Canadian Emergency Commercial Rental Assistance (CECRA)
What are the sales tax implications for landlords and tenants?
COVID has meant a great deal of inconvenience for all taxpayers. Both levels of government have put in place a number of relief and assistance measures.
We’d like to draw your attention to some special features of the Emergency Commercial Rental Assistance (ECRA) administered by Canada Mortgage and Housing Corporation (CMHC).
The assistance provides rent relief to small businesses affected by COVID-19. CMHC offered forgivable loans to commercial property owners who entered into a rent reduction agreement, reducing a small business’ gross monthly rent by at least 75% for a period of four months, from April to July 2020. In fact, as part of the rent reduction agreement, the tenant was not required to pay more than 25% of the monthly rent over the four-month period.
If you have benefited from this assistance program as a tenant, or if you have submitted a subsidy application as a landlord, then there are several important aspects to be aware of in order to ensure sales tax compliance.
Here’s what the program included:
- 50% loan/subsidy on gross monthly rent offered by CMHC to commercial building owners;
- A waiver by the landlord of a minimum of 25% of the rent;
- Rent to be paid by the tenant by a maximum of 25%;
Tax implications
Loan/subsidy
The loan/subsidy qualifies as a GST/HST- and QST-exempt supply of financial services, for which no tax is collectible by CMHC from commercial property owners.
Monthly rent adjustments
Commercial rents usually involve the signing of a lease between the tenant and the landlord. Under the terms of the lease, taxes are payable to the tax authorities by the landlord regardless of payment by the tenant. In other words, the landlord must remit the taxes on the total amount of rent stipulated in the lease, even if the tenant fails to pay the rent at the agreed time.
The landlord’s rent reduction agreement is an amendment to the lease between the commercial property owner and the tenant. Under the program, the reduction agreement aims to reduce the amount of consideration payable for the rent. Specifically, the landlord agrees to reduce the gross monthly rent by at least 75% for the 4-month period.
For GST and QST purposes, when the owner of a commercial property agrees to reimburse or credit an amount for which taxes have already been collected (for example, lease rent), he must issue a credit note in accordance with the Act, so as not to be obliged to remit taxes on 100% of the rent, even though this amount is determined by the AUCLC program.
The credit note must adjust the amount of net taxes payable to reflect the fact that, under the AUCLC program, GST and QST apply to only 25% or less of the gross monthly rent payable by the small business tenant.
Indeed, it is important to prepare a precise document to document this reduction.
(Document available on the CMHC website )
Taxes recoverable by the tenant
Under the circumstances, only 25% or less of the rent is actually paid by the tenant to the landlord. Thus, a tenant who has taken advantage of the AUCLC program will be able to claim ITCs and ITRs only on the portion of rent payable (25% or less).
If you have any questions about these concepts for validating your company’s compliance, the commodity tax team at Amyot Gélinas, s.e.n.c.r.l. will be happy to help.
Email: stherrien@amyotgelinas.com
Telephone: 450 971-1550 ext. 3321
