Increasing Accessibility of the Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy


The Canada Emergency Wage Subsidy has protected over 5 million jobs and helped businesses, charities and non-profits re-hire workers throughout the COVID-19 pandemic.

On October 9, 2020, the government announced the new Canada Emergency Rent Subsidy to provide direct relief to businesses, non-profits and charities that continue to be economically impacted by the COVID-19 pandemic. The new rent subsidy mirrors the wage subsidy by providing benefits directly to qualifying renters and property owners.

Today, the Department of Finance released draft legislative proposals that would implement technical amendments to ensure these support programs better support the businesses and workers who are facing challenges as a result of the pandemic.

Qualifying Period Beginning on December 20, 2020

The wage subsidy and rent subsidy operate based on four-week qualifying periods. Qualifying applicants must demonstrate a decline in revenues between a current reference period and a prior reference period: either the same period in the previous year or their average revenue for the months of January and February 2020.

To provide certainty for subsidy applicants at the start of a qualifying period, a deeming rule provides that an entity’s percentage revenue decline for a qualifying period cannot be less than their percentage revenue decline for the immediately preceding qualifying period.

Consistent with the parameters announced in the 2020 Fall Economic Statement, it is proposed that the Income Tax Act be amended so that an applicant’s percentage revenue decline for the 11th qualifying period (December 20, 2020 to January 16, 2021) cannot be less than the applicant’s percentage revenue decline for the 9th qualifying period (October 25, 2020 to November 21, 2020). This provides greater flexibility for applicants, as the 11th qualifying period and 10th qualifying period both use the same reference months (December 2020 over December 2019 by default), which means the percentage revenue decline for those two periods would otherwise be the same.

Lockdown Support

The base Canada Emergency Rent Subsidy provides support directly to tenants and to eligible owners of a qualifying property for certain expenses, including where the owner earns rental income from a non-arm’s length entity that carries on business at the property. However, stakeholders have raised a concern that the owner of the property cannot access the Lockdown Support under these circumstances.

The Lockdown Support is generally available for qualifying property that is subject to a lockdown where the owner or tenant must shut their doors or significantly restrict their activities under a public health order issued under the laws of Canada, a province or territory (including orders made by a municipality or regional health authority under one of those laws). One of the conditions for an order or decision to qualify as a “public health restriction” (as defined under the rent subsidy rules) for a particular location is that, as a result of the order or decision, some or all of the activities at that location of the entity applying for the rent subsidy must be required to cease. This is relatively straightforward in many cases, as the entity required to shut down its business will be the applicant for the rent subsidy.

An issue arises where a different entity applies for the rent subsidy than the one whose activities are required to cease. This happens when the entity that operates the business rents the property from a non-arm’s length entity that owns the property. Since non-arm’s length rent does not qualify for the rent subsidy, it would be the related property owner that applies for the subsidy based on its qualifying expenses (generally, mortgage interest, property taxes and insurance). However, since the property owner’s activities were not required to cease, the “public health restriction” conditions would not be met and the Lockdown Support would not be available. This result is unintended and inconsistent with the policy underlying the rent subsidy.

This proposal would amend the rules in the Income Tax Act so that the Lockdown Support would be available in situations where activities of a party that does not deal at arm’s length with the entity applying for the Lockdown Support, and that rents the property from the entity, are required to cease as a result of a “public health restriction,” provided the other conditions for the Lockdown Support are met. The proposed amendment would apply as of September 27, 2020.


Ted owns two companies: Ted’s Restaurant Inc. and Ted’s Property Company. Ted’s Restaurant Inc. rents its space from Ted’s Property Company.

A public health restriction requires Ted’s Restaurant Inc. to shut down for several weeks.

Due to their common control, Ted’s Restaurant Inc. and Ted’s Property Company would not be considered as dealing at arm’s length for tax purposes. As a consequence, the rent Ted’s Restaurant Inc. pays to Ted’s Property Company would not be eligible for the rent subsidy or Lockdown Support. Instead, the mortgage interest, property taxes and real property insurance paid by Ted’s Property Company could be eligible expenses for the rent subsidy, but because the operations of Ted’s Restaurant Inc. (and not Ted’s Property Company) were required to cease, Ted’s Property Company would not be entitled to the Lockdown Support.

In contrast, if Ted’s Restaurant Inc. also owned the property, it would be entitled to both the rent subsidy and the Lockdown Support on the mortgage interest, property taxes and real property insurance paid in connection with the property. The draft legislative proposal would ensure that Ted’s Property Company could qualify for the Lockdown Support.

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