The Canada Emergency Rent Subsidy (CERS) is set to replace the flawed Commercial Rent Relief Program in a bid to by pass many landlords that did not want to sign up for the program.
The Government announced it’s plans in October to introduce the new program and are hoping that it will pass quickly through the House of Commons and The Senate so it can be legislated and applications can be submitted as early as November. The new program would be open to the business owner, non profit and charities.
Many business owners were left in dyer financial difficulty due to a down turn in their Revenue due to COVID-19. The proposed CERS will now be much simpler and will be based on the successful model for the CEWS (Canada Emergency Wage Subsidy) program.
The government has hinted that back dating the program past October is not on the cards. This has enraged many small businesses, who were unable to benefit from the Commercial Rent Relief program because their landlords didn’t apply for the subsidy. By not retroactively back dating the new program to April these business will be denied relief for April to October.
It’s reported that although the Commercial Rent Relief program was given $3 billion dollars only about $1.8 billion has been spent so perhaps the business owners have good reason to ask for the money not spent on the old flawed program to be rolled over to the new one.
It is anticipated that the cost of the first three periods of the rent subsidy program together with the Lockdown Support for businesses affected by the public health restrictions will be $2.2 billion in 2020-2021.
If your business has also been impacted by a second closure due to a public health order issued either through the Federal, Provincial or Municipal government then you could also be eligible for the New Lockdown Support, which could increase the subsidy to as much as 90%.
The table below shows how much benefit you could qualify based on the decline of Revenue your business has suffered due to COVID-19.
|Revenue Decline||Base Subsidy Rate|
|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 are CERS Eligible Expenses?
• Commercial Rent
• Property taxes (including school taxes and municipal taxes)
• Property insurance
• Interest on commercial mortgages (subject to limits) for qualifying property less any sub-lease revenues.
• Important Note: GST/HST component of these costs are not considered to be an eligible expense.
In order to qualify for the eligible expenses, these must have been stated in writing in an agreement dated prior to October 9th 2020 and any continuations of those agreement. These expenses must relate to a “real” property in Canada.
What expenses aren’t Eligible?
• Expenses relating to a residential property used by the tax payer (house or cottage)
• Payments made between non-arm’s length entities
• Mortgage interest expenses for property primarily used, directly or indirectly to earn rental income from arm’s length entities
Expenses for each qualifying period will be capped at $75,000 per location and subject to an overall cap of $300,000 that can be shared among the affiliate companies.
Is your business eligible for CERS?
• Individual companies
• Taxable corporations and trusts
• Non profit organizations and registered charities
• Partnerships that are up to 50 per cent owned by non-eligible members;
• Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible entities;
• Registered Canadian Amateur Athletic Associations;
• Registered Journalism Organizations; and
• Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.
In order to qualify businesses must also meet the following criteria:
- You are either using a payroll service provider or have a payroll account as of 15 March 2020.
- Have business number as of September 27 2020, and also be able to satisfy the CRA that it has a bone fide rent subsidy claim or meet any other conditions that may be added in the future.
How to calculate your revenue
Revenue will be calculated the same way as they are under CEWS. Revenue is deemed to be revenue from a businesses normal activity in Canada earned from arm’s length sources and determined using normal accounting practices.
Revenue which comes from extraordinary items or amounts of on account capital are not included.
Non-Profit Organizations and registered Charities the calculation includes all forms of revenue but excludes any revenue from non arm’s length persons.
Both Non-Profit and Charities are able to chose if they want to include and revenue from government sources in their calculations. However, once they have chosen this approach must be used throughout the period of the program.
Special rules for computation of revenue provided from non arm’s length transactions, for example where the business sells their output to a related company that in turn earns arm’s length income.
Affiliated groups that do not normally count revenue on a consolidated basis can elect to do so for CERS.
Calculating the revenue drop
Eligibility would normally be calculated either using the general method where the change in monthly revenue is compared year over year, so for example October 2020 would be compared to October 2019.
Although as with CEWS it will be possible to calculate an alternative approach where revenue for the current month is compared to revenue generated in January and February of 2020 before the pandemic.
|Qualifying Period||General Approach||Alternative Approach|
|Period 8||27 Sept – 24 Oct 2020||October 2020 over October 2019 or September 2020 over September 2019||October or September over the average of January and February 2020|
|Period 9||25 Oct– 21 Nov 2020||November 2020 over November 2019 or October 2020 over October 2019||November or October over the average of January and February 2020|
|Period 10||22 Nov – 19 Dec 2020||December 2020 over December 2019 or November 2020 over November 2019||December or November over the average of January and February 2020|
Once the method has been chosen the company must use it for each of the 3 periods.
The chosen method must be used for both CEWS & CERS. It’s therefore important that the company choses wisely to ensure it gets the maximum benefit it can during the 3 periods.
In order to qualify all applications must be submitted on or before 180 days after the end of each period.
Applications will probably be made through the CRA My business account portal.