COVID-19 – Canadian Tax and Business News, release #23
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.
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 Rent Subsidy (CERS)
On October 9, 2020, Finance announced a new rent subsidy program to replace the Canada Emergency Commercial Rent Assistance (CECRA) previously in the place. This new program will provide rent subsidies directly to tenants but there is also support available for property owners. The program is retroactive to September 27, 2020 and it will be administered by the Canada Revenue Agency (CRA). On November 2, 2020, draft legislation was introduced providing details on eligibility and subsidy rates. On November 5, 2020, Finance released its detailed backgrounder. The key points are summarized below.
Who is Eligible?
Entities eligible for the CERS is aligned with the Canada Emergency Wage Subsidy (CEWS) program and includes individuals, taxable corporations and trusts, non-profit organizations, and registered charities. Furthermore, certain partnerships are also eligible. For these entities to be eligible, they must have a registered payroll account as of March 15, 2020 (directly or using a payroll provider) or have a business number with the CRA as of September 27, 2020.
The CERS will cover “qualifying rent expense” which includes commercial rent paid by a tenant less any subleasing revenues. The GST/HST component is not eligible for the CERS. Furthermore, payments made between non-arm’s length entities would not be eligible. Therefore, inter-corporate rent paid from an operating company to a holding company would not qualify. For commercial rent to qualify, the rent must be paid by an eligible tenant pursuant to a lease agreement they entered into before October 9, 2020 or on a renewal of a lease agreement under similar terms.
For commercial landlords, “qualifying rent expense” includes property taxes, property insurance and interest on commercial mortgages paid.
There is a cap on expenses at $75,000 per qualifying period per location which is also subject to an overall cap of $300,000 that is shared between affiliated entities.
How Much Can Your Business Get?
The CERS provides that up to $75,000 per qualifying period in rent can be subsidized multiplied by the rent subsidy rate percentage for the period. The percentage is based on the revenue decline for the qualifying period. The revenue declines are determined in the same manner as the CEWS program. Therefore, eligible applicants can determine the revenue decline based on comparing the revenue from the same month in 2019 or elect to use the average of January and February 2020. The rent subsidy percentages as well as the reference periods for determining the revenue decline are summarized below and apply for the periods from September 27, 2020 to December 19, 2020. Applications must be made before 180 days after the qualifying period. The application due dates are referenced below as well.
|Revenue decline for the period||Subsidy Percentage||Additional Lockdown Subsidy|
|Revenue decline 70% or greater||65%||25%|
|Revenue decline from 50% to 69%||40% plus 1.25 x the revenue decline in excess of 50%||25%|
|Revenue decline from 0% to 49%||0.8 x the revenue decline for the period||25%|
Reference Periods for Revenue Decline
Sep 27 – Oct 24
Oct 25 – Nov 21
Nov 22 – Dec 19
|General Approach||Oct 2020 over Oct 2019|
Sept 2020 over Sept 2019
|Nov 2020 over Nov 2019|
Oct 2020 over Oct 2020
|Dec 2020 over Dec 2019|
Nov 2020 over Nov 2019
|Alternative Approach||Oct 2020|
Sept 2020 over the average of Jan & Feb 2020
Oct 2020 over the average of Jan & Feb 2020
Nov 2020 over the average of Jan & Feb 2020
|Application Due Date||April 22, 2021||May 20, 2021||June 17, 2021|
It should be noted that once a business has chosen to use the general or alternative approach, they must use the same approach for the above noted three periods for both the CERS and CEWS programs. Revenues for purpose of the decline are also calculated in the same manner as the CEWS program. As such, many of the revenue elections available in the CEWS program are available for purposes of the CERS.
There is also an additional 25% top-up subsidy for businesses forced to close due to a government-enforced public health striction in response to the COVID-19 pandemic. The government closure must be in effect for at least a week. Furthermore, the public health order must completely shut down the location or cease some of the activities at the location that represent approximately 25% of the revenues at that location. The entity must also qualify for the base CERS to be eligible for the top-up.
If the lockdown is only in effect for part of a qualifying period, the additional lockdown subsidy of 25% would be pro-rated based on the number of days in the period the closure was in effect. The Finance Backgrounder provides examples of circumstances that would qualify and those that do not. For example, a restriction on indoor dining for a restaurant that earns 25% or more of its revenue from indoor dining is eligible even if the restaurant shifts to take out orders. However, the restaurant would not be eligible if the restriction only limits the number of individuals per table since it can continue to carry on its indoor dining activities.
For the purpose of the top-up subsidy, the eligible expenses would be capped at $75,000 per period similar to the base subsidy. However, there is no overall $300,000 cap for the purpose of the top-up.
Applications must be filed with the CRA, but no details have been provided at this time on how and when businesses can apply. We will provide details once announced by the CRA.
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.