COVID-19: Canada Emergency Rent Subsidy (CERS) – key guidelines and updates
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 | ||
*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 | |
|---|---|---|
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| |
|
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| 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% |
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 | Total 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.