Canada Emergency Rent Subsidy (CERS) – as extended by Order in Council 2021-0882 & as further extended by Bill C-2

Providing a rent subsidy to employers with reduced revenues.

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

For CERS Periods 15 to 21 (24 October 2021 to 7 May 2022), businesses must demonstrate that they have a sufficient average year-over-year revenue loss across the first 13 CEWS periods. The required revenue loss is 40% for businesses in the travel and hospitality sector or subject to a qualifying public health restriction, and 50% for businesses in all other sectors.

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 are capped at $75,000 per month per location with an overall cap of $300,000 per month shared among affiliated entities. For periods CERS Periods 15 to 21 (24 October 2021 to 7 May 2022), the cap across affiliated entities is increased to $1,000,000.

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

Overall, the distribution of revenue declines in each 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, air transport, and food service and drinking places), a linear model was fit to the relationship between each industry groups’ revenue shocks and the corresponding subsector GDP shocks in the PBO economic model. Using the fitted relationship, future revenue changes relative to July 2021 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 July 2021 GDP shock for each industry group to projected changes in the sector GDP shocks relative to September. The general relation between revenue and GDP shocks as a result of COVID-19 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 convert industry wide revenue shocks into distributions of revenue losses within that industry.

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. For periods 22 to 26, the cap at the ultimate parent level was increased to $1,000,000.

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.

We expect that the extension of the Canada Emergency Rent Subsidy (CERS) by Bill C-2 will result in an additional $676 million in subsidies being paid beyond those already approved by Order in Council 2021-0882. Of these additional subsidies, we expect $134 million to be paid under the Tourism and Hospitality Recovery Program, and $542 million to be paid under the Hardest-Hit Business Recovery Program. With this extension, we expect the gross cost of the CERS to be $8.3 billion. This represents a net cost to the federal government of $7.2 billion after accounting for corporate income tax recoveries.

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.  This cost estimate relies on the GDP projection in the PBO’s economic model and is affected by the sources of uncertainty inherent in that model, including the assumptions regarding the impacts of COVID-19. Other sources of uncertainty include: the extent to which eligible businesses use the program, the extent to which the distribution of revenue losses may become more or less concentrated over time, and the extent to which revenue losses may be affected by the increasingly time elapse relative to the pre-COVID-19 comparison period. This estimate assumes all incremental corporate tax revenues are realized in the year the subsidy is paid, while the actual revenues arising from mitigating current corporate losses may be realized in subsequent tax years.

• 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.