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Canada Emergency Commercial Rent Assistance (CECRA)

The Canada Emergency Commercial Rent Assistance (CECRA) is a program for landlords to provide incentives to reduce rent for certain small businesses (defined below).

The application portal is opened on May 25, 2020, at https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business

Property owners must offer a minimum of 75% rent reduction for the months of April, May and June 2020

Conditions of Landlord to Qualify

To qualify for CECRA for small businesses, the commercial property owner must:
  • own commercial real property* which is occupied by one or more impacted small business tenants
  • enter (or have already entered) into a legally binding rent reduction agreement for the period of April, May and June 2020, reducing an impacted small business tenant’s rent by at least 75%
  • ensure the rent reduction agreement with each impacted tenant includes:
    • a moratorium on eviction for the period during which the property owner agrees to apply the loan proceeds, and
    • a declaration of rental revenue included in the attestation The commercial property owner is not controlled by an individual holding federal or provincial political office.

    CECRA will not apply to any federal-, provincial-, or municipal-owned properties, where the government is the landlord of the small business tenant.

Exceptions

  • Where there is a long-term lease to a First Nation or Indigenous organization or government, the First Nation or Indigenous organization or government is eligible for CECRA for small businesses as a property owner.
  • Where there are long-term commercial leases with third parties to operate the property (for example, airports), the third party is eligible as the property owner.
  • Also eligible are post-secondary institutions, hospitals, and pension funds, as well as crown corporations with limited appropriations designated as eligible under CECRA for small businesses.
NOTE: Small businesses that opened on or after March 1, 2020 are not eligible.

* The government defines commercial Real Property as a commercial property with small business tenants. Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their small business tenants.

NOTE: Properties with or without a mortgage are eligible under CECRA for small businesses.

What is an impacted small business tenant?

Impacted small business tenants are businesses — including non-profit and charitable organizations — that:
  • pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement)
  • generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level)
  • have experienced at least a 70% decline in pre-COVID-19 revenues **
NOTE: Eligible small business tenants who are in sub-tenancy arrangements are also eligible if these lease structures meet program criteria.

** Small businesses can compare revenues in April, May and June 2020 to that of the same period in 2019 to measure revenue losses. They can also use an average of their revenues earned in January and February of 2020.

How Does the Program Work

The program offers assistance by way of forgivable loans for the months of April, May and June 2020.
  • Property owners can apply later and the program will be applied retroactively.
  • Property owners may still apply for assistance once the 3-month period has ended if they can prove eligibility during those months. The end date for applications is August 31, 2020.
  • Property owners must use the funds from CECRA to refund amounts in excess of 25% paid by the small business tenant for the period or at the option of the impacted tenant apply rent paid in excess of 25% to future rent owing by the impacted tenant. ***
*** If rent has been collected at the time of approval, a credit to the tenant for a future month’s rent (i.e. July for April) is acceptable — if the tenant chooses this option. This can be a flexible 3-month period.   The deadline to apply is August 31, 2020.

CMHC will provide forgivable loans to eligible commercial property owners. Funds will be transferred to the property owner’s financial institution.
  • The loans will cover up to 50% of the monthly gross rent owed by impacted small business tenants during the 3-month period of April, May and June 2020.
  • The property owner will be responsible for no less than half of the remaining 50% of the monthly gross rent payments (paying no less than 25% of the total).
  • The small business tenant will be responsible for no more than half of the remaining 50% of the monthly gross rent payments (paying no more than 25% of the total).
Note: If you are a tenant and struggling to pay the remaining portion of your rent, alternate programs are available to assist you.

Loan forgiveness

CECRA for small business loans will be forgiven if the property owner complies with all applicable program terms and conditions — including to not recover forgiven rent amounts when the program is over.

How do you Apply

As part of your application, you must provide a rent reduction agreement(s) and landlord and tenant attestations.

Taking a staggered approach

The government will be asking property owners to register on the following days once the application process has opened.

NOTE: Once registered, the portal will be available 24/7 for applicants to input data and upload documents.

Day

Who should register?

