Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 209926
Dear [Client]:
Subject: GST/HST INTERPRETATION
Eligibility for the Public Service Bodies' Rebate at the Municipal Rate
This refers to your letter dated March 3, 2020, in which you request whether the operation of a new housing project by an undisclosed charity (Charity) that has been designated a municipality in respect of the provision of rent-geared-to-income (RGI) housing includes designated activities eligible for municipal rebate under section 259 of the Excise Tax Act (ETA).
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts as follows from the information you provided:
1. An unnamed organization (Charity) is a registered charity that has been designated as a municipality pursuant to subsection 259(1) of the ETA in respect of its housing units in a housing project that are supplied to tenants on an RGI basis and for which a government subsidy is payable.
2. Under a new housing project, the Charity has leased from a commercial real estate developer [#] self-contained residential units in a [#] multi-unit residential complex owned by the developer subject to a head lease. The Charity leases the units to tenants as affordable housing units under the terms of […][the Agreement] between […][the Organization] and the Charity, dated [mm/dd/yyyy]. The units leased are interspersed on multiple floors throughout the building.
3. Under the terms of the Agreement,:
a. the Charity has entered into a [#] year lease agreement with the developer for the new housing project.
b. the new housing project is owned and operated by the Charity under this agreement and consists of [#] residential units for households who at the commencement of residency, have low and moderate income.
RGI and Deep Subsidy Units
c. Proof of Income and Assets: The Charity will follow [the Organization’s] rent calculation policies and procedures as may be changed from time to time. The Charity will obtain a declaration (“Declaration of Income”) and supporting documentation as evidence of the income and assets of that resident at the time of the initial residency and annually thereafter to determine the rent.
d. Rent: Residents will pay rent based on the Rent Scale, and any resident’s rent will not exceed the current market rent.
Market Units
e. Proof of Income and Assets: The Charity will obtain a declaration (“Declaration of Income”) and supporting documentation as evidence of the income and assets of that resident at the time of the initial residency.
f. Prior to the Commencement Date, the initial rent for Market Units will be set at the market rent for that unit type in the community, as approved by [the Organization].
Resident Eligibility
g. RGI and Deep Subsidy Units: Households with low incomes are eligible for housing in RGI and Deep Subsidy Units.
h. Market Units: Households with moderate incomes are eligible for housing in Market Units.
Resident Income Mix
i. The Charity will make all reasonable efforts to achieve the Residential Revenue amounts in the approved Operating Budget and maintain the target resident income mix by selecting residents with a blend of incomes:
I. [#]% of units will be Market Units for moderate income households;
II. [#]% of units will be RGI Units for low income households;
III. [#]% of units will be Deep Subsidy Units for deep subsidy income households.
j. The residency in the units is provided on a month to month basis.
Funding Assistance
k. Funding: [the Organization] will provide funding in the form of forgivable and repayable loans to facilitate the acquisition of the new housing project.
l. Operating Subsidy: [the Organization] will provide a monthly Operating Subsidy as approved in the annual Operating Budget.
4. According to [the Organization’s] Rent Calculation Guide, under Subsidy Payments, economic rent is the overall operating cost for each RGI Unit. When a resident’s Tenant Rent Contribution (TRC) is less than economic rent, […][the Organization] will provide a subsidy to make up the difference between the TRC and the operating cost for that unit. This does not apply to units where residents pay market rent.
5. The new housing project will replace [#] to [#] existing low-income housing projects. The former tenants of the existing projects have the right of first refusal to the [#] units, as long as they remain in compliance with the income tests pursuant to [the Organization]’s guidelines. The remaining units will be filled from [the Organization’s] […] waitlist.
RULING REQUESTED
You would like to know whether the Charity is eligible for the municipal rebate of the GST/HST paid on property and services in respect of its supply of Market Units for moderate income households at the new housing project.
As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretation Services, the Canada Revenue Agency (CRA) will not issue a ruling where all of the pertinent facts cannot be established. In this case, we are unable to issue a written ruling as your request is general in nature and the eligibility for a municipal rebate depends on a number of specific conditions being met which cannot be verified. However, we are pleased to provide an interpretation, which is a general explanation of the applicable provisions, and how the legislation and/or administrative policy may apply.
