COVID-19 – Canadian Tax and Business News, release #16 (updated July 31, 2020)
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.
“Our greatest glory is not in never falling, but in rising every time we fall.”
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 Extended
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 June 29, 2020, Prime Minister Trudeau announced the CECRA would be extended by one month through to the end of July 2020. The CECRA FAQ was updated on July 13, 2020 with additional details regarding the July extension which are highlighted below:
- Only tenants who were approved in the April, May and June application are eligible for the July extension. No revenue decline test or other metrics need to be analyzed in order to qualify for the extension as eligible tenants automatically qualify for the extension.
- The July extension is based on existing parameters so no additional documents are required. Eligible property owners who have already submitted a CECRA application for the April to June period will simply have to log back into the portal and opt-in for the July extension. For property owners who have not yet applied for the April to June period, they will have the same opt-in capabilities at the same time they submit their first application.
- The property owner must select which impacted tenants are included in the July extension. No new tenants may be added. The opt-in must be completed only one time so it is imperative to include all impacted tenants in the application.
- The impacted tenants will not have to sign any new documentation. The property owner must provide a written notice of the extension to the impacted tenants included in the extension. The FAQ includes an example of the prescribed form of the written notice that must be followed.
- Once applications have been processed, a second forgivable loan advance will be provided which will be based on the average of gross rents submitted in the main application. As a result, even if July rent changes, the forgivable loan amount and the amount of rent forgiveness will remain the same. See the FAQ for an example.
Update July 31, 2020
On July 31, 2020, the Federal government announced the Canada Emergency Commercial Rent Assistance (CECRA) will be extended by one month. Eligible small businesses will be eligible for rent assistance for the month of August.
Businesses that previously qualified for April, May and June will automatically qualify for the August extension without having to assess whether they had a revenue decline for August. Existing applicants need to reapply for the August extension by September 14, 2020. New applicants that did not previously apply for the initial three-month period or the July and August extensions must apply by August 31, 2020.
The FAQ also provides details on how the program works in sub-lease scenarios. Essentially, the sub-landlord must enter into a Rent Reduction Agreement with its sub-tenant and the property owner must also enter into a Rent Reduction Agreement with its tenant whether it is an impacted tenant or not. There is no requirement that both the sub-landlord and sub-tenant be an impacted tenant.
The forgivable loan amount is calculated as the higher of the head lease gross rent or the sub-lease gross rent where both the sub-landlord and sub-tenant are impacted tenants. Where the sub-tenant is the only impacted tenant, it will be calculated as 50% of the sub-tenants gross rent. The forgivable loan amount will be advanced directly to the property owner. The sub-landlord does not receive a forgivable loan amount.
Sub-lease scenarios must use the Sample agreements provided by CMHC in the application portal and it cannot be modified.
Properties Held in Trust
The FAQ also clarifies where a commercial property is held in trust, the trustee must make the application. The trustee must sign all legal documents on behalf of the trust if duly authorized under the terms of the trust.
The FAQ clarifies that support received from this program, including the forgivable loan, is exempt from GST/HST.
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.