11 May 2021 Internal T.I. 2020-0869981I7 - CERS - Hairdressers and barbers - qualifying rent

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a barber or hairdresser (“Stylist”) who rents or leases space, a chair, or both, from the owner of a barbering or hairdressing establishment (“the Salon”) is eligible for the CERS

Position: Possibly.

Reasons: Depending on the arrangement, “chair rent” could refer to rent paid for the space occupied by the stylist in a salon, rather than rent paid only for a chair. This space could be a qualifying property, and “chair rent” could be considered rent for the use of, or right to use, qualifying property.

Mr. David Gagné-Therrien
Dedicated Telephone Service				Matthew Ross, CPA, CA
Canada Revenue Agency					(902) 399-8396
								2020-086998

May 11, 2021

Dear Mr. Gagné-Therrien:

Re: “Chair rent” paid by a barber or hairdresser

This is in reply to your email in which you requested our views on whether an amount paid by a barber or hairdresser (“Stylist”) as “chair rent” to the owner of an establishment (“Salon”) may be claimed as a “qualifying rent expense” for the purposes of the Canada Emergency Rent Subsidy (“CERS”) as provided in section 125.7 of the Income Tax Act (“the Act”).

Our Comments

The CERS is based on a qualifying eligible entity’s “qualifying rent expense” in respect of a “qualifying property” for a “qualifying period,” as those terms are defined in subsection 125.7(1) of the Act.

Qualifying rent expense means the amount determined by the formula A-B. Variable A, in respect of a qualifying property, for an eligible entity for a qualifying period, is the total of certain amounts paid (subject to certain maximums) – under 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 – in respect of the qualifying period by the eligible entity to a party with which the eligible entity deals at arm’s length.

Paragraph (a) of variable A of the definition of qualifying rent expense allows, for a tenant, an amount paid (or payable in certain circumstances) where the amount is rent for the use of, or right to use, the qualifying property, including, among other things, and subject to the exclusions listed in subparagraph (a)(ii),

• gross rent,
• rent based on a percentage of sales, profit or a similar criterion,
• certain amounts required to be paid under a net lease by the eligible entity either to the lessor or a third party.

It is our understanding that “chair rent” is a term that may be used to describe an amount paid for the use of an area within the Salon, which may also provide for items such as a chair, mirror, counter space, shelves, as well as access to sinks, dryers, storage, reception, and washroom and kitchen facilities. As such, “chair rent” could refer to an amount paid for the use of, or right to use, a portion of the Salon rather than simply the use of a chair within the Salon.

Qualifying property, of an eligible entity for a qualifying period, means real or immovable property in Canada used by the eligible entity in the course of its ordinary activities, subject to certain specific exclusions with respect to “self-contained domestic establishments.”

Where an amount paid by a Stylist (who is an eligible entity) as “chair rent” is rent for the use of, or right to use, an area within the Salon that is real or immovable property such that it is capable of being a qualifying property, it may be a qualifying rent expense for the Stylist, provided all of the conditions in the definition of qualifying rent expense are met. This is a question of fact that must be determined by considering all of circumstances of a particular situation, including the particular written agreement between the Stylist and the landlord.

Similarly, in other situations where an eligible entity pays an amount that is rent for the use of, or the right to use, an area or space that is a portion of a larger area, the amount paid by the eligible entity as rent may be a qualifying rent expense, provided that the space being leased is a qualifying property for the eligible entity and the other conditions of the definition of qualifying rent expense outlined above are met.

The definition of qualifying rent expense requires an eligible entity to reduce the amount determined under variable A by variable B. Variable B is the total of all amounts, each of which is received or receivable by the eligible entity in respect of the qualifying period, either directly or indirectly, from a party with which the entity deals at arm’s length and is described in paragraph (a) of variable A. Accordingly, generally speaking, the qualifying rent expense of an eligible entity is reduced by rent they receive (or is receivable) from arm’s length parties.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette, CPA, CA
Acting Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch