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: 134211
August 10, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Assistance/Subsidies for the Purposes of Municipal Designation
Thank you for your letter of March 15, 2011, concerning the financial assistance [...] (the Municipality) provides to non-profit housing projects.
The harmonized sales tax (HST) applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. The goods and services tax (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 that the Municipality has supported the development of non-profit housing projects under various housing programs. Most recently, the development has been supported/funded under the [...].
You have described three funding programs offered by the Municipality and you would like us to advise you whether these programs would satisfy the Canada Revenue Agency's administrative criteria applied to grant municipal designation to non-profit housing providers under subsection 259(1) of the ETA.
Program #1
The [...] targets low income households. Under the program, the participating non-profit housing corporations receive an upfront capital loan which is used towards the construction of the project. With the reduced capital cost, the program requires that the units be occupied by low income households. The household income must be at or below the income level set by the program. Further, the rents charged must be affordable. These rents are set by the program and are reduced below the average market rent for the community (i.e. [...]% below the average market rent).
Further, as the program targets low income households, all project tenant households must be income tested prior to being housed in order to ensure that their household income is at or below the income set by the program. This income testing ensures that only low income households have access to the affordable units.
Both the rents and income levels are adjusted annually by the Municipality. The non-profit housing provider earns loan forgiveness over the term of the loan so long as the units are offered and rented in accordance to the above program requirements.
Program #2
In this program, the Municipality enters into an agreement with a non-profit housing corporation where an annual subsidy is provided to the corporation to reduce the economic rent (project break even rent) to an affordable rent. The rent is set at a level below what would be charged by the private sector for comparable accommodation. Applicant household incomes are reviewed to ensure that the household can afford the rent. The household income maximum level is set annually as is the rent.
As an example, the subsidy under the program may provide a fixed $200/month to the non-profit housing corporation who in turn reduces the rent by $200 to the program qualified low income household. The rent is then more affordable to the household.
Program #3
In this program, the Municipality enters into an agreement with a non-profit housing corporation. An annual subsidy is provided to the corporation to reduce the market rent to an affordable household rent. The rent charged to the low income household generally represents [...]% of the household income as per a legislated formula. To be eligible for the subsidy, the household income must be at or below the income level identified by the legislation. The income level is adjusted annually.
In this program, rather than a fixed monthly subsidy to the non-profit housing provider, the level of subsidy can fluctuate based on the qualified low income household's income. The subsidy provided to the housing corporation bridges the gap between what the household can afford in accordance to the legislated/program formula and the market rent. The annual market rent is set by the program.
Interpretation Requested
You would like to know if these three programs meet the government funding test applied for purposes of granting municipal designation to non-profit housing providers.
Interpretation Given
Based on the information provided, it is our view that the three programs described above would constitute acceptable forms of government funding for purposes of granting municipal designation to non-profit housing providers.
The Canada Revenue Agency, on behalf of the Minister of National Revenue, may designate an organization that is a charity, non-profit organization or a cooperative housing corporation to be a municipality in respect of activities, specified in the designation, that involve the making of exempt supplies of certain long-term residential accommodation to tenants. To qualify for municipal designation in respect of this activity, the organization must provide the accommodation on a rent-geared-to-income (RGI) basis within a program to provide housing to low to moderate-income households for which it receives funding from a government or a municipality to assist it in providing this accommodation.
We consider RGI accommodation to mean housing for tenants whose eligibility for occupancy of the accommodation or for reduced lease payments depends on a means or income test. An organization requesting municipal designation must demonstrate that rent for the RGI units is calculated in relation to the tenant household's income and/or that there is an income-based test for occupancy in a RGI unit. Also, more than 10% of the housing units in a particular housing project must be provided on a RGI basis for the organization to be designated.
Acceptable types of funding include on-going subsidies from a government or a municipality that make up the difference between the organization's costs to operate the RGI housing units and the actual rent paid by the tenants to the organization, and capital funding. The funding received must be linked to the organization's provision of RGI housing within a government or municipal program to provide housing to low to moderate-income households. An example of capital funding would be where an organization is required to provide, pursuant to the funding agreement, RGI housing for twelve years. If the organization does not respect this condition, it will be required to repay the capital funding to the funding organization. Such capital funding would be considered to be linked to the provision of RGI housing.
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 613-952-6761. 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,
Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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