COVID-19: Canada Emergency Rent Subsidy (“CERS”) Program
Last updated December 23, 2020
In response to a number of inquiries received since the onset of the COVID-19 pandemic, this memorandum is intended to provide distilled information that can be used at a glance to inform yourself and your business. As this document is not client-specific, it is for informational purposes only and should not be construed as legal advice. It is intended to serve only as a guideline in creating your business continuity strategy for what has quickly become one of the more turbulent economic times that our region has faced. We encourage you to contact our office and seek specific legal advice prior to implementing any of these, or other, measures.
The Canada Emergency Rent Subsidy Program (“CERS”)
CERS is a program seeking to assist businesses and is meant to be the successor program to the Canada Emergency Commercial Rent Assistance Program (“CECRA”) which closed for applications in September of 2020. CERS aims to provide direct and easy-to-access rent and mortgage support directly to qualifying businesses, charities and non-profits through a subsidy of up to 65% of eligible expenses. The significant difference between CERS and its predecessor, CECRA, is that it has taken landlords out of the equation by delivering funds directly to business owners rather than relying on buy-in from landlords.
CERS offers a subsidy to cover part of a business’s commercial rent or property expenses, between September 27, 2020 and June 2021. If a business is eligible for the base subsidy, it may also be eligible for lockdown support if the business location is significantly affected by a public health order for a week or more, which is described in more detail below.
CERS Program Generally
The CERS program is intended to assist business tenants and property owners with their financial obligations and currently, the following qualifying claim periods are open:
- Claim period 3: November 22 to December 19, 2020;
- Claim period 2: October 25 to November 21, 2020; and
- Claim period 1: September 27 to October 24, 2020.
New claim periods will continuously be opened until June 2021, and a separate application must be submitted for each CERS claim period that a business is eligible for. An application must be filed no later than 180 days after the end of the claim period and a business may apply for the rent subsidy retroactively for any period up to 180 days after that period has ended.
Applications for CERS are submitted online through either a My Business Account or Represent a Client on the Canada Revenue Agency (CRA) website. Prior to submitting an application, a CERS number must be created.
In order to be eligible for CERS, the following conditions must be met:
- An applicant must have either:
- had a CRA business number on September 27, 2020; or
- had a payroll account on March 15, 2020; or
- purchased the business assets of another person or partnership who meets condition b. above, and have made an election under the special asset acquisition rules which can be found online here.
- Applicants must be one of the eligible types of businesses, charities, or non-profits (entities), which includes:
- individuals (other than a trust);
- corporations (or trusts) that are not exempt from income tax (Part I of the Income Tax Act);
- the following persons that are exempt from income tax (Part I of the Income Tax Act):
- non-profit organizations, agricultural organizations, boards of trade, chambers of commerce, non-profit corporations for scientific research and experimental development, labour organizations or societies, benevolent or fraternal benefit societies or orders
- registered charities;
- partnerships consisting of eligible entities (including partnerships where at least 50% of the interests in the partnership are held by eligible entities);
- certain prescribed organizations;
- public institutions are not eligible for the subsidy; and
- if a business, charity, or non-profit is related to another eligible entity, it may be considered an “affiliated entity” which may affect the calculations for the subsidy. For example, if a business is affiliated with other businesses, charities, or non-profits who are also applying for CERS, the parties must agree on how to split the $300,000 limit for eligible expenses. Some examples of “affiliated persons” are:
- an individual and their spouse or common-law partner;
- two corporations if each is controlled by a person, and those two persons are affiliated with each other;
- two corporations if one corporation is controlled by one person who is affiliated with each member of a group that controls the other corporation; or
- two corporations if each corporation is controlled by a group and each member is affiliated with at least one member of the other group.
- Applicants must have experienced a drop in revenue which is calculated by comparing eligible revenue during the reference period with eligible revenue from a previous period (“baseline revenue”). There is no minimum revenue drop required to qualify for the subsidy.
- Applicants must have eligible expenses related to a qualifying property. CERS covers a portion of eligible expenses in respect of a claim period for each qualifying property, subject to certain maximums. CERS is calculated on a property by property basis and qualifying property includes any “real or immovable property” (buildings or land) in Canada that the business or organization owns or rents and uses in the course of ordinary activities. Properties that do not qualify, include:
- a home, cottage, or other residence;
- any properties owned that are primarily used to earn rental income from arm’s-length parties; or
- any properties that are primarily used to earn rental income directly or indirectly from a non-arm’s length party, that are primarily used by that party to earn rental income.
