May 19, 2026
Overview – A Toronto Business Owner, the COVID-19 Pandemic, and the Canada Emergency Rent Subsidy Program
Milne v The King is a 2026 decision from the Tax Court of Canada regarding taxpayer eligibility for the Canada Emergency Rent Subsidy (“CERS”) program in which the taxpayer operated a business out of a dedicated portion of his home. The central issue before the Tax Court was whether a taxpayer could claim the CERS for the business-use portion of rent paid for a home where the business space formed part of the taxpayer’s residence. Ultimately, the Court found that the taxpayer could not claim the CERS in these circumstances.
In May 2019, Brad Milne rented a single-family home in Toronto. He also operated his business, an acting studio, in a dedicated space within the rented house. The lease specifically permitted Mr. Milne to use up to 25% of the home for his acting studio. The business area was not a separate commercial unit, but rather a section of the home divided from the living space by a room divider.
On October 9, 2020, the Canadian federal government announced the CERS program. This program was introduced to help businesses, charities, and non-profits continue paying commercial rent during pandemic-related shutdowns and revenue losses.
Mr. Milne applied for the CERS in March 2021 and claimed 25% of his monthly rent for the business use of his rented house, as permitted by the lease. He claimed CERS for qualifying periods from September 27, 2020, to February 13, 2021, and received the amounts claimed. Because the CERS was a government benefit paid out based on self-reported eligibility, the CRA retains the authority to reassess recipients after payments have been made. If the CRA reassesses recipients and finds that they were not eligible for the benefits, the basis for receiving the benefits no longer exists, and repayment of those amounts will typically be required.
Ultimately, the Tax Court held that a business operated inside a taxpayer’s home does not qualify for the CERS where the business space forms part of the taxpayer’s residence. The Court’s reasoning was grounded in the words of the Income Tax Act, which explicitly exclude self-contained domestic establishments and parts thereof, reflecting Parliament’s intent that CERS only apply to business owners who leased properties separate from where they lived.
Did a Home-Based Acting Studio Qualify for the Canada Emergency Rent Subsidy?
The CRA determined that Mr. Milne did not qualify for the CERS he received because (1) Mr. Milne did not have a “qualifying rent expense” because he did not enter into a written lease agreement before October 9, 2020 and (2) the application was not for a “qualifying property” because it was a self-contained domestic establishment where Mr. Milne resided. A self-contained domestic establishment is defined in subsection 248(1) of the Income Tax Act as the residence where a person generally eats and sleeps.
The CRA’s first argument was abandoned after Mr. Milne produced his lease that was executed on May 26, 2019. Therefore, the question at issue before the Tax Court of Canada was whether Mr. Milne had a “qualifying property” as defined in the CERS provisions of the Income Tax Act. Mr. Milne argued that because a portion of the home was formally designated for business use under the lease and used for his acting studio, that portion should qualify for the subsidy.
In other words, the key legal issue in the case was whether the portion of Mr. Milne’s home used for his acting studio could be treated as a “qualifying property” for CERS purposes, even though the home was also a self-contained domestic establishment where he lived.
The Tax Court of Canada’s Finding: A Home-Based Acting Studio Is Not a Qualifying Property Under the Canada Emergency Rent Subsidy Program
To support his position, Mr. Milne relied on Sudbrack v HMTQ, 2000 DTC 2521 [Sudbrack], which applied a definition of “self-contained domestic establishment” as set out in subsection 18(12) of the Income Tax Act. Subsection 18(12) prevents individuals computing income from a business from deducting amounts in respect of a self-contained domestic establishment where the individual resides, except where the workspace is either the individual’s principal place of business or is used exclusively for earning business income and on a regular and continuous basis for meeting clients. In Sudbrack, the taxpayers were inn owners who purchased a home and renovated it into an inn, with a private living area for the taxpayers. The taxpayers wanted to claim losses from the operation of the inn, but the CRA disallowed the losses on the basis that the inn was a “self-contained domestic establishment.” The Tax Court defined “self-contained domestic establishment” as the separate apartment within the inn. Mr. Milne relied on Sudbrack to argue that, just as the Court there treated only the private apartment as the “self-contained domestic establishment,” his acting studio should similarly be treated as separate from his personal residence and therefore eligible for the CERS.