INTERPRETATION GIVEN
Municipal designations
Municipal designation is an exercise of statutory discretion guided by administrative policy and eligibility criteria to grant a tax benefit to a person who is engaged in an activity contemplated by the Minister of National Revenue to qualify for this benefit. Accordingly, an organization may be designated to be a municipality where the organization is engaged in an activity contemplated under the administrative policy and eligibility criteria. Whether any service is a municipal service will be a question of fact, where an evaluation of the pertinent facts and documentary evidence is made on a case-by-case basis. The ETA does not define the phrase “municipal service” nor does it set out legislative criteria for municipal designation.
Rent-geared-to-income housing
The supply of long-term residential accommodation to tenants on an RGI basis by a charity, non-profit organization or co-operative housing corporation that receives government funding to assist it in providing this accommodation may qualify as a municipal service for designation purposes where the eligibility criteria outlined in GST/HST Info Sheet GI-124, Municipal Designation of Organizations Providing Rent-Geared-to-Income Housing (GI-124) is met.
GI-124 states that an organization may be designated as a municipality if it meets all four eligibility criteria listed below:
1. the organization is a charity, a cooperative housing corporation, a non-profit organization or a public institution;
2. the organization supplies long-term residential accommodation within a program to provide housing to low-to-moderate-income households;
3. more than 10% of the housing units in a particular housing project are provided on an RGI basis; and
4. the organization receives funding from a government or municipality to assist it in providing the accommodation within a program to provide housing to low to moderate-income households.
For further details about the criteria, please refer to GST/HST Info Sheet GI-124, Municipal Designation of Organizations Providing Rent Geared to Income Housing.
Public service bodies’ rebate (PSB)
An organization that has been designated to be a municipality may be entitled to the PSB rebate of the GST/HST paid or payable on eligible property and services acquired by it, but only to the extent that the eligible property or services acquired are intended for consumption, use or supply in the course of the activities for which it has been designated (e.g., in the course of providing RGI housing). Municipalities, including designated municipalities, are eligible for a 100% rebate of the GST and the federal part of the HST.
A municipal designation granted in respect of an organization’s qualifying RGI housing activities does not apply to any other activities that the organization may be engaged in such as the supply of residential units that are not provided on an RGI basis or for which no government subsidy is payable (sometimes referred to as market rent), or the supply of commercial space.
Based on the information submitted, the Charity has been designated to be a municipality pursuant to subsection 259(1) of the ETA in respect of its housing units in a housing project that are supplied to tenants on an RGI basis and for which a government subsidy is payable.
The Charity has entered into an Agreement with [the Organization] for the lease of the [#] residential units in the new housing project as follows: [#]% of the units will be Market Units for moderate income households; [#]% of the units will be RGI Units for low income households; and [#]% of the units will be Deep Subsidy Units for deep subsidy income households. Accordingly, more than 10% of the housing units in the housing project will be provided on an RGI basis.
The Charity’s provision of RGI housing units and Deep Subsidy Income units may qualify as designated activities where the Charity receives government funding from [the Organization] to subsidize the cost of these units, the rents are based on a rent to income scale (RGI rents), and tenants who occupy the units are subject to annual income reviews. Therefore, the Charity may be eligible for the municipal rebate in respect of the provision of RGI housing units and Deep Subsidy Income units.
The Charity’s provision of Market Units would not be qualifying RGI housing activities for the purpose of its municipal housing designation. The units are provided as long-term affordable housing to tenants whose income does not exceed moderate income limits at rents based on the market rent for the community (not on a rent to income scale (RGI rents), the tenants who occupy the units are only subject to income reviews upon initial occupancy (and not periodically), and the Charity does not receive an operating subsidy for the Market Units. Therefore, the Charity would not be eligible for the municipal rebate in respect of the provision of the Market Units.
An organization that is a charity or a qualifying non-profit organization may be entitled to claim a PSB rebate of 50% of the GST and the federal part of the HST on eligible purchases and expenses for which it cannot claim input tax credits. For GST/HST purposes, a charity means a registered charity or registered Canadian amateur athletic association for income tax purposes, but does not include a public institution. For more information on the PSB rebate, please refer to GST/HST Guide RC4034, GST/HST Public Service Bodies’ Rebate.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, are not a ruling and do not bind the CRA with respect to a particular situation. Future changes to ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 416-795-5379. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dan Maharatnam
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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