Monday

Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program

Tuesday

Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program

Wednesday

All other property owners in Manitoba, Saskatchewan, Ontario and the Territories

Thursday

All other property owners in Atlantic Canada, BC, Alberta and Quebec

Friday

All

What you Need to Apply

Property owners will need to provide information in support of their application, sign an attestation and agree to the terms and conditions of the loan agreement to be eligible for the program.

Property owner information

  • Property information includes: property address, property type, property tax statement, number of employees, latest rent roll for each property and the number of commercial units
  • Applicant information includes: banking information (including bank statement), property owner contact information, co-ownership information and contact details for co-owners

Tenant information

  • Tenant information includes: tenant contact information, registered business name, lease area and the monthly gross rent for the period of April, May and June 2020
We expect the process to evolve over time.

Please contact Segal LLP for any assistance required.

Canada Emergency Wage Subsidy (CEWS)- Revisions

The government recently introduced amendments to the CEWS program which are meant to extend the applicability of the program. The CEWS is the program where the government reimburses eligible employers for a portion of their employees salaries. Many of these changes are retroactive to the beginning of the program. This means, that where you may not have been eligible previously, you would be eligible now and could file for prior periods. Some of the key changes are:

Extension to August 29, 2020

The government announced that the program will be extended by 12 weeks to August 29, 2020.

Partnerships with One or More Non-Eligible Members

Currently, in order for a partnership to be eligible for the CEWS, all of its members must be eligible entities (generally, individuals, taxable corporations, non-profit organizations, or registered charities). As a result, partnerships in which non-eligible entities hold even a minority interest are currently precluded from claiming the CEWS.

Partnerships will be eligible entities for purposes of the CEWS so long as non-eligible members, taken together, do not hold a majority of the interests in the partnership. Specifically, in order for a partnership to qualify for the CEWS, the fair market value of interests in the partnership held by non-eligible entities at all times in the qualifying period must not exceed 50 per cent of the fair market value of all interests in the partnership.

This change is retroactive to April 11, 2020, which means that it applies to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Support for Seasonal Employees and Employees Returning from Extended Leave

Under the CEWS, the subsidy amount for a given employee on eligible remuneration paid in respect of the period between March 15 and June 6, 2020 is the greater of:

  • 75 per cent of the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week; and
  • the amount of remuneration paid in respect of a week, up to a maximum benefit of $847 per week, or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less. The pre-crisis remuneration for a given employee is based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.

In addition, a special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in respect of any week in a qualifying period, up to a maximum benefit of the lesser of $847 per week and 75 per cent of the employee’s pre-crisis weekly remuneration. In effect, the subsidy is available in respect of non-arm’s length employees only for those employed prior to March 16, 2020.

These rules can lead to unintended outcomes in some situations, such as when employees were on parental, disability, or unpaid leave from January 1 to March 15 of 2020, or when individuals – whether dealing at arm’s length or non-arm’s length with their employer – are employed on a seasonal basis.

To bridge these gaps, the government proposes to amend the CEWS to allow employers to choose one of two periods when calculating the baseline remuneration of their employees. Specifically, employers would be allowed to calculate baseline remuneration for an employee as the average weekly remuneration paid to the employee from January 1 to March 15 of 2020 or, alternatively, as the average weekly remuneration paid to the employee from March 1 to May 31 of 2019, in both cases excluding any period of 7 or more consecutive days without remuneration. Employers would be able to choose which period to use on an employee-by-employee basis.

This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Amalgamations

Corporations formed on the amalgamation of two or more predecessor corporations (or where one corporation is wound up into another) may not qualify for the CEWS since they would not have benchmark revenues to prove a revenue decline or their benchmark revenues may not provide a full picture of their pre-crisis revenues.

The government proposes to amend the CEWS to allow corporations formed on an amalgamation of two or more predecessor corporations (or where a corporation is wound up into another), to calculate benchmark revenue for the CEWS revenue-decline test using their combined revenues, unless it is reasonable to consider that one of the main purposes for the amalgamation (or the winding up) was to qualify for the CEWS.

This change is proposed to be retroactive to April 11, 2020, which means that it would apply to the first qualifying period starting March 15, 2020 and subsequent qualifying periods.

