COVID-19: Canada Emergency Rent Subsidy (CERS) – key guidelines and updates

Fuller Landau Team • February 23, 2021
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As many new restrictions are being implemented across Canada in response to COVID-19, the Federal government has updated and revamped their rent subsidy program. The Canadian Emergency Rent Subsidy (CERS) is a transformative update to the retired Canada Emergency Commercial Rent Assistance (CECRA) program. The CERS subsidizes rent for small businesses by offering rent, mortgage and property expense support to businesses suffering a revenue decline due to COVID-19.

Eligible businesses experiencing a revenue decline can apply to specific periods defined by the government. These periods correspond to the Canada Emergency Wage Subsidy (CEWS) claim periods 8 and onward (see our COVID-19: Canada Emergency Wage Subsidy – important upcoming filing deadlines).

CERS claim periods

Claim period

Eligible dates

Deadline to apply

Period 1

September 27, 2020 – October 24, 2020

April 22, 2021

Period 2

October 25, 2020 – November 21, 2020

May 20, 2021

Period 3

November 22, 2020 – December 19, 2020

June 17, 2021

Period 4

December 20, 2020 – January 16, 2021

July 15, 2021

Period 5

January 17, 2021 – February 13, 2021

August 12, 2021

Period 6

February 14, 2021 – March 13, 2021

September 9, 2021

Period 7 onward*

TBA

TBA

 

CERS claim periods
Claim periodEligible datesDeadline to apply
Period 1September 27, 2020 – October 24, 2020April 22, 2021
Period 2October 25, 2020 – November 21, 2020May 20, 2021
Period 3November 22, 2020 – December 19, 2020June 17, 2021
Period 4December 20, 2020 – January 16, 2021July 15, 2021
Period 5January 17, 2021 – February 13, 2021August 12, 2021
Period 6February 14, 2021 – March 13, 2021September 9, 2021
Period 7 onward*TBATBA

*The CERS program is currently set to run until June 2021. Details surrounding period 7 and onward are still under review by legislators.

Qualifying property and eligible expenses

It is important to note that the CERS is calculated on a property-to-property basis, and businesses may claim the CERS for up to three eligible properties per period. For a property to qualify for the CERS, the business must own or rent the property and use it during ordinary business activities.

The following properties are not eligible for the CERS:

  • Personal properties including residences and cottages;
  • Properties that are primarily used to earn rental income directly through arm’s-length parties; and
  • Properties that primarily earn rental income indirectly through non-arm’s length parties.

Expenses must also meet a set of eligibility criteria. Generally, eligible expenses for a claim period must be paid/payable to an arm’s-length party and the expense must be in respect of the claim period. Eligible expenses must also be paid/payable under an agreement that has been in place before October 9, 2020 (or a renewal on substantially similar terms).

The criteria for eligible expenses differ depending on whether the property is owned or rented by the eligible business.

Rent

Own

Eligible expenses

  • Rent (including rent calculated by percentage of sales, profit, or a similar metric)
  • Amounts required to be paid under a net lease
    • property insurance
    • utilities and area maintenance
    • property and similar taxes
    • other regular payments for ancillary services
  • Property and similar taxes
  • Property insurance
  • Interest on commercial mortgages

 

 

 

 

 

Ineligible expenses

  • Sales taxes (GST/HST/PST)
  • Damages
  • Interest, penalties on unpaid amounts
  • Other special amounts
  • Tenant insurance
  • Leasehold improvements

 

 

  • Amounts paid/payable for a time outside of the claim period
  • Payments between non-arm’s-length parties

 

 

 

 

 

Note: If any revenue was generated from sub-leasing the property or space on the property to arm’s-length entities, that amount must be subtracted from eligible expenses, regardless of status of ownership.

 

RentOwn
Eligible expenses
  • Rent (including rent calculated by percentage of sales, profit, or a similar metric)
  • Amounts required to be paid under a net lease
    • property insurance
    • utilities and area maintenance
    • property and similar taxes
    • other regular payments for ancillary services
  • Property and similar taxes
  • Interest on commercial mortgages
Ineligible expenses
  • Sales taxes (GST/HST/PST)
  • Damages
  • Interest, penalties on unpaid amounts
  • Other special amounts
  • Tenant insurance
  • Leasehold improvements
  • Amounts paid/payable for a time outside of the claim period
  • Payments between non-arm’s-length parties
Note: If any revenue was generated from sub-leasing the property or space on the property to arm’s-length entities, that amount must be subtracted from eligible expenses, regardless of status of ownership.

