27 September 2021 Internal T.I. 2021-0877001I7 - CERS - Rent paid for unoccupied office space

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 unoccupied office space in a building that was previously used by an eligible entity can be a qualifying property for a qualifying period for purposes of the CERS.

Position: Question of fact but in this case, likely not.

Reasons: To be “qualifying property”, a real or immovable property must be used in the course of an eligible entity’s ordinary activities.

Mr. David Pope					HEADQUARTERS
St-John’s NVCC						Income Tax Rulings
Policy & Legislation Section				Directorate
Collection and Verification Branch			Stéphane Thibault,
Canada Revenue Agency					CPA, CA, LL.M. fisc.
David.Pope@cra-arc.gc.ca				2020-087700

CERS – Rent paid for unoccupied office space

We are writing in response to your enquiry wherein you requested our views on whether an eligible entity can apply for the Canada Emergency Rent Subsidy (“CERS”) pursuant to subsection 125.7(2.1) of the Income Tax Act (the “Act”), in regards to rent paid for unoccupied office space in a building.

Our understanding of the situation is as follows:

• An eligible entity signed a pre-construction lease for new office space several years ago and moved into this location in XXXXXXXXXX.
• The eligible entity has a XXXXXXXXXX-year term lease that ends in XXXXXXXXXX on the old office space which it has been trying to sublease since then. However due to the COVID-19 pandemic, the eligible entity has been unsuccessful.

You would like to know whether unoccupied office space in a building, that was previously used by an eligible entity in the course of carrying on their ordinary activities, can be a qualifying property for a qualifying period for purposes of the CERS.

Our comments

Under subsection 125.7(2.1) of the Act, the CERS is available to a “qualifying renter”. A qualifying renter, for a “qualifying period”, is an “eligible entity” that meets certain conditions. In determining the amount of the CERS, a qualifying renter applies their “rent subsidy percentage” to their “qualifying rent expense”. Qualifying rent expense is determined in respect of a “qualifying property” for an eligible entity, which can be either a tenant or an owner of the qualifying property, for a qualifying period. All these terms are defined in subsection 125.7(1) of the Act.

A qualifying property of an eligible entity for a qualifying period is defined in subsection 125.7(1) of the Act to mean real or immovable property in Canada used by the eligible entity in the course of its ordinary activities subject to an exception related to self-contained domestic establishments.

The issue of whether property was used or held by a corporation in the course of carrying on a business was considered by the Supreme Court of Canada in Ensite Limited v. Her Majesty the Queen, [1986] 2 CTC 459, 86 DTC 6521. The court held that the holding or using of property must be linked to some definite obligation or liability of the business and that a business purpose test for the use of the property was not sufficient. The property had to be employed and risked in the business to fulfil a requirement which had to be met in order to do business. In this context, risk means more than a remote risk. If the withdrawal of the property would have a decidedly destabilizing effect on the corporate operations, the property would generally be considered to be used in the course of carrying on a business.

Moreover, the Tax Court of Canada indicated in Glaxo Wellcome Inc. v The Queen, [1999] 4 C.T.C. 371 98 D.T.C. 6638 that the word “use” connotes actual utilization for some purpose, not holding for future use.

In our opinion, regard must be given to the actual use to which the property is put in the course of the eligible entity’s ordinary activities. Generally, property lying idle or not used for any purpose would not be property that is used in the course of the ordinary activities of an eligible entity.

The determination of whether unoccupied office space in a building was used by an eligible entity in the course of carrying on its ordinary activities in a qualifying period is a question of fact that requires a review of all the facts and circumstances surrounding the particular situation. In the current fact situation, while we cannot provide definitive comments, given that the office space was unoccupied since the eligible entity moved to a new office in XXXXXXXXXX, the old office space would likely not be considered to be used in the ordinary activities of the eligible entity. This is because it does not appear to be employed and risked in the ordinary activities of the eligible entity, and is merely waiting to be subleased.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette, CPA, CA
Acting Manager
For Division Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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