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.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 238955
[Dear Client]
Subject: GST/HST INTERPRETATION
Whether a bunkhouse located on […][a farm] and used to provide housing to temporary foreign workers is a place of residence for GST/HST purposes and eligibility for input tax credits in respect of its construction
Thank you for your [correspondence] of [mm/dd/yyyy] (and further information provided in [correspondence] of [mm/dd/yyyy]), regarding a registrant’s requirement to self-supply a bunkhouse under subsection 191(3) of the Excise Tax Act (ETA) and the eligibility to claim input tax credits (ITCs) for tax payable on the construction of the bunkhouse.
All legislative references are to the ETA unless otherwise indicated.
Facts
Based on your [correspondence] of [mm/dd/yyyy], further information provided in your [correspondence] of [mm/dd/yyyy], and information under the “Temporary Foreign Worker Program – Agricultural Stream” (Footnote 1) , we understand the following:
1. […][This relates to] a GST/HST registrant individual who operates […][a farm]. A “bunkhouse” was constructed on the […][farm] by the registrant for the purpose of housing temporary foreign workers while they are [employed at the farm] in Canada […] for the registrant. The registrant owns the land on which the bunkhouse has been constructed.
2. Under the “Temporary Foreign Worker Program – Agricultural Stream”, employers must provide temporary foreign workers with adequate, suitable and affordable housing as defined by the Canada Mortgage and Housing Corporation. The housing can be either on-farm (for example, a bunkhouse) or off-site (for example, a commercial establishment). They must ensure that sufficient housing will be made available for all temporary foreign workers per approved accommodation from the date of arrival to the date of departure. Employers supplying on-farm housing can deduct a maximum of $30 per week (pro-rated for partial weeks) from the temporary foreign worker’s wage, unless applicable provincial/territorial labour standards specify a lower amount.
3. Temporary foreign workers are hired by the registrant and arrive at the [farm] […] and are there for approximately 10 weeks (2 to 2.5 months).
4. When the temporary foreign workers are at the [farm], the bunkhouse is used exclusively by them.
5. For a period of approximately 2 weeks prior to the arrival of the temporary foreign workers and for a period of approximately 1 week after the temporary workers leave, the domestic workers make use of the washroom in the bunkhouse and they also use the kitchen facilities in the bunkhouse as a lunchroom.
6. A retail store is located at the [farm]. For approximately 1 week after the temporary foreign workers have left, the customers of the retail store are able to use the washroom in the bunkhouse.
7. The bunkhouse is a building having 2 floors with a total of 600 square feet (that is, 10 ft. x 30 ft. on each level). It has a bathroom that has a door for outside access, a kitchen and 2 bedrooms (there are 2 temporary foreign workers so each temporary foreign worker occupies a bedroom).
8. The registrant has incurred costs to construct the bunkhouse and has claimed full ITCs for the tax payable on those construction costs. The registrant has not made a self-supply under subsection 191(3) on the fair market value of the bunkhouse.
9. The bunkhouse is used approximately 13 weeks during the year for the [farm] operation. Since the bunkhouse is used 10 of those weeks by the temporary foreign workers, you have determined that the bunkhouse would be used 77% of the time as a place of residence during the 13 weeks. As such, the bunkhouse would be used primarily as a place of residence.
[INTERPRETATION REQUESTED]
1. Is the bunkhouse occupied as a “place of residence” during the temporary foreign workers’ employment at the [farm] and as such, the registrant would have to make a self-supply of the bunkhouse under subsection 191(3)?
2. Is the registrant eligible to claim ITCs for the tax payable on costs to construct the bunkhouse and if applicable, on the tax payable for a self-supply of the bunkhouse?
[INTERPRETATION GIVEN]
We offer the following comments with respect to the GST/HST obligations and entitlements of the registrant:
1. The bunkhouse is not occupied as a place of residence during the temporary foreign workers’ employment at the [farm]. As such, the self-supply rule in subsection 191(3) would not apply.
2. If the bunkhouse was constructed with the intention to provide only supplies of residential units, which are exempt under section 6 of Part I of Schedule V, the registrant would not be eligible to claim ITCs for the tax payable on the construction costs.
