COVID-19: Canada Emergency Rent Subsidy (CERS)

The maximum base rate subsidy would be 65%, and available to organizations with a revenue drop of 70% or more. The base rate would then decrease to 40% for organizations with a revenue drop of 50%, and would gradually decrease to zero for organizations with no decline in revenues. This rate structure essentially mirrors the Canada Emergency Wage Subsidy rate structure. See Table 1 and Figure 1 below.

Table 1

Figure 1

Eligible expenses for a location for a qualifying period would include:

• commercial rent

• property taxes (including school taxes and municipal taxes)

• property insurance

• interest on commercial mortgages (subject to limits) for a qualifying property

Any subleasing revenues need to be subtracted from these expenses and any sales tax (e.g., GST/HST) component of these costs would not be an eligible expense.

Eligible expenses would be limited to those paid under agreements in writing entered into before October 9, 2020 (and continuations of those agreements) and would be limited to expenses related to real property located in Canada.

Non-Eligible Expenses

• Expenses that relate to residential property used by the taxpayer (e.g., their house or cottage).

• Payments made between non-arm's-length entities would not be eligible expenses.

• Mortgage interest expenses in respect of a property primarily used to earn, directly or indirectly, rental income from arms-length entities.

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

Eligibility criteria for the new rent subsidy would generally align with the Canada Emergency Wage Subsidy program.

Eligible entities include:

• Individuals;

• taxable corporations and trusts;

• non-profit organizations and registered charities;

• Partnerships that are up to 50 per cent owned by non-eligible members;

• Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible entities;

• Registered Canadian Amateur Athletic Associations;

• Registered Journalism Organizations; and

• Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.

Public institutions are generally not eligible for the subsidy.

In addition, an eligible entity must meet one of the following criteria:

• have a payroll account as of March 15, 2020 or have been using a payroll service provider;

• 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

• meet other conditions that may be prescribed in the future.

Effective September 27, 2020, property owners that rent to non-arm’s length tenants whose operations have been impacted by public health orders are eligible for the CERS providing all other conditions for the CERS are met.

Revenues under the CERS will be calculated in the same manner as under the Canada Emergency Wage Subsidy program.

• An entity's revenue for the purposes of the CERS 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 excluded.

• For registered charities and non-profit organizations, the calculation includes most forms of revenue, excluding revenues from non-arm's length persons. These organizations are allowed to choose whether to include revenue from government sources as part of the calculation. Once chosen, the same approach would have to apply throughout the program period.

• Special rules for the computation of revenue are provided to take into account certain non-arm's-length transactions, such as where an entity sells all of its output to a related company that in turn earns arm's-length revenue.

• Affiliated groups that do not normally compute revenue on a consolidated basis may elect to do so.

 Claim Periods and Deadlines

Eligibility would generally be determined by the change in an eligible entity's monthly revenues, year-over-year, for the applicable calendar month (general approach).

Alternatively, an entity can choose to calculate its revenue decline by comparing its current reference month revenues with the average of its January and February 2020 revenues (alternative approach).

Once an entity has chosen to use either the general or alternative approach, they must use it for each of the three periods. The approach chosen would apply to both the base Canada Emergency Wage Subsidy and the Canada Emergency Rent Subsidy.

An eligible entity would use the greater of its percentage revenue decline for the current qualifying period and that for the previous qualifying period in order to determine its subsidy rate. This would provide certainty to businesses regarding their expected minimum subsidy rate and aligns with the practice under the Canada Emergency Wage Subsidy.

Table 2 below, outlines each qualifying period and the relevant reference period for determining the change in revenue.

Table 2: Reference Periods

All applications must be made on or before 180 days after the end of the qualifying period.

Example 1:

Sandy owns a kitchen supply store. The store was closed down in the initial stages of the pandemic in March and April, but has since reopened. With new safety precautions in place Sandy now limits the number of customers in her store. In September and October, her revenues are down 25% compared to last year. She paid $5,000 in eligible rent costs during the first period of the rent subsidy. For this period, she will be eligible for a rent subsidy of 20%, or $1,000.

Example 2:

Matt owns a local chain of three casual dining restaurants. With restrictions on dining room capacity, and patio business declining as cooler weather sets in, his revenues were down 40% in September and 60% in October, compared to the same time last year. Matt incurred $30,000 in eligible rent costs in respect of the first period of the rent subsidy. He will be eligible for a rent subsidy at a rate of 52.5%, for a benefit of $15,750.

Example 3:

MovieCastle Group is a chain of six cinemas. MovieCastle Group fully owns each cinema, which are all incorporated separately. In September, revenues were down 70%, and in October, revenues were down over 80%. MovieCastle Group and its companies incurred rent costs of $600,000 in respect of the period.

Under the rent subsidy, MovieCastle Group will be eligible for a base subsidy rate of 65% on a maximum of $300,000 of rent expenses per period. At each location, only the first $75,000 of rent expenses is eligible for the subsidy. MovieCastle Group members decide to divide the maximum $300,000 for the group equally amongst the six members, and each therefore can claim $50,000 in eligible expenses. The total group benefit will be $195,000 (or 65% of $300,000).

Example 4:

Ted owns two companies: Ted’s Restaurant Inc. and Ted’s Property Company. Ted’s Restaurant Inc. rents its space from Ted’s Property Company.

A public health restriction requires Ted’s Restaurant Inc. to shut down for several weeks.

Due to their common control, Ted’s Restaurant Inc. and Ted’s Property Company would not be considered as dealing at arm’s length for tax purposes. As a consequence, the rent Ted’s Restaurant Inc. pays to Ted’s Property Company would not be eligible for the rent subsidy or Lockdown Support. Instead, the mortgage interest, property taxes and real property insurance paid by Ted’s Property Company could be eligible expenses for the rent subsidy, but because the operations of Ted’s Restaurant Inc. (and not Ted’s Property Company) were required to cease, Ted’s Property Company would not be entitled to the Lockdown Support.

In contrast, if Ted’s Restaurant Inc. also owned the property, it would be entitled to both the rent subsidy and the Lockdown Support on the mortgage interest, property taxes and real property insurance paid in connection with the property. The draft legislative proposal would ensure that Ted’s Property Company could qualify for the Lockdown Support.