Eligible expenses are capped at $75,000 per business location. There is also a cap of $300,000 in eligible expenses for the base subsidy which must be shared amongst all affiliated entities applying for the CERS.

Calculating the subsidy

Like the CEWS, the base CERS subsidy calculation is calculated as a function of a business’ revenue drop. Revenue drop is calculated by the experienced decline in revenue for the period compared to the prior reference period in the previous year. Alternatively, a business could elect to use the average of eligible revenue earned in January and February of 2020 to compare revenues.

Once the more advantageous prior reference period is chosen, that method must be used for all future CERS claims. Of note, many businesses will claim the CEWS alongside the CERS. A business must use the same method for determining revenue decline for CERS as they have for CEWS for period 5 onwards.

The base CERS is calculated on a sliding scale based on your revenue drop percentage:

Revenue drop percentage

Base CERS

Less than 50%

Revenue drop x 0.8

50 to 70%

40% + (Revenue drop – 50%) x 1.25

70% or greater

65%

 

Revenue drop percentageBase CERS
Less than 50%Revenue drop x 0.8
50 to 70%40% + (Revenue drop – 50%) x 1.25
70% or greater65%

Lockdown support

The CERS also has a top-up rate in addition to the base rate, but it functions significantly differently than the CEWS. The top-up subsidy is referred to as lockdown support. It is only applicable to businesses who have been impacted by a public health restriction.

To qualify for lockdown support, a business must meet the following eligibility criteria:

  • One or more locations have been temporarily closed, or have activities reduced for one week or longer due to a public health order issued by a federal, provincial, or municipal government, or a local health authority; and
  • The public health order must require the business to stop or restrict business activities.
    Restricted activities must account for at least 25% of total revenues at that location during the prior reference period.

Additional eligibility criteria for lockdown support can be found here.

Importantly, some restrictions do not qualify for the CERS lockdown support. These could include:

  • Travel restrictions that reduce the number of clients available to a business
  • Rules about when an activity can be performed (e.g., reduced service/operating hours)
  • Restrictions that do not specifically halt or close activities (e.g., reducing seating capacity or committing to other physical distancing measures)

Calculating lockdown support

Lockdown support is calculated by a fixed 25% top-up rate prorated by the number of days in the 28-day CERS period where the business was locked down. The rate is added to whatever existing subsidy rate is received for the base CERS to arrive at the overall CERS rate. The overall CERS rate is then multiplied by the amount of eligible expenses incurred in the period to get the subsidy amount for the period.

Below are examples of different revenue drop percentages, the corresponding subsidy rate, and the overall rate including lockdown support, if applicable.

 

Revenue drop

 

Base subsidy

Total subsidy rate

(Lockdown support if applicable)

Yes

No

20%

20% * 0.8 = 16%

41%

16%

35%

35% * 0.8 = 28%

53%

28%

50%

50% * 0.8 = 40%

65%

40%

65%

40%+(65-50%)*1.25 = 58.75%

83.75%

58.75%

80%

65%

90%

65%

 

Revenue dropBase subsidyTotal subsidy rate (Lockdown support if applicable) - YesTotal subsidy rate (Lockdown support if applicable) - No
20%20% * 0.8 = 16%41%16%
35%35% * 0.8 = 28%53%28%
50%50% * 0.8 = 40%65%40%
65%40%+(65-50%)*1.25 = 58.75%83.75%58.75%
80%65%90%65%

*In the table above, it is assumed the business was in lockdown for the entire 28-day period.

If you think your business may be eligible for the CERS or have any tax-related COVID-19 inquiries, the Tax group at Fuller Landau is ready to answer your questions.

About the authors

Ben Schwarz is a Senior Tax Specialist in our Tax group. He can be reached at 647-417-0353 or bschwarz@fullerllp.com.

Matthew Maxin is a Junior Tax Specialist in our Tax group. He can be reached at 647-417-0415 or mmaxin@fullerllp.com.

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