16 July 2021 External T.I. 2021-0893621E5 - CERS - Content Insurance

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: Is content insurance included for the purposes of calculating the CERS?

Position: Generally, no.

Reasons: A taxpayer's entitlement to the CERS is calculated in reference to the taxpayer's qualifying rent expense. Although the definition of qualifying rent expense includes "insurance", “content insurance” should generally be excluded. However, it is still a question of fact as to whether particular insurance should be included when calculating a taxpayer's entitlement under the CERS.

Question:

Is content insurance included for the purposes of calculating the Canada Emergency Rent Subsidy (“CERS”)?

Response:

A taxpayer’s entitlement under the CERS is based on that taxpayer’s “qualifying rent expense” (“QRE”), as defined in subsection 125.7(1) of the Income Tax Act (“the Act”), for a particular qualifying period. Paragraph (a) describes amounts that would be included in the QRE of a renter of qualifying property while paragraph (b) of the definition of QRE in subsection 125.7(1) describes amounts that would be included in the QRE of an owner of qualifying property.

It is our understanding that “content insurance” in the context of real or immovable property may reasonably be understood to refer to insurance only for personal property situated on real property, and not the real property itself.

In the context of a taxpayer that owns qualifying property, it is our view that the cost of content insurance would be excluded from determining that taxpayer’s entitlement under the CERS since the relevant provisions in section 125.7 of the Act only includes insurance on the qualifying property, the definition of which only refers to real or immovable property in Canada.

With respect to a taxpayer that leases qualifying property, in order for insurance paid by such a taxpayer in respect of the qualifying property to be QRE, the taxpayer must have been required to pay the insurance to the landlord or a third party as regular instalments of operating expenses customarily charged to a lessee under a net lease. In general, we would not expect content insurance to be an operating expense customarily charged to a lessee under a net lease. Even assuming that content insurance is customarily charged to a lessee under a net lease, a taxpayer’s entitlement under the CERS would still exclude the cost of insurance that only covers personal property of the lessee.

Whether a particular payment for insurance paid by an eligible entity in respect of a qualifying period is QRE depends on the terms of the relevant insurance contract. Generally, if the insurance is on qualifying property, then the amount paid for the insurance should be part of QRE. In contrast, if the insurance is for content or personal property, then the amount paid for the insurance should not be part of QRE.

UNCLASSIFIED