20 November 2020
Updates Regarding the Canada Emergency Rent Subsidy
An Overview of Bill C-9: An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy)
By: Antonino Gentile
In April 2020, the federal government announced that it would be providing rental assistance to businesses through the Canada Emergency Rent Assistance program (“CECRA”). After numerous extensions, on October 9th, 2020 the Minister of Finance ultimately declared that the September CECRA extension would be the last and that new initiatives would be adopted to better meet the needs of business owners struggling to survive in the context of the COVID-19 pandemic.
In consideration of the federal government’s objective of providing relief to property owners and commercial tenants alike, CECRA left much to be desired, hence the decision to terminate the program in favor of a replacement tailored to address several of the pitfalls of its predecessor.
Bill C-9: An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy), which was approved by the House of Commons on November 6th, was recently passed by the Senate after almost two weeks of review and deliberation. The overarching purpose of Bill C-9 is to implement programs aimed at more effectively responding to the needs of struggling businesses.
The Canada Emergency Rent Subsidy (“CERS”) will be administered by the Canada Revenue Agency and is structured to address many of the CECRA program’s issues including: (i) allowing impacted businesses to apply directly for relief, (ii) providing said relief in the form of a subsidy directly to qualifying entities, (iii) expanding eligibility to businesses that have suffered revenue losses of less than 70% (the previous threshold for CECRA eligibility), and (iv) providing additional funds to businesses that have been directly impacted by mandatory public health restrictions.
III. ELIGIBILITY CRITERIA
- Eligible Applicants. To be eligible to apply for CERS, a business must meet the following criteria:
- be a taxable business (individual, registered company, partnership, corporation, etc.) or a registered charity;
- have a CRA business number on September 27th, 2020;
- have experienced a decline in revenue as a result of the COVID-19 pandemic;
- have incurred/is expected to incur Eligible Expenses (see paragraph 2 below); and
- have filed an application in the prescribed form within 180 days of the end of an Application Period (see paragraph 3 below), accompanied by an attestation from the principal in charge of the applicants’ financials.
- Eligible Expenses. Costs incurred by Eligible Applicants in respect of a qualifying property (in general, immovable property located in Canada that is used by an Eligible Applicant in order to exercise its regular business activities) that are covered by CERS include the following:
- gross commercial rent;
- percentage rent;
- all amounts payable under a net lease (including base rent, operating expenses, insurance, utilities, and common area maintenance expenses);
- property taxes (including municipal and school taxes);
- interest on commercial mortgages (certain qualifications apply); and
- property insurance.
In all cases Eligible Expenses must be payable during an Application Period pursuant to a written agreement between the Eligible Applicant and an arm’s length entity dated prior to October 9, 2020 (or in accordance with any subsequent renewals thereof).
- Application Periods. CERS will apply retroactively to September 27th, 2020 in order to align with the periods of the Canada Emergency Wage Subsidy. The Application Periods for CERS are as follows:
- September 27th, 2020 to October 24th, 2020;
- October 25th, 2020 to November 21st, 2020;
- November 22nd, 2020, to December 19th, 2020; and
- One or more additional period(s) ending no later than June 30th, 2021 (to be determined at a later date by the federal government).
IV. SCOPE OF COVERAGE
- Funding Limits. An Eligible Applicant will be entitled to a Base Subsidy (see paragraph 3 below) calculated on a percentage of no more than $75,000 of Eligible Expenses, per Qualifying Property, per Application Period (in addition to an aggregate cap of $300,000 of Eligible Expenses for affiliated entities in respect of a given Application Period).
- Calculation of Revenue Decline. Applicants may calculate the decrease in revenue by using either of the following methods, (it should be noted that applicants that have applied for the wage subsidy will need to remain consistent in their approach):
- General Approach: Comparing revenues earned for the month in question with the same month from the previous year (i.e. Revenues in October 2020 versus revenues in October 2019); or
- Alternative Approach: Comparing the average revenues in the months of January and February 2020 to the reference month.
- Base Subsidy. Subject to the Funding Limits (see paragraph 1 above), the following table outlines the percentage scale used to calculate the Base Subsidy that Eligible Applicants are entitled to receive for Eligible Expenses incurred in a given Application Period:
|% of Revenue Loss||Base Subsidy Rate|
|Tier 1||70% or more||65%|
|Tier 2||50% to 69%||40% + (% of Revenue Loss – 50%) x 1.25|
|Tier 3||1% to 49%||% of Revenue Loss x 0.8|
- Lockdown Support. Eligible Applicants which have been hardest hit by the pandemic may be entitled to an additional subsidy of 25% under CERS provided they meet the criteria to receive the Base Subsidy and have been forced to cease all or a substantial portion of their activities for a period of at least one week due to a mandatory public health order. The Lockdown Support will require that Eligible Applicants meet additional conditions to demonstrate the significant impact that government restrictions have had on their businesses and the support will be pro-rated over the period in which the public health order is in effect. Finally, as with the Base Subsidy, the Lockdown Support will be subject to the $75,000 Eligible Expense limit (see paragraph 1 above) but not to the aggregate cap of $300,000.
V. CONCLUDING REMARKS
Since the program was first announced, the Minister of Finance has been consistent in her statements that CRA was preparing to receive applications and distribute funds as soon as possible following the passing of Bill C-9. The federal government will now have to act quickly to make these funds available to many struggling businesses that may otherwise be forced to shut down indefinitely.
The KRB team remains available for additional questions or inquiries you may have regarding CERS program criteria and the application process.