Canada Emergency Rent Subsidy – Open for Business

Real Estate Investments

Canada Emergency Rent Subsidy (CERS) has officially been launched and is now open for applications.

Time frame:

Subsidy will be retroactive to September 27, 2020 and will run to June 2021.  The first qualifying period:

  • “Period 8” – September 27, 2020 to October 24, 2020 – is now open for applications.

Future periods are upcoming:

  • “Period 9” – October 25, 2020 to November 21, 2020 – upcoming
  • “Period 10” – November 22, 2020 to December 19, 2020 – upcoming

The government has confirmed they will review and potentially revise the rules for qualifying periods post December 19th.

Qualifying property:

  • Real or immovable property (business locations) in Canada that the business owns or rents and uses in the course of ordinary business activities.

Exclusions:

  • Home, cottage or other residence
  • Any properties that are primarily used to earn rental income from arm’s-length parties.

Eligible expenses:

Only amounts paid or payable to an arm’s-length parties.  Limited to details in agreements in writing entered into prior to October 9, 2020. If you have not paid amounts due for your eligible expenses, you must attest that these amounts will be paid within 60 days of receiving your rent subsidy payment.

If you rent:

  • Commercial rent (including regular payments of operating costs and property taxes if under a “net lease”)

If you own:

  • Property taxes
  • Property insurance
  • Interest on commercial mortgages

In both cases, if you earn revenue from sub-leasing space to an arm’s-length party, this revenue must be subtracted from your eligible expenses.

Limit:

Expenses for each qualifying period are capped at $75,000 per location and an overall cap of $300,000 shared among an affiliated group.

Eligible entities:

Generally, align with eligible entities for the Canada Emergency Wage Subsidy program, including individuals, corporations, trusts, non-profit organizations and registered charities.

Subsidy Rates:

Revenue decline

Rental subsidy formula

70% or more

65%

50% to 69%

40% + (revenue drop – 50%) x 1.25

1% to 49%

Revenue drop x 0.8

Revenue decline calculations:

Revenue calculations are based on revenue earned in ordinary activities from arms-length sources, using normal accounting practices.

Eligible revenue:

  • Selling goods
  • Rendering services
  • Others’ use of your resources

Choices:

  • If your normal accounting method is the accrual method, you can choose to use the cash method (or vice versa), but once you choose, you must use the same accounting method for all your claims.
  • Registered charities and non-profit organizations can choose whether or not to include revenue from government sources as part of the calculation.  Once chosen, the same approach would have to be applied throughout the program period.
  • Members of an affiliated group can elect to have qualifying revenue calculated on a consolidated basis.  If elected, the consolidated revenue drop must be used as the basis for calculation for all members of the group.

Option 1: General approach

  • Decline is based on monthly revenues compared to monthly revenue in the previous year.  Entity would use the greater of the decline in the current month or the previous month.  (ie greater of September 2020 vs September 2019 OR October 2020 vs October 2019 – for the first qualifying period)

Option 2: Alternative approach

  • Entity can choose to calculate its revenue decline by comparing monthly revenue to the average of its January and February 2020 revenue.  Entity would use the greater of the decline in the current month or the previous month. (ie greater of September 2020 revenue vs January/February 2020 average revenue OR October 2020 revenue vs January/February 2020 average revenue)

Once an approach is chosen, this approach must be consistently applied for each of the 3 qualifying periods.

All applications must be made on or before 180 days after the end of the qualifying period.

Lockdown Support:

In addition to the rent subsidy described above, organizations may qualify for additional support if they are forced to cease operations as a result of a public health restriction.  The amount of the additional support is 25% of qualifying expenses.

Qualifying organizations must:

  • Qualify for the CERS;
  • Follow a public health order that:
    • Completely shuts down the location; or
    • Ceases some or all of the activities at the location and it is reasonable to conclude that the ceased activities were responsible for a decline in revenue of at least 25% at that location

Public health restriction is defined as:

  • Made under the laws of Canada, a province or territory
  • Limited in scope based on geographical boundary, business type or activity or risks associated with a particular location
  • Non-compliance is a federal, provincial or territorial offence or can result in a monetary penalty
  • In effect for at least a week.

If the public health restriction is only in effect for a part of a qualifying period, the lockdown support is pro-rated based on the number of days in the period the relevant location was affected.

How to apply:

All applications are processed through Canada Revenue Agency.  Applications can be done online through “My Business Account” or “Represent a Client”.

CERS is taxable:

The Canada Emergency Rent Subsidy is taxable income to the recipient.  Therefore, upon receipt the subsidy should be recorded in income and included on the organization’s annual return for income (ie Corporation’s income tax return (T2), Partnership return (T5013)).

If you have any questions or if you would like assistance in preparing the applications, please contact your Welch LLP advisor.

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