Government rent assistance continues

The new Canada Emergency Rent Subsidy (CERS) has been reborn out of the ashes of the previous Canada Emergency Commercial Rent Subsidy (CECRA). The new CERS is a blend of the old CECRA and the Canada Emergency Wage Subsidy (CEWS) program, resulting in a rent subsidy program that uses CEWS legislation to set some of its parameters.

This new subsidy is contained in the draft legislative amendments to the Income Tax Act outlined in Bill C-9, which was introduced in the House of Commons on Nov. 2, 2020.

The CERS program runs until June 2021, with government provided details covering the first 12 weeks of the program¹:

• Period 8 – September 27, 2020 to October 24, 2020
• Period 9 – October 25, 2020 to November 21, 2020
• Period 10 – November 22, 2020 to December 19, 2020

Similar to the CEWS program, the CERS will provide a subsidy calculated based on the percentage decline in revenue to a maximum subsidy of 65 per cent. The calculation of the subsidy is as follows:

There is an additional top-up subsidy of 25 per cent for organizations with locations that are temporarily forced to close, or have their business activities significantly restricted, due to a public health restriction imposed by the federal or provincial government, resulting from COVID-19.

To better understand the parameters of the CERS, here is a diagram showing the different components that make up this new subsidy program:

These are the components that are required to gain access to the government subsidy under the new CERS program. See the appendix for details of each component above.

If all the components of the CERS are present, the rent subsidy would be calculated as follows:

Subsidy = A + B

A = subsidy base % x qualifying rent expense (subject to individual $75,000 property cap and overall $300,000 affiliated party cap)

B = subsidy top-up % x qualifying rent expense (subject to individual $75,000 property cap)

The application process for CERS is completely different from CECRA. There are no contracts or agreements that need to be entered into in order to qualify. The application process will be administered through the Canada Revenue Agency in a similar fashion to the CEWS. Given the level of complexity with the proposed CERS, it would be advisable to contact your local Baker Tilly advisor to assist with the calculation of your CERS to ensure all aspects of the program have been met and the subsidy is properly calculated.

Appendix²

Eligible entity is:

• A corporation or a trust, other than a corporation or a trust that is exempt from tax under this Part or is a public institution,
• An individual other than a trust,
• A registered charity, other than a public institution,
• A person that is exempt from tax under this Part because of paragraph 149(1)(e), (j), (k) or (l), other than a public institution,
• A partnership, all of the members of which are described in this paragraph or any of paragraphs (a) to (d), or
• A prescribed organization.

Qualifying renter is:

• An eligible entity that meets the following conditions:
  • Files application with Minister in prescribed form no later than 180 days after the end of the qualifying period,
  • Has an Individual that has principal responsibility for financial activities of the entity attest that the application is complete and accurate and
  • Meets one of the following conditions:
    • Had a payroll number on March 15, 2020 or uses a payroll service provider,
    • Had a business number on September 27, 2020 and provides records/information in support of the application or
    • It meets prescribed conditions (if any).

Qualifying property is:

• Real or immovable property of the eligible entity located in Canada used by the eligible entity in the course of its ordinary activities excluding property that is a self-contained domestic establishment used as a residence.

Qualifying rent expense is:

• For renters:
  • Commercial rent (including gross rent, rent paid on a percentage of sales, profits or similar criterion and amounts paid under a net lease).
• For property owners:
  • Property taxes (including school taxes and municipal taxes),
  • Property insurance and
  • Interest on commercial mortgages (subject to limits).
• Excludes the following:
  • Sales taxes,
  • Amounts paid as, on account of, in lieu of payment of or in satisfaction of, damages,
  • Amounts paid under a guarantee, security or similar indemnity or covenant,
  • Payments arising due to default under the agreement by the eligible entity,
  • Interest and penalties on unpaid amounts,
  • Fees payable for discrete items or special services,
  • Reconciliation adjustment payments,
  • Mortgage interest expenses for a property that are primarily used to earn, directly or indirectly, rental income from arm's-length entities, and
  • Payments made between non-arm's-length entities.

To be eligible, an expense must be paid under a written agreement entered into before October 9, 2020. Expenses for each qualifying property in each qualifying period is capped at $75,000 subject to an overall cap of $300,000 shared among affiliated entities.

Qualifying period³ is:

• Period 8 – the period that begins on Sept. 27, 2020 and ends on Oct. 24, 2020
• Period 9 – the period that begins on Oct. 25, 2020 and ends on Nov. 21, 2020
• Period 10 – the period that begins on Nov. 22, 2020 and ends on Dec. 19, 2020
• Undetermined future periods - a prescribed period that ends no later than June 30, 2021

Revenue decline percentage is:

The revenue decline percentage is determined by comparing the current month for the qualifying period with either the prior month under the general approach or the average of January and February 2020 under the alternative approach. 

Once an entity has chosen to use either the general or alternative approach, they must use that approach for each of the three periods. The approach chosen would apply for the purpose of both the base CEWS and CERS.

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 and aligns with the practice under the CEWS.

Subsidy base percentage is:

• Equal to the formulaic result based on the level of revenue decline percentage
  • If revenue decline percentage is equal to or greater than 70% = 65% maximum amount
  • If revenue decline percentage is greater than 50% but less than 70% =  40% + [1.25 x (revenue decline % - 50%)]
  • If revenue decline percentage is less than 50% = 0.8 x revenue decline %

Subsidy top-up percentage is:

• 25% or an amount prescribed by regulations multiplied by the number of days in the qualifying period subject to the public health restriction divided by the number of days in the qualifying period

Public health restriction is:

In respect of a qualifying property of an eligible entity for a qualifying period means an order or decision with the following conditions:

• Made under a law of Canada or a province,
• Made in response to COVID-19,
• It is limited in scope based on one or more factors, such as:
  • Defined geographical boundaries
  • Type of business or other activity
  • Risk associated with the particular location
• Non-compliance with the order is a federal/provincial offence resulting in potential penalty or sanction,
• Some or all of the activities of the eligible entity at, or in connection with, the qualifying property are required to cease (defined as restricted activities):
  • Based, for greater certainty, on the type of activity rather than the extent to which an activity may be performed or limits placed on the time during which an activity may be performed
• Reasonable to conclude at least approximately 25% of the qualifying revenues of the eligible entity for the prior reference period that were earned from, or in connection with, the qualifying property were derived from restricted activities , and
• The restricted activities are required to cease for a period of at least one week.