Real Estate Law Blog

This blog post is an update to our post on the Canada Emergency Rent Subsidy program (“CERS”).

On November 19, 2020, Bill C-9, an act to amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy) (“Bill C-9”), received royal accent and CERS was enacted into law.

CERS will provide support directly to qualifying commercial Tenants and Property Owners who are adversely impacted by the COVID-19 pandemic. Unlike the Canada Emergency Commercial Rent Assistance Program, CERS does not require Landlord participation. CERS is available retroactively from September 27, 2020, until June 2021. While Bill C-9 only sets out the framework of CERS for the initial period of September 27, 2020 to December 19, 2020 (the “Initial Period”), we expect details for future period(s) to be announced soon. Below is a summary of the CERS framework for the Initial Period:

Subsidy Rate

CERS will subsidize eligible expenses for qualifying organizations that have suffered a drop in revenue. The rate of the subsidy will be calculated as set out in the table below. An entity’s revenue is calculated as its revenue earned from its ordinary activities in Canada earned from arm’s-length sources, determined using its normal accounting practices. Revenues from extraordinary items and amounts on account of capital are excluded.

In addition to the above, a 25% subsidy will be available to eligible organizations with locations that are temporarily forced to close or temporarily have their business activities significantly restricted by a public health order issued under the laws of Canada or a province or territory.

Eligible Expenses

The following Tenant expenses are eligible to be subsidized under the program:

• Gross rent;
• Percentage rent;
• Minimum rent and other amounts required to be paid under a net lease to the Landlord or a third party, such as operating expenses; and
• Property taxes.

Tenants should take note that, as currently drafted, Bill C-9 requires rent to be paid before a Tenant is able to claim any subsidy relating to rental expenses. However, the Federal Government has announced that this will be corrected so eligible Tenants who have not paid rent will still be able to participate in the program.  

The following Property Owner expenses are eligible to be subsidized under the program:

• Interest on commercial mortgages (subject to limits);
• Insurance; and
• Property taxes.

Any sales tax component for any of the above costs would not be eligible. Eligible expenses are limited to those paid under agreements in writing entered into before October 9, 2020, and are limited to expenses related to real property located in Canada. Expenses for each qualifying period would be capped at $75,000 per location and be subject to an overall cap of $300,000 that would be shared among affiliated entities.

Eligible Entities

Eligible entities include individuals, taxable corporations and trusts, non-profit organizations, registered charities and partnerships that are up to 50% owned by non-eligible members.

Eligible entities must have a payroll account as of March 15, 2020 or have been using a payroll service provider, and also must have a business number as of September 27, 2020 and satisfy the Canada Revenue Agency (CRA) that it is a bona fide rent subsidy claim.

Commercial property owners should note that they are not eligible for CERS if the underlying property is used primarily to earn rental income.

Determination of Gross Revenue

Applicants have the option to calculate their revenue decline by either comparing: (a) monthly revenues, year-over-year, for the applicable calendar month; or (b) their current reference month revenues with the average of their January and February 2020 revenues. Once an applicant has selected its approach for determining its decline in revenue, it must use that approach for each of the three qualifying periods that occur during the Initial Period. The qualifying periods are: (i) September 27 to October 24, 2020; (ii) October 25 to November 21, 2020; and (iii) November 22 to December 19, 2020.

Application Period

Applicants are able to apply for the subsidy in respect of the first qualifying period starting Monday, November 23, 2020 (with the second and third qualifying periods being open for applications on November 30, 2020 and December 23, 2020, respectively). Applications for each qualifying period must be made within 180 days after the end of the applicable qualifying period. The CERS website notes that the CRA will start processing CERS applications on November 30, 2020 and that qualifying organizations whose claims successfully clear the CRA’s automated verification system should expect to receive payments starting December 4, 2020. All CERS applications can be made online at the CERS website^[1].

If you have any questions about CERS program, please contact any member of our Real Estate Group.

[1] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy.html