Canada Emergency Rent Subsidy (CERS)

The Canada Emergency Rent Subsidy (CERS) was recently announced to replace the Canada Emergency Commercial Rent Assistance (CECRA) program.

Angela Todd
CPA, CGA, Senior Tax Manager
Millards Chartered Professional Accountants

Angela Todd, CPA, CGA, Senior Tax Manager says the program offers a better way for commercial renters to get relief directly.

“The CERS will be similar to the CECRA but the updated subsidy will provide payments directly to qualifying renters and property owners, without requiring the participation of the company or individual they rent from.”

Canadian businesses, non-profit organizations, or charities who have seen a drop in revenue due to the COVID-19 pandemic may be eligible for a subsidy to cover part of their commercial rent or property expenses, starting on September 27, 2020, until June 2021. The CERS provides both a base subsidy and in some cases, a lockdown support amount.

“The CERS will cover up to 65 percent of rent or mortgage interest payments if a business has seen a decline in revenue by at least 70 per cent.”

Even if your business revenue has declined by less than 70 per cent, you may still qualify for a decreased version of the CERS.

Todd adds that there are special considerations for businesses shut down by the pandemic.

“If your business is forced to temporarily shut down due to mandatory orders, then you could get funding up to 90 per cent of your rent or mortgage.”

Who can apply?

1.) Businesses with at least one of the following:

• CRA business number on September 27, 2020 – please note if you do not have a business number, you will be required to register before you are able to apply for the CERS
• Payroll account on March 15, 2020 (includes business where a third party made payroll remittances on behalf of your business)
• The business was purchased and both parties elected under the special asset acquisition rules for the claim period and the seller had a payroll account on March 15, 2020
• Meet other prescribed conditions – please note currently there are no prescribed conditions

2.) Businesses that are eligible businesses, registered charities, and non-profits

1. Individuals and corporations
2. Partnerships consisting of eligible employers
3. Agricultural organization, boards of trade, chambers of commerce, non-profit corporations for scientific research and experimental development, labour organizations, or societies and benevolent or fraternal benefit societies or orders
4. Certain Indigenous government owned corporations, partnership of Indigenous governments,
   registered Canadian amateur athletic associations, registered journalism organizations, private schools, or private colleges
5. Does not include trusts, corporations that are exempt from income tax, or public institutions

3.) Businesses that experienced a drop in revenue

1. There is no minimum revenue drop required to qualify
2. The drop is calculated by comparing eligible revenue during the reference period to eligible revenue
   from a prior period (baseline revenue)
3. There is an online calculator available at Canada.ca

4.) Businesses that have eligible expenses for a qualifying property

1. CERS is determined on a property by property basis for properties that your business owns or rents for its business activities
2. Properties do not include homes or cottages used by the business owner or related parties or any property used to earn rental income
3. The maximum expenses claimed in a claim period are $75,000 per business location (base and top- up) and for the base subsidy $300,000 in total for all locations (including amounts claimed by affiliated businesses).

What expenses are eligible?

Criteria for expenses in a claim period are as follows:

✓ Must be amounts paid or payable to an arm’s length party
✓ Must be in respect of the claim period
✓ Must be paid or payable under a written agreement in place before October 9, 2020
✓ If not paid at the time of the claim, must attest that the amount will be paid within 60 days of receiving your subsidy
✓ Must be reduced by any revenue earned from sub-leasing space to arm’s length parties.

Rent expenses include base rent even if determined as a percentage of sales or some other amount, regular payments for customary operating expenses, property and similar taxes, and regular payments to the lessor for customary ancillary services. Rent does not include sales taxes, damages, interest or penalties on unpaid amounts or other special amounts. If your landlord claimed the CECRA and applied the amount to your future rent payments, you can still claim the full rent amount in the current period.

Ownership expenses include property and similar taxes, property insurance and interest on commercial mortgages. The mortgage amount cannot exceed the lesser of the lowest principal amount secured by one or more mortgages on the property at any time it was acquired or the cost amount of the property. Ownership expenses do not include payments between non-arm’s length parties or amounts that were paid or payable for a time that falls outside of the claim period.

Many businesses rent their business locations from non-arm’s length entities. Where rent expenses are paid to non-arm’s length parties, the expenses will not be eligible for a CERS claim.

Non-arm’s length parties are related persons by blood relationship, marriage or common-law and adoption and this includes affiliated persons and entities. Affiliated persons are spouses or common-law partners. Corporations and partnerships controlled by non-arm’s length parties are also considered to be non-arm’s length. Non-arm’s length does not include a niece, nephew, aunt, uncle, or cousin.

Examples of non-arm’s length payments include the following:

• One spouse owns the active business, and the other spouse owns the building and land which is rented to the active business
  
• Children own the active business, and the parent owns the building and land which is rented to the active business
  

Based on the CERS legislation, the owner of the active business in both of the above situations would be unable to make a claim on rent amounts paid to their non-arm’s length landlord.
There are options available to allow for a CERS claim for qualifying expenses by the owner of the land and building rather than the owner of the active business. These options are the same as those that are also available under the Canada Emergency Wage Subsidy.

1. For affiliates, the affiliated group may jointly elect to report their revenues on a consolidated basis. In the example above (with the spouses owning the corporations) the owner of the land and building may submit a CERS claim for eligible ownership expenses based on the consolidated revenue drop of both corporations.
   
2. For non-arm’s length parties including affiliates, the parties may jointly elect to allow the owner of the land and building to calculate their revenue drop using an alternate calculation which incorporates the revenue drop of the non-arm’s length party. This method is available only where the owner of the land and building earns all or substantially all of their revenues from non-arm’s length entities.

How is the subsidy calculated?

The CERS provides a base subsidy and in some cases a lockdown support amount. The lockdown support amount applies if you must close or cease certain activities at one or more locations under a public health order for one week or longer and provides support of up to 25% of eligible expenses per affected location for the days the order is in place.

The base subsidy is based on your revenue drop calculated with one of two methods.

1. Compared to the same month in 2019 as the claim period
2. Compared to January and February of 2020

The revenue drop method used in the first claim period must be used for all subsequent claim periods

The first claim period is September 27, 2020 to October 24, 2020 and the following subsidy rates apply to your revenue drop:

• Less than 50% provides a subsidy rate of 0.8 x your revenue drop
• Between 50% and 70% provides a subsidy rate of (your revenue drop – 0.5) x 1.25 +0.40
• More than 70% provides a subsidy rate of 0.65

If your eligible expenses are $25,000 for the first claim period, the subsidy calculation for the following revenue drops would be:

• Revenue drop of 33% → 0.8 x 0.33 x 25,000 or $6,600
• Revenue drop of 67% → (0.67 – 0.5) x 1.25 + .40 x 25,000 or $15,312
• Revenue drop of 81% → 0.65 x 25,000 or $16,250

The lockdown top-up is 25% x days of lockdown ÷ 28. If in addition to the revenue drop of 81% above the claim period included a lockdown for 14 days, the base and top-up subsidy would be:

How do I apply?

1. Use the online calculator available at Canada.ca to calculate your subsidy amount
2. Use your My Business account online to create a CERS (ZA) number
3. Submit a separate application for each claim period

Millards has 7 Southern Ontario locations to serve you. Please reach out to you closest office if you have questions regarding Canada’s COVID-19 Economic Response Plan.