Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th Floor
320 Queen Street
Ottawa, ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 103126
Attention: XXXXX
XXXXX
June 12, 2008
Subject:
GST/HST RULING
Property tax and additional rent
Dear XXXXX:
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to amounts of property tax paid by tenants of real property owned by XXXXX (the City).
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
As the scenario addressed by this ruling is in respect of real property located in XXXXX, a non-participating province, we will not make further reference to the HST.
XXXXX.
You also reference various provisions of the XXXXX, under which you indicate that an occupier or lessee of property owned by the City is directly liable to the City for the payment of real property taxes. In addition, you state that the City does not charge itself property taxes and that the City is therefore not recovering its costs when a lessee is paying real property taxes. Further, you state that it is the City's opinion that the real property taxes paid by a lessee should not be subject to GST as it is not a form of additional rent.
Statement of Facts
Based on your letter, we understand the following:
1. The City owns real property that it supplies by way of lease.
2. Pursuant to XXXXX, real property situated in a municipality is subject to taxation levied by the municipality, subject to certain exceptions provided under XXXXX. The City levies property taxes in respect of real property situated in the City.
3. Except as otherwise provided under XXXXX, XXXXX provides that, in the case of a real property assessment, an assessor (e.g., a person appointed as an assessor for the City) shall assess the property in the name of the owner of the land.
4. Pursuant to XXXXX, real property owned by the City is exempt from taxation (i.e., property taxes) levied by the City under the XXXXX subject to XXXXX. As such, the City is not required to pay itself property tax in respect of City-owned real property.
5. XXXXX provides that, where assessable property (e.g., real property) is exempt from taxation and an occupier has a right, interest or estate in the real property, an assessor shall assess the right interest or estate in the name of the occupier. "Occupier" is defined in XXXXX to include a lessee of a piece of land.
6. XXXXX provides that a right, interest or estate of an occupier that is assessed under XXXXX is subject to taxation under XXXXX.
7. A lessee of City-owned real property has a right/interest in the City-owned real property. In accordance with XXXXX, the right/interest of the lessee of City-owned real property will be assessed. As such, the lessee is directly liable to pay the City any property taxes levied by the City in respect of the leased property.
8. The lease agreement the City enters into with a lessee addresses the requirement for the lessee to pay the property taxes on the leased property directly to the taxing authority. Specifically, it states the following:
XXXXX.
Ruling Requested
You would like to know whether an amount of property tax that is assessed in the name of, and paid by, a lessee of City-owned real property is additional rent that is subject to the GST.
Ruling Given
Based on the facts set out above, we rule that an amount of property tax that is assessed in accordance with XXXXX in the name of a lessee of City-owned real property and for which the lessee is liable to pay the tax directly to the City in respect of the property that would otherwise be exempt from taxation under XXXXX is not additional consideration in respect of the lease and is not subject to the GST.
Explanation
Whether an amount of property tax paid by a lessee of City-owned real property is subject to GST depends on whether the amount of that property tax is consideration for a taxable supply. XXXXX imposes a direct liability on a lessee to pay property tax to the taxing authority in respect of City-owned real property that it leases from the City and that would otherwise be exempt from property tax. As such, the property tax paid by the lessee is not consideration for the City's supply of the real property by way of lease and is, therefore, not subject to the GST. Conversely, where such a direct liability, imposed under a legislative authority, for the lessee of real property to pay property tax to the taxing authority in respect of that property does not exist, and the lessee is merely paying the property tax on behalf of the lessor (i.e., the lessor is directly liable), the amount of property tax paid by the lessee is consideration for the lessor's supply of the real property by way of lease, which, if taxable, is subject to the GST.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call Marcel Boivin, Manager, Real Property Unit, directly at 613-954-3772. 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,
Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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