In the news | Espace | Navigating the COVID-19 Relief Measures available to property owners and tenants

Authored by: Stéphanie Lincourt, CPA Auditor, CA, Partner, Richter; Katherine Borsellino, LL. B, J.D., LL. M. Fisc., Senior Manager, Richter; and Laurent Brunet-Schmidt, CPA, CA, Senior Manager, Richter

With contributions by Harvey Sands, CPA, CA, ICD, Consultant, Richter


As originally appearing in Espace Montreal, volume 30, #1, 2021.


The COVID-19 pandemic has created new operating and fiscal realities on landlords, tenants, lenders and investors. As a response, the government announced various relief programs. The complexity of these programs and these uncertain times have left many business owners and real estate stakeholders wondering how to make sense of it all and required them to adapt many aspects of their operations.

We have seen too often that property owners and their managers must educate and incentivize their tenants to pursue relief measures which can provide essential cash flow to tenants and their landlords and reduce pressure on property owner’s to underwrite the COVID-19 pandemic financial impacts.

To help navigate these disorienting waters, we provide below an overview of some of these relief programs, their tax considerations as well as certain considerations and impacts on year-end financial statements resulting from the COVID-19 pandemic.

Canada Emergency Business Account (“CEBA”)

Under the CEBA, certain eligible small business can obtain interest free loans up to $60,000 to cover operating expenses. Loans repaid on or before December 31, 2022, will result in loan forgiveness of up to $20,000.

Canada Emergency Wage Subsidy (“CEWS”)

Under the CEWS, an employer subject to certain monthly revenue declines between March 2020 until May 2021 can claim a subsidy for wages earned by their employees. The revenue decline is measured by comparing monthly gross revenues to the corresponding month in 2019 or the average revenues in January and February 2020[1]. Monthly gross revenues are calculated using the accrual method of accounting, ASPE or the cash method[2]. Certain elements must be excluded such as extraordinary items, capital gains, amounts received under certain government programs as well as amounts received from non-arm’s length (NAL) entities. As well, charities and not-for-profit organizations and certain business groups can benefit from special rules to ease the revenue calculation and determine the revenue decline.

Canada Emergency Rent Subsidy (“CERS”)

The framework of the CERS is very similar to the CEWS. Effective as of September 27, 2020, commercial property owners and tenants subject to a revenue decline can receive a subsidy in respect of certain expenses. Per property per period, a subsidy of up to 65% can be claimed against the lesser of $75,000 of expenses and the applicant’s share of $300,000 of expenses (if the applicant is a member of an “affiliated group”[3]). An additional subsidy of up to 25% of $75,000 of expenses per property, per period, is available if an applicant is subject to a “public health restriction”[4]. Eligible expenses that can be claimed by a tenant include gross rent paid to a third-party landlord and other expenses provided under a net lease but excludes certain items such as sales taxes, interest, penalties and damages. Eligible expenses that can be claimed by a commercial property owner include mortgage interest, insurance and property taxes on a property which is not rented or property which is rented primarily to NAL entities (who themselves carry on a non-rental business).

Canada Emergency Commercial Rent Assistance (“CERCA”)

The CERCA provided financial assistance to commercial property owners during the months of April 2020 to September 2020. The program eligibility was complex and accessibility somewhat restrictive, requiring commercial property owners to grant a 75% rent reduction to certain “eligible small business tenants” who experienced a 70% average revenue decline during April 2020 to June 2020. In turn, the commercial property owners received a 50% federal subsidy and a 12.5% Quebec subsidy in respect of the forgiven rent.

Government assistance

Although each subsidy is taxable as government assistance, there can be differences between the treatment under accounting standards and Income Tax Act.

Under current accounting standards, government assistance related to current expenses or revenues is included in income during the year in which the claim period falls. The subsidy can be presented as a separate line on the financial statements or netted against the related expenses.

For tax purposes, the CEWS and the CERS must be included in income during the year in which the claim period ends, even no amounts were yet received. However, the amount of the subsidy received under CERCA as well as the loan forgiveness under the CEBA must be included in income during the taxation year in which the funds were received. In the case of the CEBA, if the remaining loan balance is not repaid before the deadline or if all or part of the loan cannot be repaid, the taxpayer may be subject to additional tax implications.

