With Bill C-9 currently being fast-tracked through the House of Commons, the Canada Emergency Rent Subsidy (CERS) is expected to be enacted shortly. In preparation, we have created a summary of what we know about the program to date:
Canada Emergency Rent Subsidy Summary
The Canada Emergency Rent Subsidy (CERS) replaces the (now closed) Canada Emergency Commercial Rent Assistance subsidy (CECRA). Unlike CECRA, CERS will provide rent and mortgage support directly to qualifying tenants.
- CERS will cover up to 65% of eligible expenses for qualifying businesses, charities and non-profits.
- Eligible expenses include commercial rent, property tax, property insurance and interest on certain commercial mortgages.
- The subsidy will be retroactive to September 27, 2020 and will continue through to June 2021. The government has provided details for the first 12 weeks of the program through to December 19, 2020.
- Under CERS, a tenant can apply for and receive support directly through the CRA, without involving their landlord.
- Businesses forced to close or significantly limit their activities due to mandatory public health orders will be eligible for a 25% top-up. This ‘Lockdown Support’ will also be retroactive to September 27, 2020 and available until June 2021.
- The program application link has not been made available yet.
Who Can Apply?
Eligible applicants include individuals, taxable corporations, partnerships, trusts, non-profit organizations, and registered charities with either a payroll account as of March 15, 2020 or a business number as of September 27, 2020.
Full details of eligibility have not yet been announced, but eligibility criteria is expected to align with the Canada Emergency Wage Subsidy (CEWS) program.
What are the Qualifying and Application Periods?
Details are available on the first three qualifying periods:
- September 27, 2020 to October 24, 2020;
- October 25, 2020 to November 21, 2020;
- November 22, 2020 to December 19, 2020
The dates of the qualifying periods running from December 19, 2020 to June 2021 have not yet been outlined.
CERS applications will need to be made on or before 180 days after the end of each qualifying period.
What Expenses are Covered by CERS?
Eligible expenses will need to be incurred in the normal course of business operations in relation to real property located in Canada and include (net of any sales tax):
- commercial rent;
- property taxes (including school taxes and municipal taxes);
- property insurance; and
- interest on commercial mortgages (subject to limits) for a qualifying property, less any subleasing revenues.
Expenses will be capped at $75,000 per location for each qualifying period, with an overall cap of $300,000 in expenses per qualifying period for businesses that occupy more than one space.
Qualifying expenses will be limited to those paid to an arms-length party under a written agreement entered into before October 9, 2020 (or a renewal of that agreement).
Note: as it stands, business owners will be required to prove they have paid rent for a given period before applying for CERS, but Minister Freeland recently indicated that a new bill will be tabled as soon as Bill C-9 is passed that would classify ‘rent payable’ as an eligible expense in order to allow businesses to access the subsidy before paying rent.
How is the Rent Subsidy Calculated?
The applicable subsidy rate will be calculated based on revenue decline, in the same manner as the existing CEWS program. Revenue decline will be calculated by either comparing revenue to the same calendar month in the previous year (general approach), or by comparing it to the average of January and February 2020 revenues (alternative approach). Note that the approach used in the first qualifying CERS period must be used in each subsequent period.
The subsidy rate is on a sliding scale:
Revenue Loss CERS Subsidy Rate
70% or more 65%
50% – 69% 40% + (Revenue loss % – 50%) x 1.25
1% – 49% Revenue loss % x 0.8
Here are some examples:
Example A
A business has lost 70% of its revenue. It qualifies for the maximum subsidy rate of 65%.
The business has qualifying rent expenses of $100,000 in the qualifying period, but it can only include the maximum of $75,000 in its subsidy calculation.
They would therefore receive $48,750 of support for the qualifying period:
Subsidy = 65% x $75,000 = $48,750
Example B
If the same business had lost 55% of its revenue, it would qualify for the second tier of the subsidy and receive 40% plus 1.25 times the amount of revenue loss above 50% of the $75,000 expense cap:
Subsidy = (40% + (55% – 50%) x 1.25) x $75,000
= (40% + (5% x 1.25)) x $75,000
= 46.25% x $75,000
= $34,687.50
Example C
If the same business had only lost 1% of its revenue, it would qualify for the lowest tier of support. In this case, the subsidy rate would be equal to 0.8%:
Subsidy = (1% x 0.8) x $75,000 = $600
Additional Lockdown Support: What Is the Top-Up Percentage and Who Is Eligible?
Qualifying organizations forced to shut their doors or significantly limit their activities under a mandatory public health order will be eligible to receive (up to) a 25% top-up of the CERS subsidy rate. The public health order would need to be in effect for at least one week for the top-up to be applicable.
This means that hard hit businesses, non-profits, and charities may be eligible for a rent subsidy of up to 90%.
To revisit Example A from above:
The business qualified for a 65% rent subsidy rate on the $75,000 expense cap. If the business was under a public health order for the entire qualifying period, it would receive an additional 25% of support, totalling 90%:
Subsidy = (65% + 25%) x $75,000
= 90% x $75,000
= $67,500
Note: if the public health order is not in effect during the entire qualifying period, the rent top-up percentage will be pro-rated to cover only the number of days in which the order was in place. Also, the $75,000 expense cap will apply to the top-up, but the $300,000 corporate entity cap will not.
S+C Partners is committed to helping you
Our team is here to support you. Please call us at 905-821-9215 or email us at tax@scpllp.com if you have any questions or require any assistance regarding the Canada Emergency Rent Subsidy or any other matter.