On November 19, 2020 Bill C-9 (An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy)) was enacted into law. Bill C-9 establishes, among other things, a new rent support program, the Canada Emergency Rent Subsidy ("CERS"), that fills the gap left by the expiry of the Canada Emergency Commercial Rent Assistance ("CECRA") program on September 30, 2020. Unlike CECRA, eligible entities for CERS can apply for the subsidy directly, without the need to claim the assistance through their landlords. The CERS application portal is now open and can be accessed here. The Government of Canada has provided additional guidance on how to complete the application form here.
For more information on CECRA, see our post here.
The CERS Program
- CERS will support commercial tenants directly, rather than requiring tenants to negotiate and enter into rent-reduction agreements with their landlords;
- CERS will include support for property owners that do not use the qualifying property primarily to earn rental income or property owners that use the qualifying property primarily to earn rental income from a non-arm's length person or partnership (where such other person or partnership does not use the qualifying property primarily to earn rental income);
- To be eligible for the CERS program, applicants must be individuals, taxable corporations and trusts, non-profit organizations or registered charities. Public institutions are generally not eligible for the subsidy. For a comprehensive list of eligible entities please see the following link;
- To be eligible for the CERS program, applicants must also meet at least one of the following conditions: (i) the applicant had a CRA business number on September 27, 2020; or (ii) the applicant had a payroll account on March 15, 2020, or another person or partnership made payroll remittances on the applicant's behalf; or (iii) the applicant purchased the business assets of another person or partnership who meets condition (ii) above, and has made an election under the special asset acquisition rules; or (iv) the applicant meets other prescribed conditions that might be introduced;
- To apply for the CERS program, eligible entities must have a qualifying property. Properties that qualify include any building or land in Canada that an eligible entity owns or rents and uses in the course of their business activities. Homes, cottages or other residences used by an applicant, an applicant's family members, or other non-arm's length persons do not qualify;
- Rent expenses (or commercial mortgage interest expenses) of eligible entities will be reimbursed, on a sliding scale, up to a maximum base subsidy amount of 65% of qualifying rent expenses;
- Qualifying rent expenses include, but are not limited to, gross rent, percentage rent, base rent, operating expenses (including insurance and utilities), property taxes and other amounts payable to the landlord for services ancillary to the rental of the property (but exclude, most notably, sales taxes, fees payable for discrete items or special services and reconciliation adjustment payments);
- CERS applies to any qualifying rent expense for any of the following qualifying periods: (i) September 27, 2020 to October 24, 2020; (ii) October 25, 2020 to November 21, 2020; (iii) November 22, 2020 to December 19, 2020; (iv) December 20, 2020 to January 16, 2021; (v) January 17, 2021 to February 13, 2021; (vi) February 14, 2021 to March 13, 2021; (vii) March 14, 2021 to April 10, 2021; (viii) April 11, 2021 to May 8, 2021; and (ix) May 9, 2021 to June 5, 2021;
- Eligible entities must submit a separate application for each qualifying period no later than 180 days following the end of the applicable qualifying period. The CRA may consider accepting original applications submitted after the applicable deadline in exceptional circumstances. The CRA may also consider requests to amend previously submitted applications after the applicable deadline in exceptional circumstances. The application portal is now open;
- Qualifying rent expenses are limited to amounts that are paid or payable by the qualifying renter to an arm's length party for the qualifying period pursuant to a written agreement entered into before October 9, 2020 or pursuant to the renewal (on substantially similar terms) or assignment of a written agreement entered into before October 9, 2020. Amounts that are not paid at the time of the application will have to be paid no later than 60 days following payment of the subsidy for the applicable claim period;
- The amount of qualifying rent expenses for a single qualifying property is capped at $75,000 per qualifying period, thus the maximum base subsidy amount that can be received per location is $48,750 per qualifying period (being 65% of $75,000);
- The amount of qualifying rent expenses for an eligible entity with multiple locations is capped at $300,000 per qualifying period, thus the maximum base subsidy amount that can be received per entity is $195,000 per qualifying period (being 65% of $300,000);
- As with CECRA, eligibility for CERS will be contingent on a demonstrated decline in revenue measured by comparing current revenues to (i) gross revenues in the same period for the prior year; or (ii) average revenues in January and February 2020 (there is no minimum revenue drop required to qualify for the subsidy);
- An applicant's percentage revenue decline for a qualifying period cannot be less than the applicant's percentage revenue decline for the immediately preceding qualifying period, except in the case of the 11th qualifying period (December 20, 2020 to January 16, 2021), which cannot be less than the applicant's percentage revenue decline for the 9th qualifying period (October 25, 2020 to November 21, 2020);
- A top-up of the subsidy will be available specifically to eligible entities (or non-arm's length third parties that rent qualifying properties from eligible entities) that experienced a reduction in revenues as a result of being forced to close or limit their activities for at least one week under public health orders. Entities that are eligible for the top-up subsidy will be reimbursed up to a maximum of 25% of qualifying rent expenses; and
- The maximum top-up amount combined with the base subsidy is subject to the $75,000 cap per business location. The $300,000 cap on qualifying rent expenses for entities with multiple locations applies to the base subsidy only and not the top-up subsidy.
