7 June 2007 GST/HST Interpretation 84779, - Municipal Designation

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.

Dear XXXXX:

This refers to your letter XXXXX in which you requested information regarding municipal designation in relation to housing providers. This is also further to our telephone conversation XXXXX.

This information applies to organizations that may be designated as 'municipalities' pursuant to subsection 259(1) of the Excise Tax Act (the "Act") for the purpose of claiming the municipal rebate.

The Minister of National Revenue may designate an organization to be a municipality but only in respect of activities specified in the designation that involve the making of supplies (other than taxable supplies) by the organization of municipal services. The supply of long-term residential accommodation to tenants on a rent-geared-to-income basis by a non-profit organization (or a charity) that receives government funding to assist it in providing this accommodation qualifies as a municipal service for designation purposes. We consider the supply of long-term residential accommodation to mean the rental of self-contained housing units (private living quarters which include cooking facilities and a bathroom) for periods of one month or more. The government funding must be payable to subsidize the cost of those housing units that are supplied on a rent- geared-to-income basis. Note that government funding in these situations includes funding provided by a municipality. The activities described above must be undertaken within a program to provide housing to low to moderate-income households.

Please note that this designation does not apply to any other activities that the organization may be engaged in such as the supply of residential units that are not on a rent-geared-to-income basis or for which no subsidy is payable (sometimes referred to as market rent) and the supply of commercial space. For purposes of municipal designation, a supply that includes accommodation as one element but also includes other elements such as meals, or personal care services, or laundry, or housecleaning may not be considered an eligible supply of long-term accommodation.

An organization which has been designated to be a municipality may be entitled to the municipal rebate of 100 percent of the Goods and Services Tax ("GST") and the federal portion of the Harmonized Sales Tax ("HST") paid on property and services acquired by it, but only to the extent that the property or services acquired are intended for use, consumption or supply in the course of the activities for which it has been designated.

Where an organization has already been designated as a municipality, it will be a question of fact which of its activities meet all of the criteria described in the third paragraph on page one of this letter and thus qualify for the municipal rebate. As we have discussed, in order for us to comment as to whether or not an organization's activities in connection with a particular housing project are qualifying activities for purposes of the municipal rebate, we require supporting documentation such as signed and dated copies of applicable operating or other funding agreements, including all schedules and appendices, as well as an explanation of the nature of the housing and how rent-geared-to-income is calculated.

We also require documentation that supports that the selection of eligible households that benefit from the supply of long-term residential accommodation on a rent-geared-to-income basis supported by government funding is within a program that is geared to low to moderate-income households. This may be demonstrated by policies, guidelines and/or operating manuals that apply to the eligibility process.

Note that the Act contains other provisions that set out conditions that apply to this rebate, including the calculation of amounts eligible for rebate and filing frequency. In addition, entities that provide residential accommodation, as well as charities and qualifying non-profit organizations, may be eligible to claim other rebates. GST/HST technical enquiries may be directed to a GST/HST Rulings Centre at 1-800-959-8287 (service in English) or 1-800-959-8296 (service in French).

Should you have any further questions or require clarification on this matter, please do not hesitate to contact me at 613-954-4280.

Yours truly,

(Mrs.) S.C. Cahill
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/06/12 — RITS 85568 — Application of GST/HST to XXXXX