[…]
Subsection 191(3)
Based on our understanding of the facts and our analysis of the factors and principles in GST/HST Memorandum 19.2, it is our view that a temporary foreign worker’s stay at the bunkhouse during the time the temporary foreign worker is employed at the [farm] constitutes occupying a residential unit as a place of lodging rather than a place of residence.
As such, the registrant is not required to self-supply the multiple unit residential complex (of which the bunkhouse is a component) under subsection 191(3) at the time a temporary foreign worker is given possession or use of a residential unit in the bunkhouse.
Explanation
As you are aware, under subsection 191(3), generally, a builder of a multiple unit residential complex is required to self-supply the multiple unit residential complex when a residential unit in the complex is first occupied by an individual as a place of residence after the substantial completion of the complex’s construction. If the unit is first occupied by an individual as a place of lodging, self-supply is not triggered at that time.
The rooms in the bunkhouse are residential units as defined in subsection 123(1) since they are occupied by individuals as a place of lodging or as a place of residence. Furthermore, the rooms are supplied by way of lease, licence or similar arrangement for such occupancy. Therefore, the bunkhouse is part of a residential complex that is a multiple unit residential complex as defined in subsection 123(1) since it contains more than one residential unit and it is not a condominium complex.
In this case, the registrant is a builder of the multiple unit residential complex because the registrant has an interest in the real property on which the multiple unit residential complex is situated and has constructed or engaged another person to construct the bunkhouse.
Place of residence vs. place of lodging
The terms “place of residence” and “place of lodging” are not defined in the ETA. However, paragraphs 15 to 18 of GST/HST Memorandum 19.2, Residential Real Property, discuss some of the factors that may be used in determining whether a premises is occupied as a place of residence for GST/HST purposes. Generally, the meaning to be attributed to a “place of residence,” as opposed to “place of lodging,” is based on a determination of the purpose of the stay, the amount of time of the stay and physical presence. In considering these factors, the following principles must be considered:
* no vacation/transient purpose;
* indicators of permanency;
* appreciable period of time;
* intention; and
* purpose of stay.
Generally, the Canada Revenue Agency (CRA) takes the position that the matter of whether a premises is occupied as a place of residence is a question of fact.
Is the place used for purposes of habitation or dwelling?
The purpose of the stay in the bunkhouse by a temporary foreign worker is for accommodation while the worker is employed at the [farm]. The temporary foreign worker likely eats and sleeps in the bunkhouse during their employment at the[farm], but that is not necessarily the same as saying that the worker stays in the bunkhouse for the purpose of habitation or dwelling.
The common meaning of “residence” turns on whether an individual resides, dwells or actually lives in a place. Also, the word “inhabit” can mean to live in, to dwell in, to occupy as a place of settled residence or habitat. These words imply something more permanent, for a long time or for a considerable time (that is, these words imply something more than simply a stay that is transitory, transient and/or temporary in nature).
A place of residence implies a place where a person in mind and in fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the particular place. In this regard, it is highly unlikely that a temporary foreign worker would view the bunkhouse as the place where they settle into or maintain an ordinary mode of living. It is more likely that a temporary foreign worker would view their stay in the bunkhouse as a transient stay that will last for a short duration (that is, 10 weeks) while the temporary foreign worker is employed at the [farm]. In addition, the area of the bunkhouse is so small that a temporary foreign worker (and the registrant) would view it as a place where a person is not intended to settle into or maintain an ordinary mode of living.
Are there indicators of permanency?
None of the factors listed in paragraph 16 under the heading “Indicators of permanency” in GST/HST Memorandum 19.2 are present with respect to the use of the bunkhouse by the temporary foreign workers. The fact that the registrant charges a small fee of $1 to $2 per day as a daily utility fee, deducted directly from a temporary foreign worker’s wages is not evidence that a temporary foreign worker is responsible for payment of utilities. Rather, this deduction would form part of the rent payable by a temporary foreign worker.
