On November 19, Bill C-9, which creates CERS, received Royal Assent. The CRA launched the application process on Monday November 23, 2020, and provided further information of the program.
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, or;
- Have a business number as of September 27, 2020, or;
- You purchased the business assets of another person or partnership who meets condition b above and have made an election under the special asset acquisition rules. These special asset acquisition rules are the same for the Canada Emergency Wage Subsidy, or;
- Meet other conditions that may be announced in the future.
Note: If you do not have a business number but you qualify under condition b or c, you will need to set one up before you are able to apply for CERS. You do not need a payroll account to apply for CERS.
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 is a qualifying property?
The CERS covers a portion of eligible expenses in respect of a claim period for each qualifying property, subject to certain maximums. The CERS is calculated on a property by property basis.
Properties that qualify include any real property in Canada that your business or organization owns or rents and is used in the course of your ordinary business activities.
Properties that do not qualify include any properties you own that are primarily used to earn rental income from arm’s length parties.
If your business has affiliated businesses or entities, you will have to agree with those affiliated entities on how you will split the rent subsidy maximum. You will enter the percentages you agree to claim in the application form.
What expenses are eligible for the CERS?
Expenses for each qualifying period would be capped at $75,000 per location (base and top-up) and be subject to an overall cap of $300,000 that applies to the base subsidy only that would be shared among affiliated entities.
There are a few criteria expenses need to meet, in order to be eligible for a claim:
- Only amounts paid or payable to an arm’s length party can be included;
- The expense must be in respect of the claim period;
- The expense must be paid or payable under a written agreement in place before October 9, 2020 (or a renewal on substantially similar terms or assignment of such agreement).
You cannot claim expenses that were paid or payable:
- To non-arm’s length entities;
- For a time frame that falls outside the claim period you are applying for.
Eligible expenses for renting a qualifying property include:
- Rent (including rent based on a percentage of sales, profit or similar criteria);
- Amounts required to be paid or payable under a net lease including:
- Base rent;
- Regular payments for customary operating expenses;
- Property and similar taxes;
- Regular payments to the lessor for customary ancillary services.
You cannot include amounts paid or payable for:
- Interest or penalties on unpaid amounts;
- Other special amounts.
Eligible expenses for owning a qualifying property include:
- Property and similar taxes, including school taxes and municipal taxes, if these are part of your property tax assessment;
- Property insurance;
- Interest on commercial mortgages for the purpose of purchasing rental property:
- Your mortgage amount cannot exceed the lesser of:
- The lowest principal amount secured by one or more mortgages on the property at any time it was acquired, or;
- The cost amount of the property.
- Your mortgage amount cannot exceed the lesser of:
Expenses that are not eligible include:
- Payments between non-arm’s-length entities;
- Amounts that were paid or payable for a time that fall outside of the claim period.
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:
- A base rent subsidy rate of more than 0% for the claim period;
- One or more location temporarily closed, or have activities significantly restricted for a week or longer due to a COVID-19-related public health order.
A public health order must:
- Be issued by a federal, provincial, or municipal government, or a local health authority;
- Be limited based on at least one of these factors:
- Geographical boundaries;
- Type of business or other activity;
- Risks associated with a particular location;
- Result in sanctions or be an offence if you do not comply;
- Require you to stop some or all of your regular activities while the order is in place;
- Activities you were not able to carry out must account for at least approximately 25% of total revenues at that location during the prior reference period;
Examples of restrictions that do not qualify for lockdown support:
- Travel restrictions that reduce the number of clients;
- Rules about when you can perform your regular activities, such as restricted or reduced service hours or hours of operation;
- Any other restrictions that do not specifically order you to stop or close an activity, such as reduced seating capacity or other physical distancing strategies;
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.
How to Apply
You must apply for CERS online through either My Business Account or Represent a Client. You will be required to create a CERS number before you can apply.
The CRA is now accepting applications and will begin to process applications on November 30, 2020. Those claims that successfully clear the CRA’s automated verification system and are registered for direct deposit should expect to begin receiving payments starting on December 4, 2020. Receipt of direct deposit payments take 3 to 8 business days while a cheque takes approximately 14 days.
If you would like assistance with applying for the Canada Emergency Rent Benefit, please contact your McCay Duff advisor. Contact Us