On November 2, 2020, the Government of Canada introduced Bill C-9, which sets out details of the new rent support program called the Canada Emergency Rent Subsidy ("CERS"), which was previously announced on October 9, 2020. Bill C-9 would serve to amend the Income Tax Act (Canada). As of the date of this article, the legislation has yet to receive royal assent and remains subject to change.
The new rent subsidy provides support to qualifying businesses, charities, and nonprofits that have suffered a revenue drop as a result of the COVID-19 pandemic. CERS effectively replaces the Canada Emergency Commercial Rent Assistance ("CECRA") program and provides more flexibility and accessibility to both commercial tenants and property owners.
CERS will be available to tenants and property owners (to a lesser degree), including individuals, partnerships, corporations, registered charities and other organizations that meet certain eligibility requirements.
To qualify as eligible for CERS, an entity must meet one of the following requirements:
- Have a payroll account as of March 15, 2020 or have been using a payroll service provider;
- Have a business number as of April 11, 2020 (and satisfy the CRA that it is a bona fide rent subsidy claim); or
- meet other conditions that may be prescribed in the future.
Note, to qualify as a property owner, the entity must satisfy one of the following conditions:
- It does not use the "qualifying property" (generally, being real property in Canada used by the entity in its ordinary course) primarily to earn rental income; or
- If it does use the qualifying property primarily to earn rental income from a non-arm's length person or partnership, the qualifying property is not used by such other person or partnership to earn rental income.
- Operated through the Canada Revenue Agency, CERS is to continue until June 2021 for qualifying entities affected by COVID-19;
- Support under CERS will be provided on the basis of qualifying
periods. For example,
- the period that begins on September 27, 2020 and ends on October 24, 2020;
- the period that begins on October 25, 2020 and ends on November 21, 2020;
- the period that begins on November 22, 2020 and ends on December 19, 2020; or
- a prescribed period that ends no later than June 30, 2021.
- Entities are able to make claims retroactively to cover the gap that followed the expiry of the CECRA program, being the qualifying period from September 27, 2020 to October 24, 2020;
- If an entity meets the qualification requirements for one month, it automatically is qualified for the month immediately after. However, for the following month, it would again have to demonstrate that it meets the revenue decline requirements;
- Up to $75,000 per period for a single property (cap at $300,000 for all qualifying properties, including properties of affiliates) in rent, mortgage interest, insurance and property taxes paid by commercial property owners may be partially subsidized per qualifying period;
- CERS will be available to organizations with more than $20 million in annual revenue and paying in excess of $50,000 in monthly gross rent. Organizations with revenue or rent obligations beyond these thresholds were previously ineligible for support under CECRA.
Base Rent Subsidy
- As its base rent subsidy, CERS supports eligible entities that have suffered a revenue drop, by subsidizing a percentage of their rent expenses, on a sliding scale, up to a maximum of 65% of eligible expenses.
- Rent expenses include rent or mortgage interest expenses in respect of a qualifying property, net of any amounts received or receivable by the entity from non-arm's length parties.
- For commercial tenants, rent expenses per
qualifying property would include amounts up to $75,000 for each
qualifying period paid under a written agreement entered into prior
to October 9, 2020, including items such as (a)
gross, net or percentage rent, (b) amounts paid under net leases
such as operating costs, insurance, utilities and property taxes
and (c) amounts received by the property owner under the CECRA
program that were applied during a qualifying period, if those
amounts would otherwise be required to be refunded to the tenant.
- Exclusions include: (i) sales taxes, (ii) amounts paid in lieu of or in satisfaction of damages, (iii) amounts paid under a guarantee, security, or similar indemnity or covenant, (iv) payments arising due to default, (v) interest and penalties on unpaid amounts, (v) fees payable for discrete items or special services and (vi) reconciliation adjustment payments.
- For commercial property owners, rent expenses per qualifying property would include amounts up to $75,000 for each qualifying period paid under a written agreement entered into prior to October 9, 2020, including items such as mortgage interest, insurance costs paid in respect of the qualifying property and property and similar taxes.
- For example, CERS will fund up to 65% of rent expenses for entities that have had a revenue decline of at least 70%. Entities that have had a revenue fall of less than 70% are to receive a gradually decreasing level of support in line with their revenue (calculations as described below).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.