In the 2021 Federal Budget tabled on April 19, 2021, the federal government announced its intention to extend the Canada Emergency Rent Subsidy (CERS) program to September 25, 2021. On July 30, 2021, the federal government announced a further extension of the CERS to October 23, 2021.
This program was announced on October 9, 2020, replacing the Canada Emergency Commercial Rent Assistance (CECRA) program for small businesses, which ended on September 30, 2020. In contrast to the CECRA, which required commercial property owners to apply on behalf of their small business tenants, the CERS provides support directly to qualifying tenants and property owners. It is also not restricted to small businesses. The name of the CERS program is a bit misleading, as property owners who are eligible entities and who use property in the course of ordinary activities can also receive a “rent subsidy.” The CERS program was first available retroactive to September 27, 2020.
The rent subsidy legislation interlaces the CERS measures with the existing rules governing the Canada Emergency Wage Subsidy (CEWS) program. Many of the criteria applied to determine eligibility for the CERS are the same as for the CEWS, and the qualifying periods for the two programs are aligned. The government linked them to simplify the Canada Revenue Agency's (CRA's) administration of this rent subsidy program.
The CERS program is comprised of two parts — the base rent subsidy that is available to organizations that continue to endure declining revenues, and the Lockdown Support, which provides an additional top-up to entities that must either close or significantly restrict their activities due to a public health order.
Base rent subsidy for organizations impacted by COVID-19
Eligible entities that suffer a decline in revenue because of the ongoing pandemic may qualify to receive rent subsidy support on a sliding scale, up to a maximum base subsidy rate.
For periods of the CERS from September 27, 2020 to July 3, 2021, the maximum base subsidy rate is 65% of eligible expenses. Beginning July 4, 2021, the maximum base rate subsidy gradually declines, first to 60% (from July 4 to July 31, 2021), then to 40% (from August 1 to September 25, 2021) and finally to 20% (from September 26 to October 23, 2021).
An eligible entity's percentage revenue decline will determine its base subsidy rate for the qualifying period. The base rent subsidy amount is calculated by multiplying the qualifying rent expenses by the base subsidy rate.
The maximum base subsidy rate is available to those organizations with a revenue decline of 70% or more. This rate gradually reduces where an entity experiences a decline in revenue of less than 70%, and then further declines to zero where no revenue drop is experienced. However, for qualifying periods beginning on July 4, 2021, only those entities with a decline in revenues of more than 10% are eligible for the base rent subsidy. Please see Table 1 in the Appendix for the base rate structure to October 23, 2021, as well as examples of how the base subsidy rate is determined.
Lockdown Support for businesses facing significant public health restrictions
An additional top-up of 25%, known as the Lockdown Support, may be available to those eligible entities forced to close or limit their activities at a qualifying property because of a public health order. Lockdown Support may also be available to an eligible entity in such situations where the eligible entity rents qualifying property to a non-arm's length tenant (referred to as a “specified tenant”) and activities of the specified tenant are significantly affected by a public health order.
Only an eligible entity that qualifies for the base rate subsidy will be eligible for the additional Lockdown Support. Unlike the base rent subsidy, the Lockdown Support is not subject to a sliding scale based on the percentage revenue decline of an eligible entity. Rather, the 25% top-up is a fixed rate that is multiplied by the amount of qualifying rent expense, and then added to the base rent subsidy to determine the total amount of CERS support. Despite a gradual decline in the CERS base subsidy rate starting on July 4, 2021, the 25% rate for the Lockdown Support will remain until October 23, 2021.
An eligible entity, or specified tenant of an eligible entity, must be required to either temporarily shut their doors or significantly limit the type of activities they perform in compliance with a qualifying public health restriction for the eligible entity to qualify for Lockdown Support. A qualifying public health restriction:
- 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 COVID-19;
- is limited in scope based on factors such as geographical boundaries, business or activity type, or risks associated with a particular location;
- is a federal, provincial or territorial offence if not complied with, or can result in the imposition of a monetary penalty or other sanction;
- cannot result from a violation by the eligible entity or the specified tenant of an order that meets any of the above conditions;
- is in effect for at least a week; and
- must result in either the eligible entity or the specified tenant being required to cease all or some of its activities at the qualifying property (i.e. it is a limitation on the type of activity rather than the extent to which, or the time during which, an activity can be performed)
In technical guidance provided on its CERS website, the CRA states that the following are examples of restrictions that do not qualify for lockdown support:
- travel restrictions that reduce the number of clients;
- rules about when an entity can perform their regular activities, such as restricted or reduced service hours or hours of operation, and
- any other restrictions that do not specifically order an entity to stop or close an activity, such as reduced seating capacity or other physical distancing strategies.
If a public health order does not trigger a complete shutdown, it must be reasonable to make specific conclusions about revenue. The restricted activities covered by the order must represent no less than approximately 25% of the total qualifying revenues earned from that location (as determined in relation to the appropriate pre-pandemic reference period for that location) by the eligible entity or the specified tenant.
In the event that a public health restriction order applies for a duration that is less than the full qualifying period, the amount of an eligible entity's Lockdown Support for that qualifying period will be pro-rated over the number of days in the period that the location was subject to the public health restriction.