However, the Tax Court noted that this definition is used in the loss-restriction context, has different wording from the CERS definition of “qualifying property,” and does not refer to a part of a self-contained domestic establishment. Furthermore, the Court emphasized that the facts in Sudbrack differed from Mr. Milne’s situation because Sudbrack involved a large inn with a separate apartment built for the owner’s use. Comparatively, Mr. Milne’s acting studio is not a separate unit; it is part of the home. Since Sudbrack arose in a different legal context, involved materially different facts, and applied a differently worded provision, the Tax Court found that it did not support Mr. Milne’s position.
Mr. Milne also relied on one of the CRA’s advanced rulings addressing whether a business property also containing a separate self-contained domestic establishment would qualify for the CERS benefit. Taxpayers often rely on CRA publications, interpretations, and advance rulings when determining eligibility for government benefit programs, although those materials are not legally binding on the courts. CRA guidance can be helpful, may not be enough to support a taxpayer’s position if statutory wording or case law points in a different direction. This is where the advice of an experienced Toronto tax lawyer becomes valuable. A knowledgeable Canadian tax lawyer can help taxpayers understand the difference between CRA administrative guidance and the legal rules that a court will actually apply.
In the advanced ruling, using the example of a single building with a grocery store and separate apartment, the CRA stated that the grocery store property would still qualify. In response, the Tax Court found that Mr. Milne’s facts are the opposite of those used by the CRA as Mr. Milne’s property was a single-family home, not a mixed-use building with separate residential and commercial units. In other words, the CRA’s example involved a truly mixed-use building with physically separate commercial and residential spaces, whereas Mr. Milne’s business operated inside his personal residence. As such, the CRA’s advanced ruling did not apply to Mr. Milne’s situation.
The designation of Mr. Milne’s house as a self-contained domestic establishment was not disputed.
To determine whether Mr. Milne was entitled to the CERS benefit, the Tax Court turned to the wording of the tax legislation itself. The Court examined the definition of “qualifying property” in subsection 125.7(1) of the Income Tax Act. In simple terms, the provision excludes from “qualifying property” homes, or parts of homes, used as residences by the taxpayer. The relevant portion of the definition states:
qualifying property, of an eligible entity for a qualifying period, means real or immovable property (other than property that is a self-contained domestic establishment 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 self-contained domestic establishment as a residence) in Canada used by the eligible entity in the course of its ordinary activities.
The Court held that the definition in subsection 125.7(1) addressed Mr. Milne’s situation. Based on the definition, the Tax Court ruled that parts of a taxpayer’s residence and attached land that forms part of its use and enjoyment, are excluded from qualifying property for the CERS purposes.
The Tax Court found that the exclusion applied to Mr. Milne because his acting studio was part of a self-contained domestic establishment, the house he rented, and thus, Mr. Milne was not eligible for the CERS. The Tax Court also noted that the CERS requirements demonstrate that Parliament intended to limit the CERS to business owners who leased properties separate from where they lived, and the Court stated that it could not ignore the wording chosen by Parliament.
What Does the Milne Decision Mean for Canada Emergency Rent Subsidy Recipients?
The CERS program is now closed, but recipients should be aware that the CRA retains the authority to reassess CERS eligibility after payments have been made. A reassessment may require a recipient to repay subsidy amounts previously received. While the Income Tax Act generally imposes a three-year normal reassessment period, that limitation does not apply where the CRA can establish that a taxpayer made a misrepresentation attributable to neglect, carelessness, or wilful default. Whether that exception applies will depend on the specific facts of each claim. This means that even taxpayers who received and spent subsidy payments years ago may still face repayment demands if the CRA later determines the claim was improper.