CERS will be distributed through a deeming rule in the Income Tax Act, which deems an eligible entity to have made an overpayment of tax in the applicable qualifying period. The deemed overpayment is then refunded to the entity upon assessment by the Canada Revenue Agency ("CRA").
The CERS web page and the CRA Backgrounder include more detailed information about eligibility requirements, how payment periods are structured, how the subsidy is calculated and the application process.
Extension of Related Federal Programs
Bill C-9 also includes an extension of the Canada Emergency Wage Subsidy (CEWS), which will continue to apply until June 30, 2021.
Ontario's Moratorium on Evictions
On December 8, 2020, Bill 229 (the Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020) was enacted into law. Bill 229, among other changes, amends the Commercial Tenancies Act ("CTA") to reinstate a temporary moratorium on evictions in Ontario for certain eligible commercial tenancies (the "Moratorium"). The Moratorium applies to commercial tenancies where the landlord satisfies any one of the following criteria:
- The landlord is or was eligible to receive assistance under CECRA. For CECRA eligibility requirements, please see our post here;
- The landlord is receiving or has received assistance under CECRA;
- The landlord would be eligible to receive assistance under CECRA if the landlord entered into a rent reduction agreement with the tenant containing a moratorium on eviction;
- The landlord would have been eligible to receive assistance under CECRA as described in items 1 or 3 above, if applications under that program were still being accepted; or
- The tenant has been approved to receive CERS and has provided proof of the approval to their landlord, and not more than 12 weeks have passed since the day the tenant was approved to receive CERS.
Bill 229 provides protection for eligible commercial tenancies by establishing non-enforcement periods in respect of certain remedies that may otherwise be available to a landlord following a default by a tenant. For commercial tenancies that meet the eligibility criteria set out in items 1, 2, 3 or 4 above, the non-enforcement period began on December 8, 2020 and expired on January 31, 2020. For commercial tenancies that meet the eligibility criteria in item 5 above, the non-enforcement period began on December 17, 2020 and is set to expire on April 22, 2022.
As amended, the CTA provides the following protections for eligible commercial tenancies:
- Prohibits judges from ordering a writ of possession for arrears of rent in an action or application that was commenced before, on or after the start of the applicable non-enforcement period;
- Prohibits a landlord from exercising a right of re-entry during the applicable non-enforcement period;
- Prohibits a landlord from seizing any goods or chattels as a distress for arrears of rent during the applicable non-enforcement period;
- Requires a landlord who has exercised a right of re-entry between October 31, 2020 and the start of the applicable non-enforcement period to (a) restore possession of the premises to the tenant or, if unable to do so, (b) compensate the tenant for damages;
- Requires a landlord who has seized goods as distress for arrears of rent between October 31, 2020 and the start of the applicable non-enforcement period to return any unsold goods to the tenant; and
- Allows further regulations pertaining to the items set out above to be prescribed.
Items iv and v above will not apply to those commercial tenancies that only meet the eligibility criteria in item 5 above, unless so provided by future regulations. Further, a landlord that contravenes item ii, iii, iv(a) or v is liable to the aggrieved tenant for any damages sustained by them as a result of the contravention or non-compliance.
Schedule 5 of Bill 229 includes further details regarding eligibility requirements, tenancy protections and amendments made to the CTA.
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.