Other Changes

There are also revisions related to the following:
  • Indigenous Government-Owned Businesses
  •  Registered Canadian Amateur Athletic Associations
  • Registered Journalism Organizations.
There are many changes that may provide access to the CEWS that did not exist before, Segal LLP is available to assist you through the process.

New Innovation Assistance Program

Applications must be in by April 29, 2020. The government recently announced $250 million of a new program called the Innovation Assistance Program (IAP).  The goal of this program is to assist Canadian small and medium sized enterprises in the technology field.

This program is for those technology companies that are NOT eligible for the CEWS.  The CEWS is the program where the government will subsidize salaries up to 75% with certain limits.  The CEWS program is available when a company meets certain revenue decreases (see the Segal publication here for details). The IPA is meant to be a wage subsidy program for up to 12 weeks.  The size of the subsidy has not been clarified.

Who Can Apply

The company must meet the following criteria:

  • Ineligible for the CEWS. The likely reason is that the company’s revenue did not decrease by the set limits.
  • Be an incorporated, profit-oriented business in Canada
    • This would eliminate non profits or government organizations from eligibility.
    • This would also leave out self employed business and partnerships.
  • Be a company with 500 or fewer full-time equivalent employees
  • Plan to pursue growth and profit by developing and commercializing innovative, technology-driven new or improved products, services or processes in Canada.
    • This subjective criteria will be evaluated by the government.
  • Lack sufficient financial resources to sustain operations from April 1, 2020 to June 23, 2020 inclusive.
    • This will be determined by the government based on the information submitted.
  • Have a Canada Revenue Agency business number.
  • Be incorporated by no later than March 1, 2020.
    • That is, companies cannot be created or formed now to access these funds.

How to Apply

Next Steps

  • Following the assessment and approval of applications, applicants will be notified in writing on the status of their application as early as the week of May 11, 2020
  • IAP will begin making payments to successful applicants starting the week of May 11, 2020
Ensuring Compliance The information collected in your application will be used for the purposes of assessing the merits of your application and due diligence. As part of the assessment process and validation, the information provided will be shared with the Canada Revenue Agency.

In addition, measures will be put in place to ensure that the subsidy is not inappropriately obtained – that applicants are not participating in making, a false or deceptive statement. Penalties may apply in cases of fraudulent claims.

Segal LLP is available to assist you throughout the process.

Update: Canada Emergency Business Account

The Canadian government has announced that it will be expanding its Canada Emergency Business Account program. The new changes will provide interest-free loans to qualified small to medium businesses that are struggling with the impact of COVID-19.

The new program rules will allow any small business or non-profit, with 2019 payroll expenditures between $20,000 to $1.5 million, a loan of up to $40,000. The government will also forgive 25% of the loan if it is paid back in full by December 31, 2022.

The announcement also introduced the Canada Emergency Commercial Rent Assistance program. The federal government will work alongside provincial governments to aid small businesses with rent payments during April, May and June of this year. More information regarding this new program will be available in the upcoming week.

The Canada Emergency Wage Subsidy- UPDATE

This publication is an update to the previous publication detailing the April 1, 2020 Federal government announcements. This publication is a summary of the actual draft legislation. The Federal government has made some changes from its April 1 announcement based on discussions with opposition parties and other interested parties.

We will focus on the changes and summarize the rules in the same format as previously. The overall plan is still a 75% wage subsidy to “eligible employers” for up to twelve weeks, retroactive to March 15, 2020 and ending June 6, 2020 up to a maximum of $847 per week. This subsidy will be considered an overpayment of tax. However, the legislation contemplates that the Minister may refund to the employer all or any part of it.
Key Changes:
  • Initial change in Revenue for March 2020 is 15% from March 2019 or from the average of January and February 2020. For the two subsequent periods, the change in revenue required is 30%.
  • Average revenue for January and February 2020 can now be used for comparison purposes for any period. Once this method is chosen, it must be use for each period.
  • If an eligible employer qualifies for Period 1, it will automatically qualify for Period 2. If an eligible employer qualifies for Period 2, it will automatically qualify for Period 3.
  • Revenue can be calculated using accrual or cash method, but once the method is chosen, it cannot be changed.
  • Special rules for the computation of revenue would be provided to take into account certain non-arm’s length transactions, such as where an employer sells all of its output to a related company that in turn earns arm’s length revenue. As well, affiliated groups would be able to compute revenue on a consolidated basis.
  • Employer must have a payroll business number as of March 15, 2020.
  • The Federal government proposed to expand the CEWS by introducing a new 100 per cent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100 per cent of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.
  • Eligibility for the CEWS of an employee’s remuneration will be available to employees other than those who have been without remuneration for 14 or more consecutive days in the eligibility period
  • Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 per cent of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed
How to Apply
Eligible employers would be able to apply for the Canada Emergency Wage Subsidy through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Employers would have to keep records demonstrating their reduction in arm’s-length revenues (as discussed below) and remuneration paid to employees.

