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: 1. Whether lockdown support is available for a store located in a shopping mall where a public health order mandates the closure of the store to customers such that sales may only be delivered to customers or picked-up by them at a central location within the mall. 2. Whether lockdown support is available for a restaurant in a shopping mall where a public health order requires the closure of the food court seating area.
Position: 1 and 2. Question of fact, but it is possible.
Reasons: 1 and 2. In these situations, it is possible that an entity has "restricted activities".
Mr. David Gagné-Therrien HEADQUARTERS
Dedicated Telephone Service ITRD
Canada Revenue Agency Matthew Ross, CPA, CA
June 7, 2021
Dear Mr. Gagné-Therrien:
Re: Lockdown support – curbside pickup and food court restaurants
This is in reply to your email in which you requested our views on matters relating to the Canada Emergency Rent Subsidy (“CERS”) under subsection 125.7(2.1) the Income Tax Act (“the Act”).
More specifically, you inquired about the “lockdown support” component of the CERS and certain requirements contained in the definition of “public health restriction” in subsection 125.7(1) of the Act. You have asked whether an entity could qualify for lockdown support in the following situations:
- A retail store (“a Store”) in a shopping mall is required to close for in-person shopping but may provide sales online or by phone via curbside pickup, delivery, or a designated location within the mall for customers to collect their orders.
- A shopping mall must close the public seating areas located within the mall, including the dining area of its food court. Restaurants in the food court (“the Restaurants”) may continue to provide take-out service to customers.
Whether a particular eligible entity is subject to a public health restriction and qualifies for lockdown support is a question of fact that can only be determined after a review of all the detailed facts and circumstances surrounding a particular situation. Notwithstanding this, we can offer the following general comments which may be of assistance in making that determination.
An “eligible entity”, that is also a “qualifying renter”, who has experienced a reduction in its “qualifying revenue” for a particular “qualifying period” may be eligible for the CERS. The CERS covers a portion of an eligible entity’s “qualifying rent expense” in respect of a qualifying period, for each “qualifying property”, subject to certain maximums. Definitions for purposes of the CERS, including the aforementioned terms, are in subsection 125.7(1) of the Act.
There are two components to the calculation of the CERS in subsection 125.7(2.1) of the Act: the base subsidy and the lockdown support. The lockdown support is generally available to an eligible entity, in respect of a particular qualifying property for a qualifying period, that has a “rent subsidy percentage” greater than zero and is subject to a “public health restriction”, as those terms are defined under subsection 125.7(1) of the Act.
A public health restriction, in respect of a qualifying property of an eligible entity for a qualifying period, means an order or decision in respect of which several conditions are met. These conditions are set out in paragraphs (a) to (h) of the definition of public health restriction in subsection 125.7(1) of the Act; all of the conditions must be met in order for a particular order or decision to be considered a public health restriction.
Paragraph (f) (footnote 1) of the definition of public health restriction in subsection 125.7(1) of the Act requires that, as a result of the particular order or decision, some or all of the activities of the eligible entity at, or in connection with, the qualifying property (that it is reasonable to expect the eligible entity would, absent the order or decision, otherwise have engaged in) are required to cease (referred to as “restricted activities”). This determination is based on the type of activity rather than the extent to which an activity may be performed or limits placed on the time during which an activity may be performed.
Whether a particular eligible entity has any restricted activities is a question of fact, which depends on the particular facts and circumstances of each situation. However, where a particular order or decision prohibits customers from physically entering a Store to shop, then “in-person shopping” activities could be considered restricted activities. The fact that customers of a Store are permitted to collect their orders at a designated location within the shopping mall, via curbside pickup or delivery, would not preclude a Store from having restricted activities related to “in-person shopping”.
Similarly, where a particular order or decision requires public seating areas of a shopping mall available to customers of the Restaurants in the food court to close, such that customers of the Restaurants are no longer permitted access to the seating area of the food court, the Restaurants’ “sit-down dining” activities could be considered restricted activities. The fact that take out service may continue would not preclude the Restaurants from having restricted activities related to “sit-down dining”.
Another condition that must be satisfied in order for a particular order or decision to be a public health restriction is described in paragraph (g) of the definition in subsection 125.7(1) of the Act. It requires that it is reasonable to conclude that at least approximately 25% of the qualifying revenues of the eligible entity for the prior reference period that were earned from, or in connection with, the qualifying property were derived from the restricted activities. Depending on the facts and circumstances of each particular situation, an eligible entity may have some flexibility in the method it can use to satisfy this condition, provided that it is appropriate for those particular circumstances. Whether it is reasonable to conclude that at least approximately 25% of the qualifying revenues of an eligible entity for the prior reference period, were earned from, or in connection with, a qualifying property, were derived from restricted activities is a question of fact, and would have to be determined on a case-by-case basis.
We trust our comments will be of assistance.
Amanda Couvrette, CPA, CA
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained
in the original document are shown below instead:
1 The Department of Finance released draft legislation on February 24, 2021, followed on April 19, 2021 by Bill C-30, which proposes to amend paragraphs (e) to (g) of the definition of public health restriction in subsection 125.7(1) of the Act to include a “specified tenant”, which is a party with which the eligible entity does not deal at arm’s length that rents, directly or indirectly, the qualifying property from the eligible entity. Therefore, in certain situations, specified tenants may also meet the definition of a public health restriction in subsection 125.7(1) of the Act and may qualify for lockdown support, provided all other requirements are met. The Canada Revenue Agency will administer this change on the basis of the draft legislative proposals. Bill C-30 went through its second reading in the House of Commons on May 27, 2021.
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