Does Your Pharmacy Qualify For the Canada Rent Subsidy?

The Federal Government announced on Friday that applications for the Canada Emergency Rent Subsidy (CERS) will start this Monday, November 23^rd.

The CERS program replaces the Canada Emergency Commercial Rent Assistance (CECRA) program which has now ended. This new rent program will provide benefits directly to tenants, instead of having to rely on landlords to apply.

While applications start Monday, benefits will be retroactive to September 27, 2020 and the program will run until June 2021.

If you qualify, you can receive up to $75,000 in benefits per pharmacy and up to a maximum $300,000 if you own multiple pharmacies.

Does your pharmacy qualify? Here is what you need to know.

Does Your Pharmacy Qualify?

You must show a decline in revenue in order to qualify.

There are two approaches to calculate your decline in revenue and once you choose one approach, you must use this approach for all future periods.

The first approach is the “General Approach” which compares this month’s revenue to your revenue in the corresponding month last year; if you can show a decline year-over-year, you qualify.

The second approach is the “Alternative Approach” which compares this month’s revenue to the revenue average of January + February 2020. 

So yes, newer pharmacies, can also potentially qualify for this CERS program.

Source: Canada.ca

Important! Whatever approach you choose, it must be identical to the approach you use for the Canada Emergency Wage Subsidy (CEWS).

For example, if you apply for the CEWS using the year-over-year approach, then you MUST apply for the CERS using the year-over-year approach.

In addition, you must meet one of the following criteria:

1. Have a payroll account as of March 15, 2020;
2. Have a business number as of September 27, 2020; or
3. Meet other conditions that may be prescribed in the future

How Much Will Your Pharmacy Receive?

The benefit amount you receive will depend on the revenue decline.

The subsidy is calculated with a base rate + top up for those businesses that have been forced to completely shutdown due to a public health order.

Since pharmacies have not been mandated to shutdown at any point throughout this pandemic, we will not explain what the top up is because you don’t qualify for it anyway since you’re considered essential services.

The maximum base rate subsidy is 65%, and is available to pharmacies with a revenue drop of 70% or more.

The base rate declines to a rate of 40% for pharmacies with a revenue drop of 50%, and gradually reduces to 0%.

We have been following our client’s numbers closely throughout the pandemic. On average, if you do qualify for a period, you will likely qualify for the 1% to 49% range.

 Source: Canada.ca

The maximum you can receive is $75,000 per location and be subject to an overall cap of $300,000 for all your pharmacies combined.

Let us look at the expenses you can claim to maximize the subsidy.

What Expenses Can You Claim?

Eligible expenses that the subsidy covers include:

• Commercial rent
• Property taxes (including school taxes and municipal taxes)
• Property insurance
• Interest on commercial mortgages (subject to limits) for a qualifying property, less any subleasing revenues
• Any sales tax (e.g., GST/HST) component of these costs is not an eligible expense

Eligible expenses are limited to those paid under agreements in writing entered before October 9, 2020 (and continuations of those agreements) and are limited to expenses related to real property located in Canada.

Expenses that relate to your home (e.g. personal residence or cottage) are not eligible.

Payments made between non-arm’s-length entities would not be eligible expenses. In our opinion, we interpret this to mean that if you own the unit where your pharmacy operates, you can’t claim the rent your pharmacy is paying to your real estate holding company.

If you rent out space to third parties, mortgage interest with respect to the rental income received from these third parties is not eligible.

Example

Let us run through a sample calculation for Period 8 CERS subsidy using the following assumptions:

Your revenue was down 10% when comparing September 2020 to September 2019.

Your revenue was down 12% when comparing October 2020 over October 2019.

Your eligible expenses (rent, taxes, etc.) for period 8, which runs from September 27 to October 24, 2020, is a combined total of $12,000.

You would use the greater revenue decline of the two months, which would be 12%.

Period 8 subsidy = 12% decline * 0.8 * $12,000 = $1,152 subsidy.

Like the CEWS, you can expect payment within 5-10 business days.

How Long Does The Rent Program Run For And How Can I Apply?

The program is set to run until June 2021.

The details we mentioned above will remain in place for the first 12 weeks of the program, until December 19, 2020.

After this date, the program details may change. If they do, you can be certain that we will update you.

The application is not yet available but it will be on the Canada.ca site under COVID-19 support for businesses Canada Emergency Rent Subsidy (CERS).

Conclusion

After listening to complaints of business owners across the country, the Government has introduced the new CERS program, replacing the current CECRA.

This new CERS program allows tenants to apply and receive benefits directly, instead of having to depend on landlords.

If your pharmacy has suffered a revenue decline, you may be eligible to receive up to $75,000 per pharmacy, up to a maximum of $300,000 if you own multiple stores.

The benefit is retroactive to September 2020, so you’ll have to compare your monthly revenues from the same month last year OR to the average of January + February 2020.

Whichever approach you use MUST be consistent with the method used when applying for the CEWS.

Applications start on Monday, November 23rd and you have 180 days to apply for the subsidy so don’t worry if need time preparing your application.

You will need to apply every month that you qualify, until June 2021.

For fastest payment possible, please ensure that you have direct deposit setup on your CRA My Business Account.

If you need help applying, please schedule a free consultation here and we can discuss how we can help you.

About the Author

Ricardo helps pharmacists like you pay less tax, grow your pharmacy, and grow your wealth.

Prior to starting Pharma Tax, Ricardo worked at another accounting & wealth management firm focused on dentists. Pharmacists were coming on as referrals and all said the same thing: what you guys are doing for dentists, we need that specialist for pharmacy. Hence, Pharma Tax was born.

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