On November 23, 2020, the federal government announced via news release that the first wave of applications for the Canada Emergency Rent Subsidy (CERS) are now being accepted by the Canada Revenue Agency (CRA). CERS will provide eligible organizations with commercial rent and mortgage interest, insurance and realty tax support until June 2021 and will serve as a replacement to the federal government’s Canada Emergency Commercial Rent Assistance (CECRA) program, which offered commercial rent relief to eligible businesses from April 2020 to the end of September 2020. CERS was first announced by the federal government on October 9, 2020 and legislation instituting the program was introduced on November 2, 2020 as Bill C-9, An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy) and received Royal Assent on November 19, 2020.
Overview of CERS eligibility requirements
In order to be eligible for CERS, organizations must satisfy all of the following four criteria:
- Meet one of the following conditions:(i) have a payroll account as of March 15, 2020 (or have been using a payroll service provider); (ii) have a CRA business number as of September 27, 2020; or (iii) have purchased the business assets of an entity that satisfies condition (i) above and have made an election under the special asset acquisitions rules (more details on that here). Additional eligibility requirements may be prescribed in the future.
- Be an eligible business, charity or not-for-profit (these include, among other entities, individuals, taxable corporations or trusts, certain tax-exempt organizations, partnerships that are at least 50% owned by eligible employers, registered charities and certain prescribed organizations). Public institutions are not eligible for CERS.
- Entity has experienced a drop in revenue. There is no minimum revenue drop but the subsidy will be based on the level of revenue drop.
- Entity has a qualifying property with eligible expenses. A qualifying property is one that an organization owns or rents and uses in the ordinary course of its business. Residences of the applicant or properties that are primarily used for rental income from arm’s-length parties do not qualify. Eligible expenses are expenses that are paid or payable to an arm’s-length entity under written agreements entered into before October 9, 2020 (and any extension of those agreements) with respect to the claim period. Eligible expenses for each qualifying period are limited to $75,000 per qualifying property and $300,000 for each eligible organization and any of its affiliated entities (however, this $300,000 limit is not applicable to the Lockdown Support amount discussed below).
For commercial tenants, a qualifying rent expense will include rent for the qualifying property, including:
- gross rent;
- percentage rent; and
- amounts paid under a net lease, such as base rent, operating expenses, property taxes (including school taxes and municipal taxes) and property insurance, noting that tenants are still able to claim for full rent expenses even if their landlord received an amount under CECRA and applied it to future rent payments.
Any revenue earned from arm’s-length subtenants must be subtracted from eligible expenses.
For eligible organizations that own the qualifying property, a qualifying rent expense will also include mortgage interest (subject to limits), property insurance costs and realty taxes.
In response to concerns raised by stakeholders, the federal government is allowing applicants to include an eligible rent expense in its CERS application before the expense has been paid. This means that an eligible organization can include amounts already paid in respect of a qualifying period as well as amounts that are payable for the qualifying period when submitting its CERS application. Amounts that are not paid at the time of the application will have to be paid no later than sixty days after payment of the subsidy.
Those organizations that have been ordered to temporarily shut down or significantly limit their activities under a public health order may be eligible to receive an additional “top up” subsidy equal to 25% of the qualifying rent expense for each applicable qualifying period. Referred to as the “Lockdown Support”, this subsidy will be available retroactively to September 27, 2020 until June 2021 and, in order to qualify, eligible organizations must meet the following criteria: (i) the organization qualifies for CERS; and (ii) a public health order requires that the organization completely shut down or cease some or all of the activities at a qualifying property for at least one week and it is reasonable to conclude that the ceased activities were responsible for at least approximately 25% of the revenues of the organization at that qualifying property. For the purposes of the Lockdown Support subsidy, a qualifying rent expense is limited to $75,000 per qualifying property, but no overall limit will apply to the organization itself.
For more information on CERS eligibility and how the subsidy is calculated, please read our recent Dentons Insight here.
How eligible organizations can apply for CERS
Unlike with the CECRA program, organizations eligible for CERS will apply for and receive the rent subsidy directly, without the need of the participation of their landlords. While the federal government has stated that the program will be available until June 2021, at the time of writing, parameters for the program have only been set with respect to the following three qualifying periods:
|Qualifying period 1
||September 27 to October 24, 2020
||Applications now open
|Qualifying period 2
||October 25 to November 21, 2020
||Applications open November 30, 2020
|Qualifying period 3
||November 22 to December 19, 2020
||Applications open December 23, 2020
Eligible organizations will need to apply for CERS online through the CRA’s “My Business Account” or “Represent a Client” online portals and applications must be submitted by no later than 180 days after the end of the applicable qualifying period.