The Base Subsidy and Lockdown Top-Up
CERS provides both a base subsidy and, in some cases, a lockdown support amount.
a) How much can be claimed
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 the applicant and any affiliated entities per claim period. If a business must close or cease certain activities at one or more locations under a public health order for one week or longer, it may be eligible for lockdown support of up to 25% of eligible expenses per affected location for the days the order was in place.
b) Calculating the Base Rent Subsidy Rate
The amount that can be claimed of expenses (the rent subsidy rate) is based on the revenue drop experienced which can be calculated using one of two methods:
- Corresponding month of 2019 method: the months of 2019 and 2020 that relate to the claim period you’re applying for; or
- Alternative method: January and February 2020 compared to the months of 2020 that relate to the claim period.
This revenue drop is then scaled to calculate the rent subsidy rate which is calculated as follows:
- Revenue drop of 70% or more = the maximum subsidy rate of 65%
- Revenue drop of 50 to 70% = (revenue drop – 50%) x 1.25 + 40%
- Revenue drop of less than 50% = 0.8 x the revenue drop
c) The Top-Up Lockdown Support Rate
In addition to the rent subsidy rate, a lockdown support amount may be available for certain locations affected by public health restrictions. The CERS top-up (lockdown support) rate is 25% on lockdown, calculated as:
- 25% (fixed top-up rate);
- Multiplied by the number of days the location was locked down due to the COVID-19 pandemic; and
- Divided by 28 (the days in the CERS period).
- Which equals the top-up (lockdown support) rate.
d) Lockdown Support Eligibility Criteria
Lockdown support is calculated on a location-by-location basis and, to qualify for lockdown support, an applicant must have:
- A base rent subsidy rate of more than 0% for the claim period;
- One or more locations temporarily closed, or have activities significantly restricted for a week or longer due to a COVID-19-related public health order;
- A public health order must:
- be issued by a federal, provincial, or municipal government, or a local health authority;
- be limited based on at least one of these factors: geographical boundaries, type of business or other activity or risks associated with a particular location;
- result in sanctions or be an offence if not complied with;
- require a business to stop some or all regular activities while the order is in place; and
- activities a business could not engage in must account for at least approximately 25% of total revenues at that location during the prior reference period.
An order that restricts or reduces activities but does not require a business to close or stop certain activities does not qualify for lockdown support. Additionally, a business does not qualify for lockdown support if it is already restricted or closed because it failed to comply with a previous public health order or decision.
Eligible expenses must meet the following criteria:
- Only amounts paid or payable to an arm’s-length party can be included;
- The expense must be in respect of the claim period;
- The expense must be paid or payable under a written agreement in place before October 9, 2020 (or a renewal on substantially similar terms or assignment of such an agreement); and
- If amounts due for eligible expenses have not yet been paid, the applicant must attest that these amounts will be paid within 60 days of receiving the rent subsidy payment.
Expenses that were paid or payable to non-arm’s-length entities or for a timeframe that falls outside of the claim period applied for cannot be claimed.
Finally, eligible expenses are different for qualifying properties that are rented than for qualifying properties that are owned. If an applicant rents the qualifying property, the eligible expenses include:
- Rent (including rent based on a percentage of sales, profit or similar criteria);
- Amounts required to be paid or payable by you under a net lease (either to the lessor or a third party) which may include: base rent, regular payments for customary operating expenses, such as property insurance, utilities, common area maintenance; property and similar taxes, including school and municipal taxes; and regular payments to the lessor for customary ancillary services.
Expenses that cannot be included for rented properties are: sales taxes (such as GST/HST and provincial sales taxes), damages, interest or penalties on unpaid amounts, other special amounts, and tenant insurance and leasehold improvements are not eligible expenses.
If an applicant owns the qualifying property, the eligible expenses are:
- Property and similar taxes;
- Property insurance;
- Interest on commercial mortgages for the purpose of purchasing real property; and
- The mortgage amount cannot exceed the lesser of: the lowest total principal amount secured by one or more mortgages on the property at any time after it was acquired or the cost amount of the property.
Expenses that are not eligible for owned properties include amounts that were paid or payable for a time that fall outside of the claim period and payments between non-arm’s-length and related entities.
Situations Requiring a Return of CERS
All or part of the subsidy already received may need to be returned if the applicant:
- Made a calculation or data entry error for a claim period;
- Finds out it did not qualify for the subsidy after payment was received; or
- Receives a notice from the CRA that, following a review, the claim has been reduced or denied.
Any excess amount of rent subsidy that is received and is not returned may be subject to interest. Additionally, if an applicant artificially reduces its revenue or increases expenses for the purpose of claiming the rent subsidy, it will be required to repay any subsidy amounts received, plus a penalty equal to 25% of the total value.
These are only some of the various business relief measures being instituted by our Federal and Provincial Government. For more information on these topics or any other matters please contact one of the below lawyers from Bryan & Company LLP or access our Corporate Law group here and it would be our pleasure to assist.