Over the past few weeks, the three levels of government have taken the financial plight of Canadians seriously by introducing a number of measures ostensibly to ease the financial pressures caused by the COVID-19 pandemic.
These benefits take into consideration a broad range of subcategories: those who have lost income; renters and homeowners; families; seniors; students; businesses; and Canadians abroad. The measures include suspension of some enforcement rights, subsidies, grants, loans, tax and utility bill deferrals, calls for mortgage relief from banks, and requests to insurance companies to be more flexible with auto insurance.
There is no doubt these are well-intentioned efforts, but as with everything, the devil is in the details.
First —assuming one qualifies for some of these programs — they come with significant administration challenges, resulting in long waits in delivery of the assistance or access. This is compounded by technological problems caused by overload of government institutions and systems.
Second, some of these programs are vague requests from the government. At some level, these mere directions have to turn into concrete orders, such as in the context of banks and insurance companies that have been given too much discretion in whether they should assist and how. Some have shown more understanding and have been more co-operative than others.
Third, there must be better co-ordination between municipal, provincial and federal governments on how these economic relief initiatives would, or should, work together. In practice, there are too many gaps.
Fourth, a number of these efforts leave much uncertainty. Many provinces have commendably assured tenants they cannot be forced to pay rent or be evicted for non-payment. For instance, Ontario has adjourned all landlord and tenant hearings to ensure there will be no evictions until after the pandemic. Landlords, most of whom (contrary to public perception) are not big payers, are being left holding the bag, still having to cover maintenance, taxes, utilities and mortgage payments.
In the commercial context, there was even less clarity until last week when Ottawa announced an agreement in principle with the provinces to introduce the Canada Emergency Commercial Rent Assistance (CECRA) program. In Ontario, for instance, it will be known as the Ontario-Canada Emergency Commercial Rent Assistance (OCECRA) program. The idea is for tenants and landlords to share the impact with assistance from the government. The landlord and tenant would be expected to contribute 25 per cent each, with the provincial and federal governments coming up with the remaining 50 per cent.
As an illustration, a commercial tenant previously paying $1,000 monthly would pay only $250, the governments will loan $500 and the landlord will forgo $250. On the surface, it appears as if the landlord is taking a $250 monthly hit. To qualify (among other things) there must be a mortgage on the property and the money advanced under the program is being called a “loan.”
“The program will provide forgivable loans to qualifying commercial property owners to cover 50 per cent of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May, and June,” the federal government said in a statement.
"There is no doubt COVID-19 projects are well-intentioned efforts, but as with everything, the devil is in the details."
“The loans will be forgiven if the mortgaged property owner agrees to reduce the small business tenants’ rent by at least 75 per cent under a rent forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25 per cent of the rent.”
Landlords have expressed concerns about the qualification criteria and the administrative burden.
The governments have also called on banks to offer mortgage deferrals, but details are sketchy. Given that it is left up to the individual banks, there is a great deal of uncertainty. It is also highly unlikely that this loan deferral would be offered on investment properties, as opposed to owner-occupied properties. Moreover, as many observers have pointed out, even if a deferral is granted, the borrower will face compound interest on the deferred portion, including on the deferred interest component.
The Canada Emergency Wage Subsidy program is another source of potential help for businesses that is left wanting. It offers a 75 per cent wage subsidy to businesses that have lost 30 per cent of their revenue, or 15 per cent of their revenue in March and who expect at least 30 per cent loss going forward, as a result of COVID-19. It is available for up to 12 weeks, retroactive to March 15. To qualify for this, the employee must be on payroll. But what about the thousands of small family-run, unincorporated businesses with family members, including owners, who are not on payroll? They earned their incomes from their business operations, but are not covered. Why not?
These individuals also do not qualify for the Canada Emergency Response Benefit of $2,000 a month, because to qualify, the person must be without income for at least 14 consecutive days in the initial four-week period. Moreover, for subsequent benefit periods, they must expect to have no employment income.
This essentially means that they must shut down their business, which may not be advisable or even practical given that they still have expenses to cover.
In addition to reconsidering some of these programs, the government should also think outside the box and help Canadians help themselves. Many have financial nest eggs in their Registered Retirement Savings Plans (RRSPs). If plan holders could withdraw these funds tax-free and without penalty during this crisis, it would benefit them and the economy without costing the government. Existing rules only allow tax-free withdrawals under the Home Buyers’ Plan and the Lifelong Learning Plan, but offer an opportunity to add a “crisis withdrawal plan” to the mix.
Our governments have the right intentions to help us through this crisis, but there is plenty of room for improvement. Anything that will assist Canadians to weather this pandemic and have money to spend to boost and help rebuild our economy is worth exploring.