The bunkhouse is not the only residence of a temporary foreign worker. It is likely that the temporary foreign worker occupies the bunkhouse under a licence rather than a lease and their occupancy is of a rather short-term nature (10 weeks). The bunkhouse is not furnished by a temporary foreign worker, the temporary foreign worker does not receive postal mail at this address and the temporary foreign worker is not likely to take out an insurance contract for the bunkhouse or its contents. Therefore, there are very few indicators of permanency.
As a result, it is our view that a temporary foreign worker’s stay in the bunkhouse is transitory as it will come to an end when their employment at the [farm] ceases. A temporary foreign worker will either move on to another employer or return to their primary place of residence.
Does the temporary foreign worker intend to stay there for an appreciable period of time?
According to the registrant, the period that a temporary foreign worker is employed at the [farm] varies but is usually about 10 weeks.
What constitutes an appreciable period of time will vary depending on the circumstances. Undoubtedly, a temporary foreign worker does not intend to remain in the bunkhouse for an appreciable period of time. The stay in the bunkhouse is solely for purposes of their employment at the [farm] and once the employment is complete, the temporary foreign worker moves on to another employer or returns to their home country. Their stay in the bunkhouse is temporary in the sense that the stay is (and/or is meant to serve a purpose) for a limited time. Generally, a temporary foreign worker stays in the bunkhouse for a specific purpose and there is no information to suggest that anyone stays there if they were not employed at the [farm] during the harvest season.
Does the temporary foreign worker intend to use the bunkhouse as a place of residence over a period of time?
The temporary foreign worker stays at the bunkhouse for approximately 10 weeks during the harvest season. It is our understanding that the temporary foreign worker may return to the bunkhouse again the following year during another harvest season provided the temporary foreign worker is re-employed by the registrant. However, this is not a given since the registrant must again offer that person a job at the [farm] and the temporary foreign worker must again accept an employment offer.
What is the reason for staying at the place?
Although the principle described in paragraph 16(e) of GST/HST Memorandum 19.2 suggests that an abode occupied by an individual temporarily for work purposes may be considered a person’s place of residence, this principle is not considered in isolation of all other factors. As noted in paragraph 17 of GST/HST Memorandum 19.2, it is not possible to reduce the notion of a place of residence to definitive factors. Example 3 in GST/HST Memorandum 19.2 provides clarification with respect to an appreciable period of time regarding the purposes of stay. In that example, the stay is one year and thus is not considered transient in nature. In contrast, when a temporary foreign worker stays in a hotel-type premises for only 10 weeks for seasonal work on site at [a farm], the premises would not be occupied for an appreciable period of time.
Based on the “Temporary Foreign Worker Program – Agricultural Stream”, employers must provide temporary foreign workers with adequate, suitable and affordable housing as defined by the Canada Mortgage and Housing Corporation. The registrant has chosen to build a bunkhouse in order to fulfill that requirement. The purpose for the stay at the bunkhouse is for accommodation while the temporary foreign worker is employed by the registrant during the 10 week harvesting season at the [farm]. The act of temporarily relocating to the bunkhouse is not in-and-of-itself sufficient to characterize the bunkhouse as a place of residence of a temporary foreign worker, especially if none (or very few) of the factors and principles of place of residence noted above are present.
Eligibility for ITCs
Where the temporary foreign workers occupy the bunkhouse as a place of lodging, as indicated above, subsection 191(3) would not apply and there is no eligibility to claim an ITC for tax payable under subsection 191(3). The eligibility for an ITC for the tax paid or payable on the acquisition, importation or bringing into a participating province of a property or service to construct the bunkhouse depends on the intended use of the bunkhouse at the time of acquiring, importing or bringing into a participating province of that property or service.
Explanation
The supply of a residential unit to a temporary foreign worker by the registrant is an exempt supply under section 6 of Part I of Schedule V. In addition, because of subsection 195.1(1), the multiple unit residential complex (of which the bunkhouse is a component) is deemed not to be capital property of the registrant because the registrant did not receive an exempt supply of the multiple unit residential complex and the registrant was not deemed to have received a taxable supply of the multiple unit residential complex under section 191.
As a result, paragraph (c) of Element B in subsection 169(1) applies to determine the registrant’s eligibility to claim ITCs for the tax payable on costs to construct the bunkhouse.
