CERS provides support to businesses by covering a portion of rent and property ownership costs of qualifying property. The government has recently extended access to this program until October 23, 2021. The CERS program has the following two components:
The base CERS subsidizes eligible expenses based on the applicant’s revenue decline compared to pre-pandemic earnings; and,
The lockdown support component, which provides an additional subsidy for eligible applicants subject to a lockdown under a public health order (due to COVID-19) that must shut their doors or significantly restrict their activities (25% of the revenue derived from the property from the prior period must have been earned from “restricted activities”).
CRA has recently provided several comments on these subsidies.
Property with a personal living space
A self-contained domestic establishment (“SCDE,” typically a living unit with restricted access that contains a kitchen, bathroom and sleeping facilities) used by the applicant (or by a person not dealing at arm’s length with the applicant) is not a qualifying property and therefore not eligible for CERS.
However, in a May 17, 2021 Technical Interpretation, CRA opined that property could still be eligible for CERS even if a portion of it were an SCDE. CRA provided the example where an individual owned a single-story building, with a store in the front of the building and a separated apartment in the back. The separated apartment had its own entrance, bathroom, kitchen, bedroom, and living room. The portion of the building used for the store could be a qualifying property, and therefore eligible for CERS.
Hotel, motel, or bed and breakfast
Property primarily used to earn rental income from arm’s length persons is not eligible for CERS.
In a July 16, 2021 Technical Interpretation, CRA considered whether a hotel, motel, or bed and breakfast was earning rental income for this purpose. While it is a question of fact, CRA opined that a hotel, motel, or bed and breakfast that provides significant additional services that are integral to the success of its ordinary activities, in addition to basic services that are customarily supplied with real estate rentals, would be considered to be earning income from those services, and not earning rental income. Therefore, these venues may be eligible for CERS.
CRA applied the same test they historically use to assess whether such businesses generate active business income eligible for the small business deduction.
Lockdown support – changes to a business model
In two June 7, 2021 Technical Interpretations, CRA provided clarification on what constituted restricted activities, allowing, in some cases, more entities to access the additional lockdown support component of CERS. CRA provided examples of specific businesses, with an overall theme that, even if a business could continue, changes in how the business is conducted could allow access to lockdown support. These comments focus on instances where in-person visits are replaced with remote or other types of less traditional visits.
CRA opined that, where in-person visits were previously used to book travel arrangements and a public health order prevented the in-person visits, these activities would be considered restricted. Working from home and making bookings over the phone may be considered a different activity than the restricted in-person visits. Where all activities were performed in person at the travel agency previously, CRA opined that the 25% test to access the additional lockdown support may be met.
Stores in a mall
Some stores located in malls were required to close for in-person shopping but could deliver goods via curbside pick-up or delivery to a designated area of the mall.
CRA noted that the activity of in-person shopping would have been restricted in respect of the stores. As such, even though the goods could be collected outside the store, in-person shopping could still be considered a restricted activity.
Food court restaurants
Where sit-down dining was no longer available because a food court was closed due to a public health order, CRA opined that the activity could also be considered a restricted activity. Providing take-out food would not preclude the restaurant from having a restricted activity.
ACTION ITEM: Business traditionally conducted in person may have required changes (e.g. services provided virtually; curbside pick-up; delivery) during a lockdown. These changes may permit access to the lockdown subsidy, even though business continued in some form.