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: Can the owner of a qualifying property claim the lockdown support when its tenant, with which it does not deal at arm’s length, is subject to a lockdown under a public health order?
Position: Yes, provided the other requirements for claiming the CERS are met.
Reasons: Based on the draft legislative proposals released on February 24, 2021.
TEI 71st Virtual Midyear Conference – March 22 to 25, 2021
Question – Lockdown support for a property owner
Can the owner of a qualifying property claim the lockdown support when its tenant, with which it does not deal at arm’s length, is subject to a lockdown under a public health order?
An eligible entity who has experienced a reduction in its qualifying revenue for a particular qualifying period may be eligible for the Canada Emergency Rent Subsidy (“CERS”) on a portion of its qualifying rent expense in respect of a qualifying period, for each qualifying property, subject to certain maximums. There are two components to the calculation of the CERS in subsection 125.7(2.1) of the Income Tax Act (“the Act”), the base portion and, in some cases, the lockdown support.
The lockdown support is generally available to an eligible entity in respect of a particular qualifying property that is subject to a “public health restriction”, as defined under subsection 125.7(1) of the Act. Several conditions must be met for a particular order or decision to be a “public health restriction”. One of the conditions 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 are required to cease. 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. In many cases, the eligible entity required to cease its activities will be the applicant for the CERS.
However, an issue arises where a different eligible entity than the one whose activities are required to cease under a particular order or decision applies for the CERS. This may occur, for example, when an eligible entity rents a qualifying property from a person or partnership not dealing at arm’s length with it that owns the property. Since non-arm’s length rent does not qualify for the CERS pursuant to the definition of “qualifying rent expense” under subsection 125.7(1) of the Act, it would be the property owner, in that case, that applies for the CERS based on its qualifying rent expense. However, since the property owner’s activities were not required to cease, the “public health restriction” conditions outlined in the definition of that term would not be met and the lockdown support would not be available to the property owner. According to a recent backgrounder released by the Department of Finance on February 24, 2021, such a result was unintended and inconsistent with the policy underlying the CERS.
Draft legislative proposals were released along with the backgrounder to amend paragraphs (e) to (g) of the definition of “public health restriction” in subsection 125.7(1) of the Act. These proposals would allow an eligible entity, that is the owner of a qualifying property, to claim the lockdown support when its tenant, with which it does not deal at arm’s length, is subject to a lockdown under a public health order (provided the other applicable conditions to qualify for the lockdown support are met). The legislative proposals would apply as of September 27, 2020.
The Canada Revenue Agency will administer this change on the basis of the draft legislative proposals.
March 23, 2021
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