On December 17, 2021, Bill C-2, federal legislation that creates two new rent support programs, became law. As their names suggest, the Tourism and Hospitality Recovery Program (THRP) and the Hardest-Hit Business Recovery Program (HHBRP) are designed to help the tourism and hospitality sector in particular, in addition to other businesses across a variety of sectors that have been especially “hard hit” by the COVID-19 pandemic.
These two new programs have effect from October 24, 2021, the day after the expiration of the previous Canada Emergency Rent Subsidy (CERS) program. Many of the eligibility criteria and calculation methods applicable to the THRP and HHBRP are the same as they were for the CERS program. For more information on the CERS program, see our earlier post.
Determining Eligibility
Eligible entities
The THRP and HHBRP support commercial tenants directly. Property owners may be supported in either of the following situations:
- the property owner does not use the qualifying property primarily to earn rental income; or
- the property owner uses the qualifying property primarily to earn rental income from a non-arm's length person or partnership (where such other person or partnership does not use the qualifying property primarily to earn rental income).
To be eligible for the THRP or HHBRP, applicants must be individuals, taxable corporations or trusts, non-profit organizations or registered charities. Public institutions are generally not eligible for the subsidy. A comprehensive list of eligible entities is available from the Government of Canada.
In addition to the above, applicants must meet at least one of the following conditions:
- the applicant had a CRA business number on September 27, 2020;
- the applicant had a payroll account on March 15, 2020, or another person or partnership made payroll remittances on the applicant's behalf;
- the applicant purchased the business assets of another person or partnership who meets either condition (1) or (2) and has made an election under the special asset acquisition rules; or
- the applicant meets other prescribed conditions that may be introduced.
Qualifying properties
To apply for the THRP and HHBRP, eligible entities must have a qualifying property, which is defined to include any building or land in Canada that an eligible entity owns or rents, and which it uses in the course of its business activities. Homes, cottages or other residences used by an applicant, an applicant's family members, or other non-arm's length persons do not qualify.
Financial requirements (THRP)
THRP applicants must demonstrate a minimum revenue drop of 40% during the applicable claim period and must also satisfy either (1) all three qualifying conditions specific to the tourism and hospitality sector; or (2) both of the qualifying conditions available to other impacted businesses, regardless of the sector, as follows:
- The qualifying conditions specific to the tourism and hospitality sector are that (i) more than 50% of the applicant's eligible revenue1 is derived from eligible activities in the area(s) of tourism, hospitality, arts, entertainment and/or recreation;2 (ii) the applicant has experienced a 12-month average revenue drop from March 2020 to February 2021 of at least 40%; and (iii) the applicant has experienced a claim period revenue drop of at least 40%.
- The qualifying conditions available to other impacted businesses, regardless of sector, are that (i) the applicant had one or more qualifying properties that were affected by a qualifying public health restriction3 during the applicable claim period; and (ii) the applicant has experienced a claim period revenue drop of at least 40%.
Rent expenses (or commercial mortgage interest expenses) of eligible entities will be reimbursed, on a sliding scale, up to a maximum base subsidy rate of 75% of qualifying rent expenses for claim periods 22 to 26 and up to a maximum base subsidy rate of 37.5% of qualifying rent expenses for claim periods 27 and 28 (the claim periods are specified below).
Financial requirements (HHBRP)
HHBRP applicants must demonstrate a minimum revenue drop of 50% during the applicable claim period and must also have experienced a 12-month average revenue drop from March 2020 to February 2021 of at least 50%.
Rent expenses (or commercial mortgage interest expenses) of eligible entities will be reimbursed, on a sliding scale, up to a maximum base subsidy rate of 50% of qualifying rent expenses for claim periods 22 to 26 and up to a maximum base subsidy rate of 25% of qualifying rent expenses for claim periods 27 and 28 (the claim periods are specified below).
Qualifying rent expenses
Qualifying rent expenses include, but are not limited to: gross rent, percentage rent, base rent, operating expenses (including insurance and utilities), property taxes and other amounts payable to the landlord for services ancillary to the rental of the property. The most notable exclusions are: sales taxes, fees payable for discrete items or special services and reconciliation adjustment payments.
Furthermore, qualifying rent expenses are limited to amounts that are paid or payable by the applicant to an arm's length party for the claim period either (1) pursuant to a written agreement entered into before October 9, 2020 or (2) pursuant to the renewal (on substantially similar terms) or assignment of a written agreement entered into before October 9, 2020.
Amounts that are not paid at the time of the application will have to be paid no later than 60 days following payment of the subsidy for the applicable claim period.
Definitions of claim periods
The THRP and HHBRP apply to qualifying rent expenses for any of the following claim periods:
Period 22. October 24, 2021 to November 20, 2021
Period 23. November 21, 2021 to December 18, 2021
Period 24. December 19, 2021 to January 15, 2022
Period 25. January 16, 2022 to February 12, 2022
Period 26. February 13, 2022 to March 12, 2022
Period 27. March 13, 2022 to April 9, 2022
Period 28. April 10, 2022 to May 7, 2022
Application Process
The application portal is now open. Eligible entities must submit a separate application for each claim period no later than 180 days following the end of the applicable claim period. In exceptional circumstances, the CRA may consider (1) accepting original applications submitted after the applicable deadline or (2) a request to amend previously submitted applications after the applicable deadline.
Payment of the THRP and HHBRP
The THRP and HHBRP will be distributed through a deeming rule in the Income Tax Act, which deems an eligible entity to have made an overpayment of tax in the applicable claim period. The deemed overpayment is then refunded to the entity upon assessment by the Canada Revenue Agency.
Maximum amounts
The amount of qualifying rent expenses for a single qualifying property is capped at $75,000 per claim period. The amount of qualifying rent expenses for an eligible entity with multiple locations is capped at $1,000,000 per claim period. The aforementioned maximum amounts apply to the base subsidy only.
Lockdown support top-up
A lockdown support top-up of the THRP and HHBRP subsidy will be available specifically to eligible entities that experienced a reduction in revenues as a result of being forced to close or stop certain activities for at least 7 days due to a public health restriction under public health orders. The minimum 7-day period required by a public health restriction can span across two different claim periods. Entities that are eligible for the top-up subsidy will be reimbursed up to an additional maximum of 25% of qualifying rent expenses.
Footnotes
1 Eligible revenue generally includes an applicant's revenue earned in Canada from: selling goods, rendering services, and the use, by others, of the applicant's resources. The Government of Canada website provides a more comprehensive analysis of qualifying revenue.
2 Businesses and establishments that typically derive revenue from such activities include restaurants, bars, banquet halls, festivals, fitness centres, museums, hotels, casinos, cinemas, airports and travel agencies. The Government of Canada's comprehensive list of tourism, hospitality, arts, entertainment and recreation activities that may qualify for the THRP also specifies certain exclusions, such as facilities primarily engaged in retailing food or beverage products, including supermarkets and convenience stores.
3 A qualifying public health restriction means that the qualifying property (1) has stopped some or all of its regular business activities due to a public health restriction for at least 7 days in a row (the days can span across 2 different claim periods); and (2) has closed due to a public health restriction for at least 7 days during the applicable claim period (the days do not need to be in a row). The activities that were stopped due to a public restriction must have accounted for at least approximately 25% of the applicant's total eligible revenue during the prior reference period for the claim period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
