The federal government’s Canada Emergency Rent Subsidy (“CERS”) opened for application on November 23, 2020. The CERS program replaces the Canada Emergency Commercial Rent Assistance program (CECRA) and is designed to subsidize businesses, charities and non-profits that have suffered a revenue drop due to COVID-19.
The subsidy is available on a sliding scale based on the percentage of revenue loss. Eligible entities will be able to receive a subsidy up to a maximum of 65% of eligible expenses (including rent, commercial mortgage interest, property insurance and property taxes) with a top-up of up to 25% percent for certain businesses that have been ordered to close due to a public health order for a week or more.
This new subsidy will be available retroactive to September 27, 2020 and will be in place until June 2021. Currently, the following periods are open for applications:
- September 27, 2020 to October, 24, 2020, corresponding to Canada Emergency Wage Subsidy (“CEWS”) Period 8; and
- October 25, 2020 to November 21, 2020, corresponding to CEWS Period 9.
Eligibility for CERS
To qualify for CERS, an eligible business, charity or non-profit must meet the following conditions:
- The “eligible entity” must:
- have a CRA business number as of September 27, 2020;
- have a CRA payroll account number as of March 15, 2020, or have employees as of March 15, 2020 but another person made payroll remittances on its behalf;
- have purchased the business assets of another person who meets the above conditions and have made an election under the so-called “special asset acquisition rules”; or
- meet other conditions that may be prescribed in the future;
- The eligible entity must have suffered a revenue drop when compared to a pre-pandemic reference period (see below); and
- The eligible entity has eligible expenses for a qualifying property.
The CERS covers a portion of eligible expenses during a claim period for each “qualifying property”, subject to certain maximums. The CERS is calculated on a property-by-property basis.
- Qualifying property includes any real or immovable property in Canada that your business or organization owns or rents and uses in the course of its ordinary activities.
- Properties that do not qualify include your home or other residence used by you, your family members or other related persons and any properties that you own that are primarily used to earn rental income from an arm’s-length person.
- If the property is rented to a related person and is used by the related tenant in its ordinary business activities, the property is a qualifying property for the property owner.
The CERS covers a portion of “eligible expenses”, subject to certain maximums.
There are certain criteria that need to be met in order for expenses to qualify for the subsidy. Expenses must be in respect of a claim period. If the amount claimed is not paid yet, you must attest that these amounts will be paid within 60 days of receiving the rent subsidy.
As a renter of a qualifying property:
- Eligible expenses include: rent, amounts required to be paid under a net lease such as property taxes, property insurance, utilities, common area maintenance.
- Rent must be paid or payable under a written agreement entered into before October 9, 2020 (or a renewal on substantially similar terms or assignment of such an agreement).
If you own the qualifying property:
- Eligible expenses include: property taxes, property insurance, interest on commercial mortgages.
- Only amounts paid or payable to an arm’s-length party can be included.
Calculating the Subsidy
Similar to the CEWS, there is no minimum revenue drop required to qualify for the subsidy. The amount of the subsidy will vary depending on the eligible entity’s revenue decline. The revenue drop could be based on a comparison with the revenue of the same month in 2019, or the average revenue of January and February 2020. If you have also claimed the CEWS, you must use the same method that was used for the base CEWS application of period 5 or later.
The CERS provides both a base subsidy and, in some cases, a lockdown support amount.
i. Base Rent Subsidy
The base subsidy rate applies to a maximum of $75,000 in eligible expenses per location and an overall maximum of $300,000 in expenses for you and any affiliated entities per claim period.
Businesses that experience a revenue decline of 70% or more would be eligible for the maximum base rent subsidy of 65% of eligible expenses. The subsidy rate goes down with a decline in the percentage of revenue loss.
ii. Top-up (Lockdown) Support
An additional 25% CERS top-up for lockdown support may be available for certain locations affected by public health restrictions. The support is calculated based on days the location was locked down due to the pandemic and is not based on a sliding scale. To be eligible, a business must have suffered at least a 25% revenue decline (compared to a pre-pandemic reference period) due to the public health directive.
The application deadline is 180 days after the claim period. The application could be filed online through CRA “My Business Account” or “Represent a Client”.
The CERS will be taxable income to the recipient and will need to be reported on the organization’s annual income tax return.
If you have any questions about the CERS subsidy, or if you would like assistance in preparing your CERS application, please contact your Grewal Guyatt LLP advisor.