
|Period 8 (First CERS Period)||September 27 to October 24, 2020||October 2020 over October 2019 or September 2020 over September 2019||October 2020 or September 2020 over average of January and February 2020|
|Period 9||October 25 to November 21, 2020||November 2020 over November 2019 or October 2020 over October 2019||November 2020 or October 2020 over average of January and February 2020|
|Period 10||November 22 to December 19, 2020||December 2020 over December 2019 or November 2020 over November 2019||December 2020 or November 2020 over average of January and February 2020|
An entity may use whichever method provided for the largest drop in revenues, allowing the entity to maximize the subsidy it is eligible for under the CERS program. Please note, an entity cannot change their approach once it has chosen to use either the general or alternative approach for periods 8, 9 and 10 of both the CERS and CEWS subsidies.
Entities must apply for the subsidy on or before 180 days after the end of a qualifying period. Please keep this deadline in mind if you will not be applying for the CERS subsidy immediately to avoid missing the opportunity.
How to Apply
Guidance on how to apply for the new rent subsidy has not been issued by CRA yet. However, we expect businesses to be able to apply for the subsidy through their My Business Account similar to the wage subsidy. After applying we would expect businesses would receive the funds within one to two weeks by way of either cheque or direct deposit. Businesses enrolled in direct deposit will receive their subsidy more quickly.
Lockdown Support Subsidy
In addition to the base subsidy, additional support is available to businesses ordered to shut down due to the pandemic by a provincial or regional health authority. The additional subsidy, aptly named Lockdown Support provides an additional 25% subsidy to qualifying businesses.
In order for a business to qualify for Lockdown Support it must meet the following conditions:
- Qualifies for the base Canada Emergency Rent Subsidy, and
- The public health order requires that the organization
- completely shut down the location; or
- cease some or all of the activities at the location and it is reasonable to conclude that the ceased activities, in the appropriate pre-pandemic prior reference period, were responsible for at least approximately 25 per cent of the revenues of the entity at that location.
Some typical examples of shut-downs that would be eligible for Lockdown Support include:
- Restrictions on indoor dining at a restaurant
- Closure of bars
- Closure of fitness centres
- Closure of retail stores
- Closure due to COVID-19 outbreak on the premises
Entities that have had to reduce customers or business hours due to physical distancing requirements or travel bans are not eligible for the Lockdown Support subsidy.
If you have any questions or would like assistance in applying for the CERS please contact your tax advisor at Cameron Izard Snell LLP.