The new Canada Emergency Rent Subsidy has been introduced by the Government of Canada to provide additional support to those businesses, non-profits, and charities that continue to be financially impacted by the COVID-19 pandemic. The CERS is available retroactive to September 27, 2020, until June 2021.
The Government has now provided the proposed details for the first 12 weeks of the program (September 27 to December 19, 2020). The CERS will provide benefits directly to qualifying renters and property owners, without requiring the participation of landlords.
How do you qualify for the CERS?
Qualifying businesses, non-profits, and charities are those that have suffered a revenue drop, and meet one of the following criteria:
- Have a payroll account as of March 15, 2020, or have been using a payroll provider;
- Have a business number as of September 27, 2020, or;
- Meet other conditions that may be announced in the future.
As shown in Table 1, below, the maximum base rate subsidy would be 65 percent, and available to organizations with a revenue drop of 70 percent or more. The base rate would then decline to a rate of 40 percent for organizations with a revenue drop of 50 percent and would gradually reduce to zero for those not experiencing a decline in revenues.
|70% and over||65%|
|50% to 69%||40% + (revenue drop – 50%) x 1.25 (e.g., 40% + (60% revenue drop – 50%) x 1.25 = 52.5% subsidy rate)|
|1% to 49%||Revenue drop x 0.8 (e.g., 25% revenue drop x 0.8 = 20% subsidy rate)|
What expenses are eligible for the CERS?
Eligible expenses for a location for a qualifying period would include commercial rent, property taxes (including school taxes and municipal taxes), property insurance, and interest on commercial mortgages (subject to limits) for qualifying property, less any subleasing revenues. Any sales tax (e.g., GST/HST) component of these costs would not be an eligible expense.
Payments made between non-arm’s-length entities would not be eligible expenses. Mortgage interest expenses in respect of a property primarily used to earn, directly or indirectly, rental income from arms-length entities would not be eligible.
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.
How do you calculate revenues?
Revenues will be calculated in the same manner as under the Canada Emergency Wage Subsidy program.
What are the reference periods for the drop-in-revenues test?
Eligibility would generally be determined by the change in an eligible entity’s monthly revenues, year-over-year, for the applicable calendar month.
Alternatively, an entity can choose to calculate its revenue decline by comparing its current reference month revenues with the average of its January and February 2020 revenues.
An eligible entity would use the greater of its percentage revenue decline for the current qualifying period and that of the previous qualifying period to determine its subsidy rate. This would provide certainty to businesses regarding their expected minimum subsidy rate and aligns with the practice under the Canada Emergency Wage Subsidy.
Table 2, below, outlines each qualifying period and the relevant reference period for determining the change in revenue. The period numbers align with those used for the Canada Emergency Wage Subsidy. Period 8 is the first period for which the CERS will be in effect.
|Period 8||September 27 to October 24, 2020||October 2020 over October 2019 or September 2020 over September 2019||October 2020 or September 2020 over the average of January and February 2020|
|Period 9||October 25 to November 21, 2020||November 2020 over November 2019 or October 2020 over October 2019||November 2020 or October 2020 over the average of January and February 2020|
|Period 10||November 22 to December 19, 2020||December 2020 over December 2019 or November 2020 over November 2019||December 2020 or November 2020 over the average of January and February 2020|
What is the deadline for filing the CERS applications?
All applications must be made on or before 180 days after the end of the qualifying period (.g. the deadline for Period 8 is April 22, 2021).
Is there additional support for organizations subjected to a public health order?
For organizations that are subject to a lockdown and must shut their doors or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory (including orders made by a municipality or regional health authority under one of those laws), the government has proposed a 25 percent top-up under the CERS to provide additional support while they face lockdowns.
The new Lockdown Support would be available retroactive to September 27, 2020, until June 2021, during periods when businesses are facing additional public health restrictions.
Specifically, a public health restriction would be an order that meets the following conditions:
- It is made under the laws of Canada, a province or territory (including orders made by a municipality or regional health authority under one of those laws) in response to the COVID-19 pandemic;
- It is limited in scope based on factors such as defined geographical boundaries, type of business or other activity, or risks associated with a particular location;
- Non-compliance with the order is a federal, provincial or territorial offence or can result in the imposition of an administrative monetary penalty or other sanction imposed by the Government of Canada or a province or territory;
- It cannot result from a violation of an order that meets the above conditions; and
- It must be in effect, for a period of at least a week, so that some or all of the activities of the eligible entity at, or in connection with, the qualifying property are required to completely cease. In other words, limitations would be on the type of activity rather than the extent to which an activity may be performed or limits placed on the time during which an activity may be performed.
For an organization to qualify for the Lockdown Support for a qualifying property, the following conditions must apply:
- The organization qualifies for the base Canada Emergency Rent Subsidy; and
- The public health order requires that the organization
- Completely shut down the location; or,
- Cease some or all of the activities at the location and it is reasonable to conclude that the ceased activities, in the appropriate pre-pandemic prior reference period, were responsible for at least approximately 25 percent of the revenues of the entity at that location.
If the organization is subject to a public health restriction and has to cease activities for only part of a qualifying period, the Lockdown Support would be pro-rated for the number of days in the period during which the relevant location was affected.
As the CERS program is enacted, we’ll provide more details. Any questions, please contact your McCay Duff advisor for further information. Contact Us