CRA provides guidance on definition of “qualifying rent expense” for Canada Emergency Rent Subsidy (CERS)

In a recent CRA technical interpretation (2020-0873491E5), the CRA provides some guidance on what additional expenses would meet the definition under paragraph 125.7(1) “qualifying rent expense” of the Income Tax Act.

The CRA confirms that where a lease is not a net lease, only the gross rent would meet the definition of qualifying rent expense. As a result, the CRA indicates that even if the lease contains a requirement for a tenant to pay for utilities, any payments made by the tenant for utilities will not be a qualifying rent expense.

With respect to net lease arrangements, the definition provides that additional amounts required to be paid under the net lease by the eligible entity may be a qualifying rent expense. For example, if a net lease requires a tenant to pay utilities as part of regular instalments of operating expenses customarily charged to the tenant, the CRA indicates that this payment is a qualifying rent expense.

The CRA notes however, to be considered a qualifying rent expense, the lease must require the payment; a lease that is silent with respect to a particular item does not, in the CRA’s view, satisfy this condition. Similarly, where a lease states that a tenant is “responsible for” a certain cost (but paying the cost is not a requirement of the lease), this would generally not constitute a qualifying rent expense. An example is provided by CRA to illustrate this.

CRA preparing supplemental guidance on international income tax issues

The CRA has updated their webpage on guidance on international income tax issues raised by COVID-19. The CRA indicates they are preparing a supplement which will provide further guidance on individual income tax residency, permanent establishment, and cross-border employment income. The CRA suggests that, if possible, affected individuals may wish to delay filing their United States or Canadian income tax return until this supplement is published, as there may be a significant difference from previous years’ returns.