Arms length / Non arms length - expand details

[lbelmore-gc]

Based on feedback from call centre - there is a need to expand the definition for arms length / non arms length

• clarification to content
• add examples
• work with Ken to develop and validate content

[lbelmore-gc]

Adding some comments around non-arms length that have come in - to be reviewed for possible examples

From CFIB: • If the rent is considered non-arms length what about the property taxes? In this case, the business pays the property tax to the landlord which then goes to the city. Is that considered arm’s length or not? • If a business pays rent to essentially himself are they eligible to the CERS? • How does a renter capture property tax in their rent? Does it all go as one total on the calculator? • Property tax payment cash flows often don’t match up with most months’ rents. For example, one member’s property taxes are paid in 6 installments over the course of the year.

From Call Center:

• XYZ Holding Inc. is a holding company which owns a building. (landlord/lessor) ABCD Operating Inc. is the operating company, which runs a business in XYZ Holding Inc.’s building and pays rent to XYZ Holding Inc. (tenant/lessee) Both ABCD Operating Inc. & XYZ Holding Inc. are owned by the same physical person.

• Two CCPC’s are owned by the same directors and there is a rental agreement in place for company A (who's main business activity is offering catering for school lunches) to pay rent to Company B (who's main business activity is generating rental income). The rep is inquiring about eligibility in this scenario.

• TP has rented his own building for his corporation

• Corp A owns the plaza and rents one of the unit to Corp B. Corp A and Corp B share the same shareholder. Now since they are two separate legal entities will Corp B as a tenant be eligible for CERS?

• Director looking for clarification on non-arms length and eligibility as he leases space from his own corporation. Has been eligible for CEWS but is wondering if he will also be eligible for CERS.

• Corporation is renting from one of the directors of the corporation, are they still eligible for the CERS?

• His clients owns a building. His client also owns the company that rents the building he owns. The company is a Limited company. He is wondering if it is considered at arms length since the limited company is considered a person. If it is not at arms length, does he qualify for anything?

• Corporation has 4 shareholders, 1 of the shareholders owns 30% of the corp. That shareholder also owns the building that the corporation rents. How would this affect their CERS claim eligibility? Wondering if they count as non-arms length tenants.

• There are two corporations involving as owner and renter. But two corporations have same share holders. Requested information regarding claiming rent subsidy.

• One of the partners of the business that is renting also owns the company of the business he is in partnership with and wants to know if they can get CERS

• Pharmacy business is a corporation. It rents commercial space owned by another corporation. The two corporations are controlled by the same person. Are there non-arm’s length considerations in this situation that limit or exclude CERS eligibility?

• She has two affiliated companies( same Shareholders). One is a holding company( Just property) the other is the renter. She is wondering if she would qualify under the CERS program. She states the rent is at fair market value

• Corporation rents from non arms length holding company, would like to know if they are eligible or not.

• We pay rent to a holding company that’s owned 50% by the owner of the company that is paying the rent. The holding company pays the rent to a unrelated another company. She wants to know how this applies for the rent subsidy.

• Owner of the corporation is wondering if he would be eligible for CERS if his corporation has a rental property that is used to earn rental income. He is the landlord but due to COVID, he is not earning any income at the moment from this property and the CERS would help. His main question revolves around whether or not he would be eligible for CERS given his unique situation in that he is the landlord and his company pays him rent for the property during normal times.

Director of Corporation is also part owner of the rental property but less than 50%. They would like to know if they are still considered arms length.

• TP is a part owner of a health clinic corporation that is eligible for CERS as a renter and has applied. TP also owns a personal corp that pays rent to the health clinic. TP wants to know if her personal corp can also apply for the CERS.

• Building is owned by 2 corporations. One corporation runs a Hair Salon out of the Business. Looking for determination as to where this would fall within Non-Arms-Length and if he is okay, which corporation, if any, would be able to apply for CERS

[lbelmore-gc]

Adding an reference to an internal doc used for validation (sent by CVB)

The document is available on InfoZone. You will have to go to this link and you will find CERS – Legislation 101 under General Procedures http://infozone/english/r5065100/himsd/cers/rls_xpct_vld-e.html#leg1

Here is one reference that I found Step 1b - Non arm's length qualifying revenue 125.7(4)(d) RESULT: Normally, amounts an eligible entity receives from persons or partnerships that it does not deal with at arm’s length are not included in qualifying revenue. If all (or substantially all) of the eligible entity’s qualifying revenue is from persons or partnerships that it does not deal with at arm’s length, this provision allows each person or partnership to jointly elect with the eligible entity to use an alternate calculation in respect of those revenues. This calculation is complex and is outside the scope of reviews done in CVB. ACT: 125.7(4)(d)

[lbelmore-gc]

Adding technical notes from Ken

CERS non-arm's length Dec 2-clean.DOCX