The employer must have a payroll business number with CRA as of March 15, 2020.  This would be a business number that ends “RP0001” or equivalent.  This means that if a company wants to start making payroll payments during this period and does not have a payroll business number, they will be ineligible.

More details about the application process will be made available shortly.  This means that the application process is STILL not available as of the publication of this article. Minister Morneau has verbally stated that he expects the money under the subsidy program to be available towards the end of April or beginning of May.

Interaction with 10% Wage Subsidy- NO CHANGE

For employers that are eligible for both the Canada Emergency Wage Subsidy and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period.  In other words, eligible employers can choose to reduce remittances up to 10% of the employee’s salary and then receive the Canada Emergency Wage Subsidy.  However, they cannot be added on top of each other.  The benefit is limited to 75%, not 85%.
Eligible Employers- NO CHANGE

Eligible employers include:
  • Individuals,
  • Taxable corporations,
  • Partnerships consisting of eligible employers
  • Non‑profit organizations and
  • Registered charities
Who is not included as an eligible employer?
  • Municipalities and local governments
  • Crown corporations
  • Public universities
  • Colleges
  • Schools
  • Hospitals
Key Condition- Drop In Revenues- CHANGES

This subsidy would be available to eligible employers that see a drop of at least 15 percent in March 2020 and 30 per cent of their revenue for April and May 2020.

How is Revenue Calculated?
An employer’s revenue for this purpose would be its revenue from its business carried on in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method, and would exclude revenues from extraordinary items and amounts on account of capital.  Revenues can now be calculated using the accrual method or the cash method but must use that same methodology throughout the period.

For registered charities and non-profit organizations, the calculation will include most forms of revenue, excluding revenues from non-arm’s length persons. These organizations would be allowed to choose whether or not to include revenue from government sources as part of the calculation. Once chosen, the same approach would have to apply throughout the program period.

Non-Arm’s Length Revenue

In these new rules are different ways to calculate revenue in order to determine if a company qualifies for the CEWS.

  • Consolidated Financial Statements
    • Where a group of eligible entities normally prepares consolidated financial statements, each member of the group can determine its qualifying revenue separately, provided each member of the group does the same.
    • That is, one of the companies cannot state that because consolidated revenues decreased, they are eligible for the CEWS, when one of the other companies in the group uses its specific revenue to qualify. It is all or nothing.
  • Joint election
    • Where there is a group of affiliated entities, and the entities jointly elect, the qualifying revenue for the group, can be used for each member of the group.
    • This is relevant where there is a combination of arm’s length AND non arm’s length revenue. If for example, company A earned arm’s length revenue and paid affiliated company B a fee for providing employees.  Without this rule, company B would have no arm’s length revenue and would therefore not qualify for the CEWS.  With this provision, the arm’s length revenue for company A can be used for the whole group.  Since company B is the only one with employees, company B would be the company that applies for the CEWS.
  • Joint Ventures
    • Where the revenue is being allocated through a joint venture, then the eligible entity can use the revenue of the joint venture instead of only looking at the eligible entity’s share of revenue from the joint venture.
Revenue Comparisons- Eligible Periods
Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began.  As well, an eligible employer can now compare March 2020 to the average of January and February 2020.   In determining monthly revenues, the wage subsidy would NOT be considered in revenues.

