2021-0881361E5 CERS - Self-Contained Domestic Establishment

Principal Issues: Whether a residential property in Canada that is a self-contained domestic establishment used in a business by an eligible entity can be “qualifying property”?

Position: No.

Reasons: The definition of “qualifying property” excludes a self-contained domestic establishment that is used by an eligible entity, or a person with whom the eligible entity does not deal at arm's length.

Author: Koh, Kah Foo
Section: 125.7; 18(12)

XXXXXXXXXX                                                               2021-088136
                                                                                        Kah Foo, Koh

November 23, 2021

Dear XXXXXXXXXX:

Re: Self-Contained Domestic Establishment Exception in the Definition of Qualifying Property

We are writing in response to your question regarding the definition of “qualifying property”, as defined in subsection 125.7(1) of the Income Tax Act (the “Act”), for purposes of the Canada Emergency Rent Subsidy (“CERS”) provided in subsection 125.7(2.1) of the Act.

More specifically, you asked if a residential property, occupied by a taxpayer unrelated to an eligible entity as a residence but used by an eligible entity in its business, would be excluded from the definition of qualifying property given that the definition precludes a self-contained domestic establishment (“SCDE”) from being a qualifying property under certain circumstances.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.

The CERS is based on a qualifying “eligible entity’s” “qualifying rent expense” in respect of a qualifying property for a “qualifying period” as those terms are defined in subsection 125.7(1) of the Act. For a property to qualify for the CERS, among other things, it must be a qualifying property of an eligible entity, which is defined in subsection 125.7(1) of the Act to mean real or immovable property in Canada used by the eligible entity in the course of its ordinary activities. However, property that is a SCDE used by the eligible entity or by a person not dealing at arm’s length with the eligible entity, or part of such a self-contained domestic establishment, the land subjacent to the self-contained domestic establishment and such portion of any immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the SCDE as a residence is precluded from being qualifying property (the “SCDE Exclusion”).

Pursuant to subsection 248(1) of the Act, a SCDE means a dwelling-house, apartment or other similar place of residence in which place a person as a general rule sleeps and eats. Whether a property is a SCDE is a question of fact. All relevant facts and circumstances of the particular situation, including the provision of the Act being applied, would need to be considered before making any determination as to whether a property would be an SCDE.

For any given qualifying period, the SCDE Exclusion applies whenever a SCDE was used by the relevant eligible entity or by a person not dealing at arm’s length with the eligible entity (“NAL person”) for any purpose, and is not limited to situations where the SCDE was used as a residence by the eligible entity or NAL person. The phrase “as a residence” included at the end of the description of the SCDE Exclusion does not limit the scope of the first part of the SCDE Exclusion, which refers to a “SCDE used by the eligible entity or by a person not dealing at arm’s length with the eligible entity”.

With respect to your question, on the assumption that the residential property used by the eligible entity in its business was a SCDE during the relevant qualifying period, that residential property would be precluded from being qualifying property of the eligible entity for that period since it was a SCDE used by the eligible entity.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette CPA, CA
Acting Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate

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