As part of Canada’s Covid economic response, the federal government adopted an urgency measure for commercial landlords and tenants; the Canada Emergency Commercial Rent Assistance (CECRA) program.
The CECRA program provides for eligible commercial property owners to reduce the rent owed by their impacted qualifying small business tenants. Property owners must however offer a minimum of a 75% rent reduction for the months of April, May and June 2020. The deadline to apply for the program is August 31st, 2020.
The program provides that the federal government will cover, in the form of a forgivable loan, 50% of the commercial rent payable for the targeted months by an eligible small business tenant to a commercial property landlord, the tenant will assume 25 % of the rent and the landlord will forgive the remaining 25%. In addition, on June 8, 2020, the Government of Quebec announced that it will compensate 50% of the rent loss of commercial property owners who register for this program for properties located in Québec. Therefore, the net amount forgiven by the landlord will correspond to 12.5% of the rent.
For example, if a small business tenant is paying $5,000 per month in rent:
- $2,500 will be covered by CECRA in the form of a forgivable loan from CMHC to the landlord;
- $1,250 will be paid by the tenant; and
- $1,250 will be forgiven by the landlord (Quebec to cover $625 for properties in Quebec).
The GST/HST implications of the CECRA program will be as follows:
- The landlord is not required to collect GST/HST with respect to the forgivable loan payments of the rent for the months of April, May and June 2020 received from the Canada Mortgage and Housing Corporation (CMHC) but is required to report the revenue on his GST returns for the reporting periods which include the targeted rents.
- The landlord is required to collect and remit GST/HST, where applicable, on the 25% rent payable by the tenant.
Since the QST and GST regimes are generally harmonized, we understand that the application of the QST to the CECRA program is to be the same as the GST.
If a tenant has already paid the April, May and June 2020 rents in full:
- The property owner must either reimburse the tenant for the rent paid in excess of the 25% payable by the tenant or provide the tenant with a credit for future lease payments. If the latter is done, it is to be noted that this does not reduce the GST/HST and QST, where applicable, to be collected on the full future lease payments.
- Although the rent reduction would be considered for GST/HST and QST purposes to be a reduction in the consideration payable by the tenant for the rent, there is no requirement for the landlord to refund, adjust or credit the GST/HST and QST paid or payable by the tenant.
- If the landlord chooses to refund, adjust or credit the taxes paid, a credit note containing the prescribed information must be issued by the landlord to the tenant. The credit note will have the effect of requiring the tenant to pay back the input tax credit and input tax refund originally claimed and will allow the landlord to get a deduction of its GST/HST and QST net tax for the reporting period in which the credit note was issued. However, if the landlord chooses not to refund, adjust or credit the taxes paid, the tenant can file with the tax authorities a rebate claim for taxes paid in error, were the tenant is not entitled to claim full input tax credits and input tax refunds. The rebate claim must be submitted on a prescribed form within two-years of the payment of the taxes.
This bulletin is intended to provide information with respect to the GST/HST and QST implications of the program. Reference should be made to the CMHC website for further details concerning the eligibility criteria for the CECRA program as well as the procedure to apply: https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business.
We remain available to assist you as requested.