COVID-19 – Canadian Tax and Business News, release #14
Our COVID-19 Canadian Tax and Business News updates are our way of informing our clients, friends and business associates with recent information that may help businesses and individuals while coping with the outcomes from the COVID-19 pandemic.
Our goal is to monitor the news and release relevant information as it becomes available.
“Once we accept our limits, we go beyond them.”
– Albert Einstein
The summary below is based on our understanding and interpretation of the announcements made by the government. The information below is in summary form and subject to change until the proposals are passed as legislation. Contact one of our professionals to discuss these matters in the context of your situation before acting upon such information.
Canada Emergency Commercial Rent Assistance (CECRA) & Ontario CECRA (OCECRA)
In our 11th instalment of this series, we discussed the preliminary details on the CECRA announced by Prime Minister Trudeau on April 24, 2020. The CECRA is a joint effort between the federal government and provinces and territories to implement rent support for small businesses. The program aims to lower rent by 75% for businesses that have been affected by COVID-19 and will be administered by the Canada Mortgage and Housing Corporation (CMHC).
On May 15, 2020, the CMHC provided an update on the program with respects to eligibility and how the program works.
Impacted small business tenants are businesses, non-profit organizations and charities that:
- are paying less than $50,000 per month in rent as defined by a valid and enforceable lease agreement;
- generate no more than $20 million in gross annual revenues;
- have experienced at least a 70% drop in “pre-COVID-19 revenues”. The decline is determined by comparing revenues in April May or June to the same month in 2019 or alternatively compared to average revenues for January and February 2020. Revenue for this purpose is defined as revenue from ordinary activities in Canada excluding extraordinary items calculated using normal accounting methods. For charities and non-profits, revenues from non-arm’s length persons would be excluded and they have the option to include or exclude revenue from government sources.
For a landlord to eligible to benefit from the CECRA:
- The property owner must be the registered owner and landlord of the “commercial real property” defined as commercial properties with small business tenants;
- They must enter (or have already entered) into a rent reduction agreement with the tenant for the period of April, May and June 2020 wherein they agree reduce the tenant’s monthly rent by at least 75% cent;
- The rent forgiveness agreement must include moratorium on eviction. Landlords will not be able to evict tenants while the agreement is in place; and
- The commercial property owner must have declared rental income on their personal or corporate income tax returns for the 2018 or 2019 tax years.
A notable change in this announcement is that the CECRA will be available to commercial landlords with or without mortgages or other forms of debt. The CMHC also confirmed that non-arm’s length lease arrangements will be eligible for the program provided there is a valid and enforceable lease agreement in place prior to April 1, 2020, on terms that are no greater than market value terms.
What Support Will Be Provided?
The program will provide forgivable loans to qualifying commercial property owners to cover up to 50% of monthly rent payments payable by eligible small business tenants experiencing financial hardship during April, May, and June. Funds will be transferred to the property owner’s financial institution.
The loans will cover 50% of the monthly gross rent owed by the impacted tenant during the 3-month period. The tenant would be responsible for covering no more than 25% of the remaining 50% of the monthly gross rent.
Property owners that have already collected the full amount of the monthly gross rent for April or May must refund amounts paid by the tenant or provide a credit to the tenant for future month’s rent if agreed upon by both parties. However, property owners cannot recover forgiven rent amounts when the program is over or they will not qualify for the loan forgiveness.
Provided the landlord complies with all of the program terms and conditions, the loans will be forgiven.
Receiving the CECRA
Eligible commercial landlords will have to apply online for the program and include attestations for each impacted tenant asking for help. The application portal is expected in the second half of May 2020. Property owners will likely have to provide proof of an existing rent reduction agreement and moratorium on eviction in addition to the tenant attestation.
As we all try to stay safe, we need to remind ourselves business will get back to normal but in the meantime let’s all do our part to get to normal as soon as we can. If you have any questions or require further information, don’t hesitate to reach out to us.