If an eligible employer qualifies for Period 1, it will automatically qualify for Period 2.  If an eligible employer qualifies for Period 2, it will automatically qualify for Period 3. The Eligible Periods are as follows:
Period Claiming Period Reference Period
Period 1- 15% reduction required March 15- April 11 March 2020 over : · March 2019 or · Average of January and February 2020
Period 2- 30% reduction required April 12- May 9 If Eligible for Period 1- qualifies OR April 2020 over: · April 2019 or · Average of January and February 2020
Period 3- 30% reduction required May 10- June 6 If Eligible for Period 2- qualifies OR May 2020 over: · May 2019 or · Average of January and February 2020
This means that the first step is to determine if monthly revenue, year over year, decreased sufficiently.  Then an eligible employer would make a claim for the above claiming period based on the salaries during the claiming period. Each month will be a separate application.  It may be possible that a company is not eligible for Period 1 but is eligible for Periods 2 and 3.
Eligible Employee
An eligible employee is an individual who is employed in Canada.

Eligibility for the CEWS of an employee’s remuneration will be available to employees other than those who have been without remuneration for 14 or more consecutive days in the eligibility period, i.e., from March 15 to April 11, from April 12 to May 9, or from May 10 to June 6.

This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit.

Amount of Subsidy
The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:
  • 75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
  • the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less.
The pre-crisis remuneration for a given employee would be based on the average weekly remuneration paid between January 1 and March 15 inclusively, excluding any seven-day periods in respect of which the employee did not receive remuneration.

In effect, employers may be eligible for a subsidy of up to 100 per cent of the first 75 per cent of pre-crisis wages or salaries of existing employees. These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings.

Employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees.

Eligible Remuneration
Eligible remuneration may include salary, wages, and other remuneration.

These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation.

However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle. In addition, if an arrangement is made to temporarily scale up remuneration during the qualifying period, followed by a reduction after the qualifying period, then any amount paid will be excluded from eligible remuneration.

Non Arm’s Length Employees
A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration.  That is, a non arm’s length employee cannot increase their salary after March 15, 2020 to maximize the benefit.  The entitlement will be based on what the non-arm’s length employee was earning before March 15th.

Refund for Certain Payroll Contributions
The Federal government proposed to expand the CEWS by introducing a new 100 per cent refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan. This refund would cover 100 per cent of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.

In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.

This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS. There would be no overall limit on the refund amount that an eligible employer may claim. For greater certainty, employers would be required to continue to collect and remit employer and employee contributions to each program as usual. Eligible employers would apply for a refund, as described above, at the same time that they apply for the CEWS.

To be clear, this is an amount over and above the CEWS.  There is no maximum on this.
No Limit on Subsidy Claim
There would be no overall limit on the subsidy amount that an eligible employer may claim.  That is, the actual dollar amount of subsidy is only limited per employee.  The number of employees is not limited.

Employers must make their best effort to top-up employees’ salaries to bring them to pre-crisis levels.

Interaction with the Canadian Emergency Response Benefit (CERB)
As noted in previous publications, employees can claim $2,000 per month if they lose their job or have reduced earnings because of COVID 19.  If an employee is eligible to claim the CERB, the employer cannot claim the 75% subsidy in the 4 week period in which the employee is eligible for the CERB.  In order to claim the CERB, the employee is not supposed to have earned any income in the four week period and they have to have been out of work or unable to work for 14 consecutive days.

Interaction with the Work Sharing Program
On March 18, 2020, the Prime Minister announced an extension of the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.

Taxation of Subsidy
The subsidy is fully taxable.  From a cash perspective, the tax cost of obtaining the subsidy will not be due until the eligible employer’s tax filing due date.  For a CCPC with a December 31, 2020 year end, the taxes on the subsidy would not be due until March 31, 2021.  In Ontario, the tax due would be 12.2% if eligible for the small business deduction or 26.5% if not eligible for the small business deduction.

Ensuring Compliance
If the employer does not meet the eligibility requirements and has incorrectly received the subsidy, the employer would be required to repay amounts received under the Canada Emergency Wage Subsidy. Penalties may apply in cases of fraudulent claims. Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 per cent of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed. Segal LLP is available to assist you through the process once the government finalizes the methodology and the web access.