Canada’s Emergency Rent Subsidy
The Canada Emergency Rent Subsidy (“CERS”) was introduced on November 19th, 2020. The CERS subsidizes commercial real estate expenses incurred by businesses negatively affected by COVID-19. Canadian businesses, non-profits organizations, or charities that experienced a drop in revenue during the pandemic may be eligible for the subsidy to help cover some of their commercial rent or property expenses.
CERS is available as of September 27, 2020. Similar to the Canada Emergency Wage Subsidy (the “CEWS”), CERS payments come in the form of a refundable tax credit under the Income Tax Act (the “ITA”). Qualifying renters and property owners can receive payments directly without the participation of landlords. Eligible businesses may also qualify for lockdown support if the business location is significantly affected by a public health order for a week or more.
CERS is available for expenses paid from September 27, 2020 onwards, and applications can already be made online.
CERS applies to expenses paid in connection with a qualifying property. Generally, a qualifying property includes any commercial real estate in Canada. However, there is an exception for personal dwellings that are used as a residence. Meaning that expenses paid on home offices or other businesses run from the claimant’s home is disqualified.
Similar to CEWS, entitlement to CERS is segregated into periods. The qualifying periods are the same for CEWS and CERS. The first qualifying period which the CERS is available if from September 27th, 2020 to October 24th, 2020.
Whether a claimant is entitled to CERS may vary by qualifying period. For instance, an entity may qualify for CERS in one qualifying period but not another, depending on their applicable revenue decline. Since CERS is effective as of September 27th, 2020, it only applies to the eighth qualifying period and beyond.
To qualify for CERS, a claimant must be an eligible entity, meaning:
- A corporation or trust, other than a public institution or tax-exempt corporation or trust;
- An individual;
- A registered charity, other than a public institution;
- Certain tax-exempt entities, other than a public institution; or
- A partnership, all of the members of which are an entity referred to above.
The eligible entity must experience a drop in revenue. Eligible revenue generally includes revenue earned in Canada from:
- Selling goods;
- Rendering services; and
- Others’ use of your resources.
Businesses can use their normal accounting methods to calculate their eligible revenue. The rules for calculating eligible revenue are the same for CEWS.
The eligible entity must also have a qualifying property. Once again, CERS subsidizes a portion of an entity’s qualifying rent expenses. Generally, there are two types of eligible expenses – rent and specified realty costs.
Finally, the eligible entity must meet one of the following conditions:
- On March 15, 2020, the eligible entity had a payroll account registered with the CRA;
- On March 15, 2020, the eligible entity had a payroll service provider in place to make remittances on its behalf regarding one or more of its employees (and the payroll service provider continues to make such remittances); or
- On September 27, 2020, the eligible entity had a CRA business number.
Maximum Expense Limit and Affiliated Groups
There is an upper limit of $300,000 for all qualifying rent expenses within a given qualifying period for an eligible entity. This could mean, for example, that an entity using more than four commercial properties may be restricted in their CERS claim.
Additionally, the $300,000 limit must be shared between all affiliated entitles. Consequently, if a qualifying renter is affiliated with another eligible entity claiming CERS, each affiliated entity must enter into an agreement allocating a percentage of that aggregate $300,000 limit amongst themselves.
Similar to CEWS, there is a top-up concept with CERS, where qualifying entities can receive additional subsidy. Qualifying entities subject to a public health restriction can apply for the lockdown support. Essentially, a public health restriction is a public health order issued in response to COVID-19, resulting in complete cessation of certain business activities.
A qualifying entity under a public health restriction may claim the CERS top-up subsidy even if their overall revenues only minimally declined. However, keep in mind, not all public health orders will trigger access to the CERS top-up.
The CRA has already opened applications for CERS. The CRA’s main webpage regarding CERS, with general information and links to the application process, can be found here.
Keep in mind that eligible entities have until 180 days after the end of the relevant qualifying period to apply for CERS and/or lockdown support. The last day to apply for claim period 9 (May 9 to June 5, 2021) is December 2, 2021.
If you have any questions or concerns, speak with a tax lawyer to discuss if CERS or any other benefits apply to your particular circumstances. Contact us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.