The decision may be particularly relevant to small businesses and sole proprietors who operated from home during the COVID-19 pandemic and claimed rent-related subsidies. Recipients who claimed the CERS for home-based businesses, even ones with a dedicated space and a lease formally allocating a portion of the property to business use, should consider whether their claim is supportable in light of this decision.
Pro Tax Tips: Lessons About Applying for and Receiving Benefits from a Government Subsidy or Benefit Program
- Government benefit programs each have their own eligibility criteria, and those requirements can be technical and difficult to interpret. As Milne demonstrates, a good-faith misunderstanding of eligibility requirements will not protect a recipient of the benefit who is later found to be ineligible, even where the recipient made a genuine effort to comply, such as securing a formal lease allocation. Before claiming any government benefit, carefully review the eligibility criteria and, where there is any doubt, seek the advice of a Canadian tax lawyer.
- Be cautious about relying on CRA policy statements or advanced rulings. The Tax Court in Milne rejected the taxpayer’s reliance on a CRA advanced ruling because it addressed a materially different property arrangement. CRA guidance is fact-specific and applying it to a different set of circumstances may not provide the protection a recipient expects.
- If you received the CERS for a home-based business and are concerned about your eligibility, consider filing a voluntary disclosure through the CRA’s Voluntary Disclosure Program. The Voluntary Disclosure Program gives taxpayers the opportunity to correct errors or omissions and can help reduce penalties and interest. If you are considering the Voluntary Disclosure Program, contact a top Canadian tax lawyer before proceeding.
If you are concerned about how the decision in Milne may affect your exposure to a CRA reassessment of your Canada Emergency Rent Subsidy claim, contact our experienced Canadian tax lawyers for guidance and representation.
Frequently Asked Questions: Canada Emergency Rent Subsidy Eligibility, Qualifying Property, and CRA Reassessments
Can the CRA reassess my Canada Emergency Rent Subsidy claim even though the program is closed?
Yes, in certain circumstances. The Income Tax Act generally limits the CRA to a three-year normal reassessment period from the date of the original assessment. However, that period does not apply where the CRA can establish that a taxpayer made a misrepresentation attributable to neglect, carelessness, or wilful default. Whether this exception applies depends on the specific facts of each claim. Recipients who are uncertain about their eligibility should consult a Canadian tax lawyer to understand their potential exposure before the CRA makes contact.
What options are available if the CRA has reassessed me and is demanding repayment of Canada Emergency Rent Subsidy amounts?
Recipients who receive a CRA reassessment have the right to file a notice of objection, which is a formal process asking the CRA to internally review and reconsider the reassessment. If the objection is unsuccessful, the matter can be appealed to the Tax Court of Canada. At the Tax Court, both the factual basis of the reassessment and any penalties imposed can be challenged. Since the Milne ruling turns on specific facts, not every home-based business situation will produce the same result, and there may be meaningful distinctions available depending on the nature of the property and the claim. Strict deadlines apply at each stage of this process, so it is important to contact our experienced Canadian tax lawyers as soon as possible after receiving a reassessment.
I collected the CERS for a business I ran from a dedicated space in my home, and my lease formally allowed a percentage of my property for business use. Does that mean I was ineligible for the CERS?
The decision in Milne may mean that you were ineligible for the CERS. In Milne, the Tax Court held that a formal allocation of property in a lease for a home is not enough to meet the requirements for the CERS. The statutory definition of “qualifying property” in subsection 125.7(1) of the Income Tax Act excludes self-contained domestic establishments and parts thereof, regardless of what a lease provides. If the CRA has raised concerns about your claim or if you are concerned about your eligibility, a Canadian tax lawyer can assess whether any arguments are available based on your specific property and circumstances.
DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