Information required for the application
An eligible organization’s subsidy claim will vary depending on its revenue decline during the applicable qualifying period. An eligible organization may use the CRA’s online claim calculator (which can be found here) in order to determine its subsidy claim, which must be included in its application. In addition to detailing its claim amount, an eligible organization will also be required to provide the following information as part of its CERS application:
- amounts owing or that have been paid for all eligible rent expenses;
- the address of the qualifying property; and
- the name and contact information of the eligible organization’s landlord (if the eligible organization rents the qualifying property) or mortgage holder (if the eligible organization owns and has a mortgage on the qualifying property).
The CERS application form will accept information for up to three qualifying properties. If the eligible organization rents and/or owns more than three qualifying properties, then its application should include information only with respect to the three properties having the highest eligible rent expenses.
An eligible organization will need to provide additional information to the CRA if it has affiliated entities that are applying for CERS for the same qualifying period. As mentioned above, a qualifying rent expense for each qualifying period is subject to an overall limit of $300,000 for each eligible organization and any of its affiliated entities (not including the top-up Lockdown Support subsidy, for which there is no such limit). Prior to submitting an application for CERS, the eligible organization and each of the applicable affiliated entities are required to enter into a written agreement on how the $300,000 limit on eligible expenses will be divided among them. This expense sharing arrangement will need to be detailed in the CERS application for each of the affiliated entities applying for the subsidy. Additionally, each application must provide the following information with respect to each of the affiliated entities to which the expense sharing arrangement applies:
- the number of affiliated entities;
- the share of eligible rent expenses assigned to the specific applicant and each affiliated entity; and
- the business number of each affiliated entity.
The CERS application form will accept information for up to 10 affiliated entities. If an applicant has more than 10 affiliated entities to which the above referenced expense sharing arrangement applies, then the applicant is instructed to enter the information for the 10 entities with the highest assigned share of the eligible rent expenses.
When eligible organizations can expect to receive their subsidy
The CRA will process the first wave of applications on November 30, 2020 and eligible organizations whose claims successfully clear the CRA’s automated verification system and that are registered for direct deposit should expect to begin receiving payments starting on December 4, 2020. Eligible organizations who submit applications after November 30, 2020 and are registered for direct deposit can generally expect to receive their subsidy within three to eight days after filing a claim. Eligible organizations not registered for direct deposit will receive their payment by cheque in the mail.
Returning the subsidy and dealing with fraudulent claims
An eligible organization may need to return all or part of the subsidy it has received if it: (i) made a calculation or data entry error for a claim period; (ii) discovers that it does not qualify for the subsidy after the subsidy is received; or (iii) receives a notice from the CRA that, following a review, its claim has been reduced or denied. Additionally, any excess amount of rent subsidy that is received and not returned by the eligible organization may be subject to interest.
If an eligible organization does not meet the CERS eligibility requirements for an applicable qualifying period, it will be required to repay any amounts it received for that period. If an eligible organization artificially reduces its revenue or increases its 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. Additional penalties may apply in cases of fraudulent claims, including fines or imprisonment.
The CRA requires that eligible organizations keep records of the information supporting their rent subsidy claim, such as records evidencing their reduction in revenues (including sales journals, general ledgers, revenue amounts and working paper calculations) and amounts of eligible expenses (including lease agreements, property tax bills, insurance and mortgage documents, bank statements and receipts or other proof of payments). If an eligible organization uses the CRA’s online calculator to calculate subsidy amounts, then it should print the results summary or save an electronic copy of the results summary for its records as this may be requested by the CRA when validating a claim. If an eligible organization calculates its subsidy amounts without using the CRA’s online calculator, it must still have a record of how the subsidy amount was calculated. If an eligible organization and any affiliated entities are applying for CERS for the same qualifying period, then a copy of the written agreement detailing how eligible expenses will be divided among them (as described above) must be saved.
For more information on applying for CERS, interested organizations are encouraged to review the CRA’s application framework, which can be found here. Dentons will continue to monitor the developments resulting from COVID-19 and further details surrounding the Canada Emergency Rent Subsidy. If you have any questions or concerns, please contact Vince Fuda or any other member of Dentons’ Commercial Real Estate Law team.