Canada Emergency Rent Subsidy and Lockdown Support up to June 2021

Providing rent assistance to businesses.

The rent assistance will be provided as direct transfers to businesses with revenue declines, covering the period from 27 September 2020 to June 2021. The subsidy rate for March 2021 is assumed to also apply for the April to June 2021 periods. Consistent with the magnitude of the Department of Finance’s estimates, it is assumed that for April to June of 2021, revenues will be compared to a reasonably constant baseline unaffected by COVID-19.

Rent assistance is calculated as a percentage of eligible expenses which is greater for businesses with greater revenue declines, as shown below.

An additional 25% subsidy is available to businesses that are forced to temporarily close certain locations or have their business activities significantly restricted by a direct mandatory public health order.

Eligible expenses include commercial rent, property taxes, property insurance, and interest on commercial mortgages (subject to conditions), less any subleasing revenues. Expenses for each qualifying period would be capped at $75,000 per month per location with an overall cap of $300,000 per month shared among affiliated entities.

The program is not cost-shared with provinces or territories.

Other transfer payments

Overall, the distribution of revenue declines by industry was estimated using survey data on sales and the PBO economic model. Eligible expenditures were estimated based on income tax data. Businesses eligible for lockdown support were identified based on public health measures and revenue declines. Finally, the revenue decline distribution, eligible expenditures, and subsidy rates were used to calculate subsidies for each industry.

Distribution of revenue declines

For subsectors where monthly sales or revenue data are available (specifically retail, wholesale, manufacturing and air transport), a linear model was fit to the relationship between each industry groups’ revenue shocks[^1] and the corresponding subsector GDP shocks in the PBO economic model. Using the fitted relationship, future revenue changes relative to September for each industry group were projected based on changes in the GDP shocks in the broader sector. Using the revenue and GDP data for these industry groups from April to September of 2020, the general relation between revenue and GDP shocks arising from COVID-19 was established.

For industries without monthly sales or revenue data, an industry group GDP projection was created by indexing the September GDP shock for each industry group to projected changes in the sector GDP shocks relative to September. The relation between revenue and GDP shocks as a result of COVID was then applied to convert these GDP shocks to revenue shocks.

A custom tabulation of the distribution of April to June revenue losses in retail, wholesale, and manufacturing industry groups was used to estimate the distribution of revenue losses for all industries.

Calculation of eligible expenditures

Using income tax data, eligible business expenditures were calculated for each industry group across corporations, trusts and individuals. This calculation included all reported non-residential real estate rental expenses, eligible interest on mortgages, property taxes, occupancy costs, condominium fees, and commercial property insurance expenses, minus real estate rental revenues. Detailed expenses were imputed for businesses without detailed expense reporting, informed by the income tax data.

Commercial property insurance expenses were imputed by allocating total commercial property insurance premiums in proportion to amortized real estate asset values of corporations.

After these pre-cap eligible expenses were calculated, a cap of $75,000/month multiplied by the number of locations was applied at the business level, and a cap of $300,000/month was applied at the ultimate parent level.

The eligible expenditures were inflated from 2017 to 2020 based on revenue trends among non-residential lessors of real estate.

Identification of businesses eligible for lockdown support

Businesses eligible for lockdown support were identified by two characteristics: first, they suffered a revenue loss of at least 50%; and second, they are in an industry subject to restrictions by a public health order in at least one region of one province at the start of November 2020.

The revenue shocks used for this estimate are based on sales data, which does not capture revenues from other sources. Despite a good fit, the linear model of the relationships between revenue and GDP shocks may not fully capture some dynamics such as pent-up demand. This cost estimate relies on the GDP projection in the PBO’s October economic model and is affected by the sources of uncertainty inherent in that model, including the assumptions regarding the impacts of COVID-19. The revenue shock distribution understates the variability which occurs in a particular month due to aggregation.

The reliability of expenses reported in income tax filings is unclear due to a lack of other data sources, against which reported expenses can be validated. The impact of the cap across affiliated entities may be understated because this estimate does not account for affiliations between businesses which do not share an ultimate parent. The impact of the cap per location may be understated because this estimate does not account for variation in eligible expenses by business location.

• Estimates are presented on an accruals basis as would appear in the budget and public accounts.
• Positive numbers subtract from the budgetary balance, negative numbers contribute to the budget balance.