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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 131657
July 6, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Renovations to [...] [a residential complex]
Thank you for your letter of December 20, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to renovations to a residential building paid by a landlord where the landlord recovers part of the costs of the renovation from a tenant.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand as follows:
1. [...] (the Landlord) is a municipality as that term is defined in subsection 123(1).
2. The Landlord leases certain real property to [...] (the Tenant). The real property includes a building containing residential units, common areas, administrative office space and associated external areas and outbuildings.
3. The provisions under which the real property is supplied are set out in an agreement (the Lease Agreement) dated [mm/dd/yyyy]. We will assume that the entire real property covered by the Lease Agreement is a residential complex (specifically, a multiple unit residential complex) as those terms are defined in subsection 123(1). We will refer to the residential complex as the Complex.
4. The term of the Lease Agreement is [...] years with provisions for annual renewals thereafter. One of the conditions of the Lease Agreement is that the Tenant must sublet each residential unit (Unit) in the Complex to a person (Subtenant) who qualifies for certain assistance under [...] [reference to provincial legislation]. The Tenant agrees to pay rent to the Landlord on a monthly basis calculated in accordance with section [...] of the Lease Agreement.
5. You indicated that the supply of a Unit by the Tenant to a Subtenant is for a period of at least 30 days. You also indicated that the Landlord is making a supply to the Tenant that is exempt under section 6.11 of Part I of Schedule V to the ETA. We will assume, therefore, that the supply by the Tenant to a Subtenant is exempt under section 6 of Part I of Schedule V to the ETA. (iFootnote 1) Alternatively, we will assume that all or substantially all of the supplies of the Units made by the Tenant to Subtenants are exempt supplies that include giving possession or use of the Units under a lease, licence or similar arrangement for the purpose of the Unit's occupancy by a Subtenant as a place of residence.
6. Renovations are being made to the Complex [...]. Responsibility for payments for the renovations and other matters are outlined in the memorandum of understanding (MOU) included with your submission.
7. Under the MOU, the renovations are expected to cost approximately $[...]. The Landlord will pay contractors for all of the renovations undertaken, but will be reimbursed by the Tenant after the Landlord incurs $[...] in costs. The maximum amount payable by the Tenant to the Landlord in respect of the renovations is $[...]. Nevertheless, the Landlord will be solely responsible for the payment of consideration to contractors and thus will be the only recipient, as that term is defined in subsection 123(1), of a supply made by a contractor.
Interpretation Requested
You would like to know whether the Landlord is required to charge and collect the GST/HST on amounts paid by the Tenant to the Landlord in respect of the renovations of the Complex as set out in the MOU.
Your view is that amounts paid by the Tenant to the Landlord in accordance with the MOU are either consideration for the exempt supply made by the Landlord to the Tenant under the Lease Agreement or are not consideration for a supply and therefore not subject to the GST/HST.
Interpretation Given
We are unable to conclude that amounts paid by the Tenant to the Landlord in accordance with the MOU are additional consideration for the supply of the Complex made by the Landlord under the Lease Agreement.
Section [...] of the Lease Agreement requires the Tenant to pay "rent", which is described in section [...] as [...]. There is no requirement in the Lease Agreement for the Tenant to pay additional amounts to the Landlord in the event that improvements are made to the Complex. There is nothing in the MOU that provides that the amount paid by the Tenant to the Landlord are to be treated as rent for purposes of the Lease Agreement, nor is there any suggestion that failure to pay the amount would result in a default under the Lease Agreement. Accordingly, we are unable to conclude that amounts paid by the Tenant in accordance with the MOU are consideration for the supply made by the Landlord under the Lease Agreement.
In order to find that amounts paid by the Tenant to the Landlord are consideration for the supply made under the Lease Agreement, it would be necessary to conclude that the Landlord is making a single supply to the Tenant, i.e. a supply by way of lease, licence or similar arrangement of the renovated Complex. Rather than a single supply by way of lease, licence or similar arrangement, the Landlord may be making a supply of the Complex by way of lease and a separate supply of renovation services. Policy statement P-077R2, Single and Multiple Supplies, should be considered in determining whether the Landlord is making a single supply or separate supplies.
If the amount paid by the Tenant is not consideration for the supply of the Complex made by the Landlord under the Lease Agreement, amounts paid by the Tenant to the Landlord in accordance with the MOU would generally be viewed as consideration for a supply of a service provided by the Landlord to the Tenant. We note that "service" is defined in subsection 123(1) as anything other than property, money or anything supplied to an employer by an employee in relation to that employment. In such a case, the Landlord would be making a taxable supply of a service to the Tenant.
Technical Information Bulletin B-067, Goods and Services Tax Treatment of Grants and Subsidies, sets out the position of the Canada Revenue Agency with respect to whether amounts paid by a person may be considered to be a transfer payment (e.g., a grant) or whether the payment is consideration for a supply. Based on our review of that bulletin, it does not appear that amounts paid by the Tenant to the Landlord in accordance with the MOU would be viewed as a transfer payment as there is a direct link between the payment and a supply made by the Landlord.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-8852. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
i 1 Section 6 of Part I of Schedule V to the ETA, in part, exempts the supply of a residential unit in a residential complex made under a way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the unit is given to the same individual under the arrangement for at least one month.
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UNCLASSIFIED