Generally, under paragraph (c) of Element B in subsection 169(1), a registrant may claim an ITC for the tax payable on the acquisition, importation or bringing into a participating province of property or a service to the extent (expressed as a percentage) that the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of a commercial activity of the person. Where the activities of a registrant involve the making of both taxable and exempt supplies, the registrant has to determine the percentage of consumption or use, or intended consumption or use, in the course of the person’s commercial activities of each property or service that the registrant acquired, imported or brought into a participating province.
It is generally the intended consumption or use of the property or service at the time of its acquisition, importation or bringing into a participating province that is relevant. Therefore, if the intended use of the bunkhouse at the time the property or construction services were acquired (Footnote 2) was for occupancy by the temporary foreign workers for purposes of fulfilling the registrant’s obligations under the Temporary Foreign Worker Program – Agricultural Stream program, which involves the making of exempt supplies of a residential unit, then an ITC would not be available for the tax payable on the property or services acquired to construct the bunkhouse.
However, if the property or service was acquired to construct the bunkhouse and the intended use of the bunkhouse at the time of acquiring the property or service was for occupancy of the temporary foreign workers and for other purposes (such as a commercial activity), then the registrant may have to apportion the tax payable for the property or service between these two activities. It should be noted that under subsection 141(4), if substantially all (90% or more) of the intended consumption or use of property or service is for activities that are not commercial activities, then the consumption or use is deemed to be in those activities that are not commercial activities.
When apportioning the tax payable for the acquisition, importation or bringing into a participating province of property or a service, subsection 141.01(5) indicates that an apportionment method used must be fair and reasonable and used consistently throughout the year. GST/HST Memorandum 8.3, Calculating Input Tax Credits provides information on what is meant by “fair” and “reasonable” and methods of allocation.
[…][For GST/HST purposes,] where a property or service is acquired to construct the bunkhouse and the intended use of the bunkhouse at the time of acquiring the property or service was for commercial activities and for activities that are not commercial activities, the particular method that has been proposed does not appear to be fair and reasonable. The particular method that has been proposed assumes that the use of the bunkhouse by other persons is the same as, or used to the same extent as, the temporary foreign workers. However, this is not the case. Furthermore, the use of the kitchen and washroom in the bunkhouse by the domestic workers is so limited that it may be described as minimal. We also note the possibility that the customers of the [farm] may use the washroom in the bunkhouse during a one-week period after the temporary foreign workers have left also appears to be an incidental or casual use of the washroom that occurs by chance. In other words, the washroom in the bunkhouse was not built for the purpose of providing a washroom facility for the customers of the [farm].
While the temporary foreign workers likely use all of the bunkhouse when it is exclusive to them, the use of the bunkhouse by other persons would not entail all of the bunkhouse (for example, the domestic workers use only the washroom and kitchen facilities and the customers use only the washroom). In addition, the bunkhouse is exclusive to the temporary foreign workers for all of the day that they are employed at the [farm] (that is, their personal belongings are located in the bunkhouse even while the temporary foreign workers are […][working on the farm] during the day). In contrast, the domestic workers and customers only make incidental or casual use of the bunkhouse as a matter of convenience. Therefore, it may be the case that any use of a part of the bunkhouse in commercial activities may be minimal and not exceed 10% of the overall use of the bunkhouse in its entirety.
It should be noted that where a specific property or service is clearly acquired, imported or brought into a participating province for a specific purpose, then the ITC eligibility is determined based on that specific purpose. For example, if a bed is acquired, imported or brought into a participating province and the purpose of that bed is for a foreign worker to sleep on, then no ITCs would be available for the tax payable on the acquisition, importation or bringing into a participating province of that bed even though the bed is to be located in the bunkhouse and the intended use of the bunkhouse was for commercial activities and for non-commercial activities.
If you have any questions or concerns regarding these issues or need further clarification, please do not hesitate to call me at (306)914-1122.
Yours truly,
Ron Litzenberger
Industry Sector Specialist, Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
FOOTNOTES
1 The details of this program can be found at the following link: Hire a temporary foreign worker through the Agricultural Stream - Program requirements - Canada.ca
2 It is assumed that the property or services were not imported or brought into a participating province.
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