Canada Emergency Rent Subsidy (CERS)
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This page was last updated on April 27, 2021.
On November 19, 2020, the government passed legislation to establish a new Canada Emergency Rent Subsidy (CERS) to assist businesses, charities and non-profits that have been affected by COVID-19. Here are some of the details of this program.
(a) Corporations and trusts, except for corporations and trusts that are exempt from tax or are public institutions;
(c) Registered charities, except for public institutions;
(d) Certain persons who are exempt from tax, being:
(i) Agriculture organizations, boards of trade or chambers of commerce, acting as non-profit entities;
(ii) Non-profit corporations for scientific research and experimental development;
(iii) Labour organizations, societies of benevolent or fraternal benefit, or orders; and
(iv) Non-profit organizations.
(e) A partnership whose members are described in any of paragraphs (a) to (d).
(f) Other prescribed organizations.
The government has also added the following organizations to the list as prescribed organizations:
(a) Partnerships that are up to 50% owned by non-eligible members;
(b) Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;
(c) Registered Canadian Amateur Athletic Associations;
(d) Registered Journalism Organizations; and
(e) Non-public colleges and schools, including institutions that offer specialized services such as arts schools, driving schools, language schools or flight schools.
Who Doesn’t Qualify?
(a) Municipal authorities and First Nation bands;
(b) Various non-taxable corporations owned, directly or indirectly, by the Federal government, one or more provincial governments or one or more municipal organizations (including First Nations);
(c) Publicly funded schools and school boards;
(d) Hospitals and health authorities;
(e) Public universities and colleges; and
(f) A partnership that is owned 50% or more by members who are non-eligible members.
In order to apply, you must:
(a) Be a commercial tenant renting from a third-party landlord;
(b) Be a property owner of a commercial property;
(c) File an application form for the qualifying period no later than 180 days after the end of the qualifying period you are applying for;
(d) Have the individual who is responsible for financial activities of the entity attest that the application is complete and accurate in all material respects;
(e) Calculated the subsidy for your business (see below); and
(f) Have a registered business number on September 27, 2020.
Revenue Decline Requirements
The basic requirement is that your revenues must have decreased when compared against the applicable comparable period (see below).
You can compare the revenues for the month in 2020 to the same month in 2019 (e.g. October, 2020 to October, 2019). Alternatively, you can choose to compare revenues in the qualifying period to the average monthly revenue earned in January and February 2020. Note that you must choose to either use the same month in 2019 approach for all months, or you must use January/February average approach or all months, you cannot change your approach month-by-month.
Definition of “Revenues”
“Revenues” for purposes of the subsidy means “the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible entity – generally from the sale of goods, the rendering of services and the use by other of resources of the eligible entity – in Canada”.
The following special rules apply:
- Charities must include revenues from any related business, as well as gifts and any other amounts received in the course of their ordinary activities, but they can choose to either include or exclude government revenues (note that this choice is binding for all future calculations under the program);
- Non-profit type entities must include membership fees and other amounts received in the course of their ordinary activities, but they can choose to either include or exclude government revenues (note that this choice is binding for all future calculations under the program);
- You must exclude all revenues received from parties with which you do not act at arm’s length; and
- You can also choose to use the cash method or the accrual method to determine your revenues (note that this choice is binding for all future calculations under the program).
For corporate groups, the following special rules apply:
- A group of affiliated entities may, if they all elect together, use consolidated income of the group to determine whether they all qualify, or none of them do; or
- Each member of the group can determine their revenues as separate entities.
Note that there is a special formula to determine eligibility for individual entities who are part of a group where all or substantially all revenues of the group are from non-arm’s-length parties.
I Qualified this month – do I Qualify for the next one?
If you qualify for one month, you are automatically deemed to qualify for the next one.
For example, if you meet the revenue decline test for October, you automatically meet it for November. However, you will have to meet the revenue decline requirement for November or December to qualify for December.
Each CERS claim period is four weeks long and begins on a Sunday. The CERS is available for periods beginning September 17, 2020 through to June 5, 2021.
How Much do you Get?
If you meet the revenue decline requirements, you are entitled to the base subsidy. A top-up subsidy is available if your activities have been restricted due to a public health order.
Base Subsidy Percentage
The base subsidy percentage is a multiple of your percentage revenue decline for the month in comparison to either the same month in 2019, or your average revenues for January and February, 2020.
If your revenue decline is 70% or higher, your rent subsidy percentage is 65%. If your revenue decline is less than 50%, your rent subsidy percentage is 0.8 multiplied by your percentage revenue decline. If your revenue decline is between 50% and 70%, your rent subsidy percentage is determined using the following formula:
40% + (Your percentage revenue decline – 50%) x 1.25
Any entity whose revenues have declined qualifies for a base subsidy. If your revenue declined 0.025%, you would get a base subsidy of 0.02%.
Top-up Subsidy Percentage
A top-up subsidy percentage of 25% is available if your activities are restricted due to a public health order. This will apply only if “at least approximately 25%” of your qualifying revenues are derived from the restricted activities. So, for example, if one location of your business is shut down due to a public health order for two of the four weeks in the period, the business would be entitled to an additional 12.5% top-up in respect of rent paid on that location.
Qualifying Rent Expense
If you rent the property from an arm’s length landlord, your qualifying rent expense would be the lesser of $75,000 per qualifying period and the qualifying rent paid. Qualifying rent includes base rent, property insurance, property taxes, common area costs and certain other amounts paid for the qualifying period under a written agreement entered into before October 9, 2020. If you rent from a non-arm’s length landlord, you get no claim.
If you own the property and don’t use it primarily to earn rental income other than rental income from a non-arm’s length party, your qualifying rent expense would be limited to your mortgage interest (subject to certain limitations), property insurance, and property taxes for the qualifying period.
Regardless of whether you rent the property or own it, if you are receiving any rent from arm’s length parties for the use of the property, it must be subtracted from your expenses to determine your qualifying rent expense.
Note that if you are a member of an affiliated group of entities, all of the entities in the group must share a $300,000 qualifying rent expense limit for each qualifying period.
Calculating the Subsidy Amount
Take your base subsidy percentage and add it to your top-up subsidy percentage, if any, and multiply that percentage by your qualifying rent expense. That is the amount of your rent subsidy and it is considered taxable income in the period it relates to.
Anti-Avoidance Rules and Penalties
Entities are expected to play by the rules and there will be consequences for those who do not. The following rules and penalties have been put in place to deter those trying to abuse the program:
- Any strategy undertaken to reduce qualifying revenues for the relevant period in order to qualify that is not specifically allowed for under the rules means you lose the subsidy in its entirety for that period, and you get a 25% penalty; and
- Gross negligence penalties may be applied to entities that inappropriately take advantage of the program, requiring them to repay the amount received plus a 50% premium;
- In extreme cases, criminal sanctions can be applied with fines of up to 200% of the amount received, as well as up to 5 years in prison.
On April 19, 2021, the Federal Government tabled its new budget. The budget proposes to extend the CERS until September 25, 2021. It also proposes to incrementally reduce the rent subsidy. The proposed rates and limits are as follows: