4 insights that shed light on the CERS program

Before applying for the CERS program, reference the CRA’s checklist to ensure that you have all necessary information on hand and that you’ve calculated your revenue losses accurately (Getty Images/Trevor Williams)

As businesses gradually open their doors and begin the recovery from recent lockdowns enforced across many provinces, Canada’s new rent relief remains a welcome support. 

As a replacement to the expired Canada Emergency Commercial Rent Assistance (CECRA), the federal government introduced the Canada Emergency Rent Subsidy (CERS) back in November. 

CERS IN BRIEF

The CRA is delivering CERS over nine claim periods (each four weeks in duration), which began in September 2020 and will end in June 2021. 

Under the program, qualifying businesses, charities and non-profits that demonstrate a revenue loss can receive rent and/or mortgage interest support of up to a maximum of 65 per cent of eligible expenses, determined using a sliding scale.   

An additional 25 per cent top-up is available to businesses that were temporarily shut down or had restricted activity due to a mandatory public health order or lockdown, issued by a recognized public health authority. Combined, the support can amount to a maximum total of 90 per cent. 

“The CERS is the second rent support program and is a significant improvement over the Canada Emergency Commercial Rent Assistance (CECRA) program,” says Bruce Ball, CPA Canada’s vice president of taxation.

As the program heads into its sixth claim period, applicants (new and returning) may have some outstanding questions about the program, its eligibility requirements and tax implications. 

Here are four insights summarizing what you need to know about CERS. Before applying, make sure to carefully review the full details, available through the Canada Revenue Agency (CRA).

1) ELIGIBILITY REQUIREMENTS

Among other criteria, those that qualify must: 

• Be an eligible business, charity or non-profit, or an affiliated entity of an eligible business, charity or non-profit. 
• Meet at least one of the following conditions: have a CRA business number as of Sept. 27, 2020; have a payroll account as of March 15, 2020; have payroll remittances made on their behalf; or have purchased business assets of another individual (or partnership) who meets the payroll account criteria, with an election under the special asset acquisition rules. 
• Have experienced a drop in revenue. (Note that there is no minimum revenue drop required to qualify for this subsidy.)
• Have eligible expenses related to a qualifying property. 

Businesses that operate from a residence or that are located in the same building as a residence should review eligibility requirements carefully before applying for CERS.

Those eligible for the 25 per cent lockdown top-up must meet certain conditions, which include:

• Being eligible for the base rent subsidy.
• Having been forced to temporarily close or restrict operations for one week or longer due to a public health order.   
• The restriction accounts for at least 25 per cent of total revenue at the location during a particular claim period. 

Ineligible restrictions include requiring masks for staff and customers, reduced hours of operation, limits on seating capacity and physical distancing requirements. 

For holding companies (holdco) and operating companies (opco) where rent is paid to the holdco by opco, CERS eligibility is more complicated since non-arm’s length rent is ineligible. Under elections the holdco can apply for CERS, but there are several considerations that were discussed in CPA Canada’s CRA webinar on CERS. 

“The rules relating to payments between related parties are extensive,” says CPA Stan Swartz, president of Infomoney Solutions Inc. “Be careful, [and] seek professional advice.”

2) ELIGIBLE EXPENSES 

CERS covers several expenses to offset costs during the pandemic for both renters and owners. 

For renters, eligible expenses include expenses laid out in a net lease (a written rental agreement between the landlord and a tenant that must be in place prior to Oct. 9, 2020, including subsequent extensions), such as base rent, property insurance, property tax and utilities. 

If rent for the claim period has not been paid, the renter must attest to paying it within 60 days of receiving the CERS payment. Expenses that are not eligible include sales tax (GST, HST, etc.), interest or late payment penalties, content or liability insurance, cost of property damages and operating expenses such as phone, internet or security.

For owners, expenses covered include property and municipal taxes, property insurance and interest on commercial mortgages. Payments between non-arm’s-length and related entities do not qualify. Expenses claimed must fall within the claim period for which a taxpayer applies. The claim for each period is capped at $75,000 per location and is also subject to an overall cap of $300,000 that would be shared among affiliated entities.

“Expenses are not eligible unless they have been paid or are payable.” says Swartz.   

3) SUBSIDY CALCULATION

Calculating CERS is similar to CEWS, allowing you to determine the rent subsidy amount a business is entitled to before submitting the application. A checklist outlines the information you need to complete the application, including amounts for eligible expenses such as the contact information of the mortgage holder or landlord and information on affiliated entities. 

Applicants must determine their revenue loss to calculate their rent subsidy amount. The rent subsidy rate depends on the size of the revenue drop as a percentage, as follows:

• Revenue drop of less than 50% = 0.8 times the revenue drop.
• Revenue drop of 50 to 70% = (revenue drop - 50%) x 1.25 + 40%
• Revenue drop of 70% or more = the maximum subsidy rate of 65%.

Applicants can choose to calculate the revenue drop in one of two ways: by comparing revenue to the corresponding month in 2019 or by comparing it to the average revenue over January and February 2020.   

Once a claim period is selected and respective data inputted, the subsidy amount is automatically calculated by applying the subsidy rate to eligible expenses. 

The 25 per cent top-up lockdown support is calculated separately, based on the dates for closures of one or more locations and eligible expenses entered. Eligible expenses will vary depending on whether the applicant rents or owns the property. 

The federal government recently announced a change that will assist businesses, which have experienced a lockdown, when the business premises are owned by a non-arm’s length entity, such as another corporation. Under the original rules, it was not possible to claim the lockdown support in such a situation. 

Applications can be saved as a PDF for business records.

4) APPLICATION PROCESS 

Once the calculation is made, applicants apply through the CRA’s MyBusiness Account (MyBA) or Represent a Client portals, where they are provided a unique CERS number. 

Claim periods open for application the day after the last period has ended, with applicants applying for the rent subsidy after the month has passed. Claims can be made up to 180 days after the end of each claim period. 

Processing applications and receiving payment will take between three and eight days, with direct deposit and between seven to 17 days via cheque by mail, after filing a claim.   

During the CPA Canada webinar, the CRA said it is making it a priority to deliver rent subsidies quickly, but also needs to maintain balance between making emergency funds accessible and maintaining the program’s integrity by verifying subsidy applicants. 

MORE ON GOVERNMENT SUPPORT 

For further insight into the CERS program, listen to CPA Canada’s CERS webinar, which includes direct input from and a Q&A with the CRA. And find out up-to-date information on more of the government’s emergency support programs during COVID-19. 

Also, stay current on Canadian tax news and COVID-19 updates, and get practical information and fresh perspectives on tax with our tax blog.