January 11, 2021

On November 2nd, 2020, the Department of Finance released proposed legislation that will enact the new Canada Emergency Rent Subsidy (“CERS”).  The CERS will replace the Canada Emergency Commercial Rent Assistance (“CECRA”) program which provided financial assistance to tenants and landlords who have experienced a decline in business as a result of the COVID -19 pandemic and associated economic repercussions.

Although the intention of both the CERS and CECRA is generally the same in that they are both designed to provide financial assistance to impacted tenants and landlords, the specifics of the program and the way it will be administered are significantly different. 

The CERS is available from September 27, 2020 to June 2021.  Applications for each 4-week qualifying periods must be submitted no later than 180 days after the end of the claim period.  Separate applications are required for each period.  Currently the claim periods between Sept 27th – March 13th are open to apply.

The highlights of the CERS changes are as follows:

One of the principal differences between the CERS and the CECRA is that a CERS application will be made by the tenant and property owner, without involvement by the landlord of the property.  An exception applies where the tenant  and landlord are not dealing at arm’s length as will be discussed below.  This differs from the CECRA as under that program, the application was made by the landlord.  In order to be eligible for the CERS, the tenant or property must meet the definition of an eligible entity as provided by the Income Tax Act (“ITA”).  The specifics of this definition are beyond the scope of this discussion but generally, many corporations, trusts, and individuals will qualify[1].  Certain partnerships, registered charities, and non-profit entities can also qualify if specific criteria are met.

  • Like the CECRA, an eligible entity will need to have experienced a decline in revenue[2] relative to a prior reference period to be eligible for the CERS however, there are considerable differences in the required revenue reduction and the corresponding entitlement to assistance between the two programs.   Under the CECRA, a n eligible entity was required to have experienced a 70% or greater decline in revenue relative to the prior reference period.  Under the CERS, the entitlement to assistance is based on a sliding scale with any revenue drop providing the eligible entity with the ability to claim some assistance with an increasing amount of assistance available in proportion to the amount of the revenue decline.  The CERS is calculated on a property-by-property basis.  More specifically, the amount of assistance available can be summarized as follows:
Revenue Decline Relative to Prior Reference PeriodBase Subsidy Rate
70% or greater65% of qualifying expense[3]
50% – 69%40% + ((revenue drop – 50%) x 1.25)
1% – 49%Revenue drop x 80%


For example:

  • A eligible entity experiencing a 70% decline in revenue would receive a subsidy equal to 65% of their qualifying rent expense for the qualifying period
  • A eligible entity experiencing a 60% revenue drop would receive a subsidy equal to 52.5% of their qualifying rent expense for the qualifying period[4]
  • A eligible entity experiencing a 25% revenue drop would receive a subsidy equal to 20% of their qualifying rent expense for the qualifying period[5]
  • In addition to the base subsidy outlined above, certain eligible entities will be entitled to an additional subsidy of 25% of qualifying rent expenses (“Lockdown Support”).  In order to be eligible for this additional amount, the eligible entity or an non-arm’s length entity leasing its premises from the eligible entity will need to have locations that are temporarily forced to close or temporarily have their business activities significantly restricted by a public health order issued under the laws of Canada or a province or territory for one week or longer[6].  The public health order impacting the eligible entity or the non-arm’s length entity leasing its premises from the eligible entity must either completely shut down the business location or require the business to cease some or all its activities.  If the public health order only requires some of the activities of the business to cease, it must be reasonable to conclude that the ceased activities were responsible for at least 25% of location’s revenues during the appropriate pre-pandemic prior reference period.
  • A qualifying rent expense eligible for the subsidy for a particular claim period is limited to the lesser of $75,000 per location and the total of all amounts paid under a written agreement (i.e. a lease) entered into prior to October 9th, 2020 with a party with whom the eligible entity deals at arm’s length.  Renewals of leases entered into after October 9th, 2020 are also eligible as long as the lease is on substantially the same terms as the pre-October 9th, 2020 lease.  In addition to base rent, the CERS provides for additional amounts which can qualify for the subsidy. Generally, these include items such as common area maintenance, property taxes, utilities and insurance paid by the eligible entity either directly to the landlord or to a third party under a net lease.  In addition, if an eligible entity owns a property that is used primarily in the course of a business of the entity or its non-arms length party, a qualifying expense can also include interest on a mortgage[7], insurance payments and property taxes[8].  Sales taxes would not be considered a qualifying rent expense.  Any expenses relating to a residential property used by the taxpayer (i.e. a house or cottage) would not be eligible.
  • As noted previously, the revenue reduction test will be calculated with reference to a “prior reference period”.  Like CECRA, the eligible entity will have options to determine which prior reference period can be used.  The approach is similar to that of the CEWS program.  More specifically, the eligible entity will have the option of either comparing revenues to the same calendar month in the previous year or alternatively, the eligible entity can compare their revenues to the average revenue earned in January and February of 2020.  The entity will also have the option of using the previous qualifying period’s revenue reduction percentage in determining its entitlement as opposed to the current qualifying period.  The following example illustrates how the revenue reduction test will be applied:
Qualifying PeriodOption 1 – Prior Year Revenue Reduction TestOption 2 – January/February 2020 Revenue Reduction Test
September 27th to October 24, 2020October 2020 vs. October 2019 or September 2020 vs. September 2019October 2020 or September 2020 vs. average of January/February 2020