Lease accounting

The pandemic disrupted the real estate industry as many businesses were facing revenue decreases due to shutdowns. This resulted in landlords not collecting the rent they were entitled to and therefore, a common avenue adopted to alleviate tenants’ financial burden was to offer rent concessions either in the form of deferral or waiver of rent payments.

Under current accounting rules, such lease modifications would be categorized as a new lease agreement between the parties, requiring the derecognition of the previous lease. The amount of work required to reflect this treatment and the resulting impact on financial statements, caused concern among preparers. In order to alleviate those concerns and provide relief to preparers, the Accounting Standards Board has allowed preparers to choose not to account for the rent concession as a new lease where such concessions where the following conditions are met[5]:

  • the rent concession occurred as a direct consequence of the COVID-19 pandemic;
  • the total payments resulting from the rent concession are the same or less than the total payments required under the original lease. A rent concession that increases the total payments required for the lease contract would not be considered a direct consequence of the COVID-19 pandemic, except to the extent the increase reflects the time value of money; and
  • any reduction in lease payments affects only payments originally due on or before December 31, 2021 (for example, a rent concession in the form of a deferral of lease payments will meet this condition if it results in reduced lease payments on or before December 31, 2021, but the lease payments are paid after December 31, 2021).

As a result of this relief, all leases can continue to be recorded as they were originally negotiated. Any rent deferral will be identified as a lease payable or receivable and any reduction in total lease payments can be recorded as a reduction of revenue in the period to which the lease payments relate.

Other financial considerations

While preparing year-end financial statements, it will be important to consider the following points/questions:

Collectability of accounts receivable

Beyond rent concessions, the collectability of accounts receivable may be jeopardized. Some tenants have suffered from extended closures and allowance for doubtful accounts and bad debt provisions may be at an all-time high for landlords and can provide important tax savings on amounts of income that are receivable; while taxes thereon are currently due.

Impairment and going concern

Is it too early to recognize an impairment on a revenue-producing property? We are still uncertain as to what the post-pandemic world will look like, but it is important to consider the following points which have a direct impact on the value of the revenue-producing properties:

  • Loss of anchor tenants;
  • Incapacity of tenants to operate for a prolonged period;
  • Increased vacancy;
  • Non-renewals;
  • Reduced square footage of tenants;
  • Reduced rental income;
  • Uncollectible rent;
  • Increased operating costs.

All of the above can be an indication that the value of the revenue-producing property might be impaired.

For certain classes of assets, which have been more impacted by the shutdowns, a going concern issue may prevail. The absence of tourists and business travel has impacted the hotel operators, restaurant owners and entertainment centres (theatres, cinemas, etc.). Can those assets be repurposed? Will they be disposed at a loss?

Debt covenants and subsequent events

There is no question that 2020 was an unusual year, where companies had little to no control in respecting their debt covenants. For many businesses, the breach of covenants was not a result of poor management but rather due to imposed shutdowns. Mortgage moratoriums helped in many instances but are not a permanent solution. Proper cash flow management, projections encompassing various scenarios, and transparency with lenders are key in these critical times.

While 2020 might be part of our collective past, the pandemic is still affecting many individuals and businesses to this day. Vaccine rollout and changing health measures bring new hope for the health and safety of all, but it is still too early to say with certainty how different 2021 will be for business owners. The uncertainty and unprecedented nature of the pandemic could certainly explain the complexity of the situation.

That said, understanding the impact of the evolving COVID-19 measures adopted by business owners and governments remain essential to properly evaluate tax and financial considerations and impacts on year-end financial statements.


[1] Whichever point of comparison is chosen must be applied consistently during certain periods throughout the program.

[2] The accounting method selected must be applied consistently throughout the entire duration of the program.

[3] “Affiliated” has a specific definition for tax purposes.

[4] “Public health restriction” has a specific definition for tax purposes.

[5] Accounting Standards for Private Enterprises, section 3065 par.11A