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Canada Emergency Rent Subsidy (CERS) and the Importance of Written Agreements
The COVID-19 pandemic forced thousands of Canadian businesses to close temporarily, putting immense pressure on small business owners. To provide support, the federal government introduced several emergency programs, including the Canada Emergency Rent Subsidy (CERS). CERS was intended to help businesses, non-profits, and charities cover commercial rent and fixed property expenses.
However, under subsection 125.7(1) of the Income Tax Act, eligibility was limited to rent paid under a written lease signed before October 9, 2020. Businesses directly affected by public health restrictions, such as hair salons, could also qualify for an enhanced top-up subsidy.
The recent decision of the Tax Court of Canada in Hutchings v. The King (2025 TCC 108) underscores the importance of this requirement. Even where a business had a long-standing and trustworthy relationship with its landlord, operating under a verbal agreement was not enough. The Court ruled that without a written lease, the taxpayer was not entitled to relief under CERS.
This case is a cautionary reminder that proper documentation and early legal advice from a Canadian tax lawyer can make the difference between receiving financial support and being denied critical relief.
The Hutchings Case: Relief Denied for Lack of a Written Lease
Background
Donna Hutchings operated a hair salon in Westport, Ontario, for more than 40 years. Like many small service businesses, she was forced to shut her doors during the pandemic due to provincial public health measures.
With her sister's assistance, she applied for CERS and the associated top-up subsidy. Initially, her applications were approved, and she received $3,640.83 in financial assistance over several months.
CRA Review and Denial
In 2022, the Canada Revenue Agency (CRA) reviewed her file and determined she was ineligible for CERS. The CRA concluded that she did not meet the statutory definition of qualifying rent expenses because her arrangement with the property owners was entirely verbal.
Ms. Hutchings argued that her long-standing rental arrangement, backed by a history of cashed rent cheques, should be treated as valid. She emphasized that in her small-town community, handshake agreements had long been the norm.
The Court's Decision
The Tax Court acknowledged her circumstances but ruled that evidence of payment was not sufficient. The Income Tax Act required rent to be paid under a written lease entered into before October 9, 2020. Without such documentation, the Court had no discretion to override Parliament's explicit requirement.
The judge stated clearly: "I cannot change the law. I must apply it as enacted with this specific requirement."
Why Written Proof Matters
The reasoning behind Parliament's drafting is clear:
- A written lease provides verifiable proof of a legal obligation.
- Accepting verbal arrangements would create uncertainty and inconsistent treatment among applicants.
- Requiring written agreements ensured uniform and objective eligibility criteria.
This case illustrates that even decades of consistent rent payments under a verbal arrangement cannot replace the statutory requirement for a signed written contract.
Pro Tax Tips – Practical Guidance for Business Owners
Review, Document, and Verify
Before applying for government relief, tax credits, or deductions, review eligibility requirements with a tax professional. A Canadian tax lawyer can help ensure agreements meet CRA's standards.
Put It in Writing
Handshake deals may feel sufficient in close-knit communities, but they rarely satisfy CRA requirements. Formalize essential commitments such as leases, supplier contracts, or service agreements with written, signed documents. Even if a lease begins informally, a properly executed written version can help protect eligibility for relief programs.
Maintain a Paper Trail
Beyond written contracts, keep detailed records—such as receipts, invoices, and bank statements—that support your obligations. Good documentation helps safeguard your position in the event of a CRA tax audit or dispute.
FAQs
If I only paid rent by cheque without a written lease, can I still qualify for CERS?
No. The Tax Court confirmed that cheques or receipts are not enough. To qualify, rent had to be paid under a written lease signed before October 9, 2020. Verbal agreements, even with proof of payment, did not meet the legal test.
Why did the CRA insist on a written lease instead of accepting verbal agreements with proof of payment?
Because the Income Tax Act explicitly required it. Parliament wanted objective proof of an enforceable lease in place when the subsidy came into force. This prevented uncertainty and promoted fair, consistent treatment across all applicants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