Note that the option for the revenue reduction test selected for the CERS program must be consistent with the option used in claim period 5 and subsequent for the CEWS program.  For example, if the entity has already claimed the CEWS for period 5 or later using option 1, the entity must also use option 1 for the CERS.

  • Where an eligible entity is “affiliated”[9] with other entities who wish to claim the CERS, the total amount available to the affiliated group of entities during a particular qualifying period will be limited to $300,000.  The percentage allocation is entered on the application.
  • There are certain anti-avoidance rules designed to penalize entities who attempt to manipulate their accounting for revenue or rent expenses to gain or increase their entitlement to CERS.  Generally, the anti-avoidance rules will apply if an eligible entity or non-arm’s length person enters into a transaction or participates in an event (or a series of transactions or events) or takes an action (or fails to take an action) that either decreases their qualifying revenue or increases their qualifying rent expense for a particular claim period and it is reasonable to conclude that one of the main purposes of the event, series or action as the case may be was to increase their entitlement to the CERS.  If the anti-avoidance rules are deemed to apply, the eligible entity will be required to repay their CERS claim and will be subject to an additional penalty of 25% of the amount previously claimed.

The CERS claim for each qualifying period will be made online using CRA platforms (either My Business Account or Represent a Client).  Before an entity can submit a CERS claim, a CERS (ZA) number must be created via CRA My Business Account.

The subsidy is taxable and must be reported in the period to which it relates on the taxpayer’s annual income tax return.

For additional information regarding the CERS or any other COVID – 19 relief measures, please contact your Kraft Berger LLP advisor.

[1] There are however some exceptions and therefore, a qualified advisor should be consulted to determine eligibility

[2] The rules for determining what constitutes “revenue” for the purposes of the CERS are the same as the rules applicable for determining revenue under the Canada Emergency Wage Subsidy (“CEWS”).  Please refer to our blog posts discussing the CEWS for more details on these rules.

[3] Meaning discussed subsequently

[4] 40% + ((60% – 50%) x 1.25) = 52.5%

[5] 25% x 80% = 20%

[6] The amount of the available additional subsidy will be pro-rated for the number of days during the qualifying period for which the public health order is in effect.

[7] Subject to certain limitations

[8] A property that generates rental income from a non-arm’s length party would be eligible under this rule as long as that non-arm’s length party does not themselves use the property to generate rental income.  This rule will allow landlords who earn rent from non-arm’s length tenants to claim some relief in the form of a subsidy based on certain expenses incurred by the landlord.

[9] Affiliated is a term defined in the ITA used to describe a relationship between certain persons.  The affiliated rules are complex however, in general two persons will be affiliated if they meet certain criteria with respect to common ownership, common beneficiaries (in respect of a trust), or common partners (in respect of partnerships).  Common ownership, beneficial interests and partnership interests held by spouses can also cause the affiliated rules to apply.

Disclaimer:  The COVID-19 Canadian tax policies in the above article are changing rapidly as the governments introduce new measures. Certain details have yet to be published. We will aim to update them as soon as they are available.