November 27, 2020
Canada Emergency Rent Subsidy (CERS)
In early October, the Federal Government of Canada announced the Canada Emergency Rent Subsidy (CERS) to replace the existing Canada Emergency Commercial Rent Assistance (CECRA) program.
CECRA Program – The Canada Emergency Commercial Rent Assistance program received criticism as it was up to the landlord to apply for the subsidy, to which many did not apply as they would lose out on 25% of monthly rental income.
CERS Program – The new Canada Emergency Rent Subsidy program aims to fix this by allowing the tenant to apply directly for the assistance and uses the same criteria measures as the Canada Emergency Wage Subsidy (CEWS) for qualification. To make compliance easier for applicants, the application periods directly align with the CEWS periods to align the revenue comparison periods.
A CERS application can be made through the My Business Account on the Canada Revenue Agency (CRA) website.
The CERS is available for eligible entities that include:
- Taxable Corporations and Trusts
- NPO’s, and
- Registered Charities
Furthermore, the Canada Emergency Rent Subsidy benefit applies to both renters as well as property owners even though the program references rent.
CERS Rent Subsidy Periods:
The CERS program is available for qualifying periods starting September 27, 2020 and will end in June 2021.
All applications must be made on or before 180 days after the end of the qualifying period (discussed below).
How do I Qualify?
To be eligible for the CERS rent subsidy, you must meet the following criteria:
1. Have one of the following:
a. A CRA business number on or before September 27, 2020
b. Have a payroll account on or before March 15, 2020
2. Are an eligible entity
3. Have experienced a drop in revenues
4. Have eligible expenses (defined below)
The below link provides more details for the eligibility criteria:
How is the CERS subsidy calculated?
* The rates shown on the table below are for periods up until December 19, 2020
There are two potential claim amounts, the base subsidy, and the lockdown support:
1. Base Subsidy
The base subsidy is a maximum of $75,000 in eligible expenses per location and a total maximum of $300,000 per affiliated group.
2. Lockdown Support
If you were mandated to close or cease certain operations at one or more locations due to public health restrictions, you may be eligible for an additional 25% subsidy on eligible expenses based on the number of days that a particular location was locked down.
How do I calculate my drop in revenue for each qualification period?
There are two approaches to calculating your revenue drop to determine how much of the Canada Emergency Rent Subsidy you will receive for a qualifying period.
*Once a calculation approach is chosen (General or Alternative), you must continue to use that same approach moving forward.
Expenses that can be claimed:
What is considered a “Qualifying Property”?
Qualifying properties include any “real or immovable property” (building and/or land) in Canada that your business owns or rents and uses in the course of your ordinary business activities.
The CRA has clarified that the following do not qualify for the CERS:
- Any property that is used to earn commercial rental income from non-arm’s length parties.
- Any property that is used by yourself, family members or non-arm’s length persons for personal use.
Eligible expenses that can be claimed for each claim period depend on if you rent or own a qualifying property.
The following are considered eligible expenses if you rent a qualifying property:
- Rent (excludes sales tax)
- Amounts paid under a net lease arrangement. Examples include property taxes, customary operating expenses, payments made to the lessor for customary ancillary services
The following are considered eligible expenses if you own a qualifying property:
- Interest on commercial mortgages for the purpose of purchasing real property
- Property taxes
- Property insurance
* Property owners renting commercial property to arms-length tenants who are eligible for the CERS subsidy may not realize any of the subsidies if the tenants continue to pay a portion of their rents as this income must be offset against the eligible expenses.
The expenses need to meet the following criteria in order to be eligible to be included in your CERS claim:
- Only amounts paid or payable to arm’s length parties are eligible
- Expenses must be for the period you are applying for
- The expense must be paid or payable under a written agreement that was in place before October 9, 2020
As we have seen, many landlords allowed tenants to defer rent until the Canada Emergency Rent Subsidy program was finalized. There is a condition for the applicant to pay deferred rents within 60 days of receiving the CERS subsidy.
Do you have a Sublease Agreement?
If you are earning any revenues from sub-leasing space on your property, you must reduce that revenue from your eligible expenses.
I am part of an affiliated group that rents multiple locations – How do these rules affect us?
You and any affiliated entity are only eligible for the CERS base subsidy on a combined maximum of $300,000 in eligible expenses. For each affiliated company that you file a CERS claim for, you will be required to enter the percentage of the $300,000 that you chose to allocate to that particular company.
Each application has space for up to 10 affiliated entities. Should you have more than 10 affiliated entities, enter the top 10 recipients and keep a complete list in your records.
- You must apply for Canada Emergency Rent Subsidy using either My Business Account or through Represent a Client
- Before applying, you will be required to create a CERS number
After a CERS Claim Is Filed:
- Successful applicants will receive payments starting on December 4, 2020.
- If you have direct deposit set up, you can expect to receive a payment within 3 to 8 days after filing your claim.
- If you did not register for direct deposit, please allow for more time as the cheque will be delivered by mail.
- You must keep records showing all the information that supports your CERS claim for each period. The CRA will request the information if they perform an audit of your claim.
- The CERS subsidy is taxable. You must include the subsidy received when calculating your taxable income.
We Are Here to Help
Manning Elliott is here to help. If you still have questions about the Canada Emergency Rent Subsidy program, please contact our tax experts. To assist business owners in navigating through these trying times, visit our blog to stay up to date on the most recent activity related to COVID-19.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.