On February 24, 2021, the Department of Finance released draft legislative proposals (the "Proposals") to amend the Canada Emergency Wage Subsidy ("CEWS") and the Canada Emergency Rent Subsidy ("CERS") to, inter alia:
- provide applicants with additional flexibility in determining their revenue decline for Period 11 (i.e., December 20, 2020 to January 16, 2021); and
- ensure that landlords with non-arm's length tenants who are subject to a "public health restriction" are not precluded from accessing the lockdown support subsidy of the CERS ("Lockdown Support") due to a drafting issue.
CEWS & CERS: Additional Flexibility in Determining Revenue Decline for Period 11
CEWS and CERS applicants must demonstrate a revenue decline between a current reference period and either: (i) a prior reference month or (ii) their average revenue for the months of January and February 2020. A beneficial deeming rule also exists whereby the revenue decline for a particular qualifying period is deemed to be not less than the revenue decline for the immediately preceding qualifying period.
Absent the Proposals, this deeming rule would not have provided taxpayers with relief in respect of Period 11, since Periods 11 and 10 (i.e., November 22, 2020 to December 19, 2020) both used, by default, the same reference months (December 2020 over December 2019).
The Proposals (if enacted) amend the deeming rule to provide that the applicant's revenue decline for Period 11 is deemed to be no less than its revenue decline for Period 9 (i.e., October 25, 2020 to November 21, 2020), thereby providing applicants more flexibility in calculating their revenue decline for Period 11.
CERS: Amendment to Lockdown Support
The Lockdown Support was intended to provide additional relief to commercial landlords and tenants who, inter alia, are required to cease or significantly reduce their activities due to a "public health restriction". However, based on the technical operation of the rules, certain property owners with non-arm's length tenants are not able to access the Lockdown Support under these circumstances.
Absent the Proposals, a landlord would be precluded from accessing the Lockdown Support where a non-arm's length tenant is subject to a "public health restriction", but the landlord itself is not subject to a "public health restriction". By way of example, the Government Backgrounder describes a situation where one corporation (Restaurant Inc.) operates a restaurant in premises leased to it by a corporation with which it does not deal at arm's length (Property Company), and the restaurant operations are required to cease due to a "public health restriction".
The Proposals (if enacted) amend the CERS program so that Lockdown Support is available in situations where activities of a non-arm's length tenant are required to cease as a result of a "public health restriction," provided the other conditions for the Lockdown Support are met. This proposed amendment is deemed to apply retroactively as of September 27, 2020.
The Department of Finance indicated that the CRA will administer the CEWS and CERS on the basis of the Proposals.
For assistance, please contact any member of our National Tax, Labour & Employment or Real Property & Planning teams.
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