31 August 1998 GST/HST Interpretation HQR0000454 - GST RULING Eligibility for Charity Rebate

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

This is in reply to the letter of September 16, 1996 from XXXXX to XXXXX Tax Services Office, wherein he requested a GST application ruling on whether XXXXX (the Society) is eligible for a rebate pursuant to section 259 of the Excise Tax Act (ETA).

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX (the Society) is a registered charity for GST purposes.

2. Its official objects read (in part): i) to acquire title to land from XXXXX and to construct and operate thereon, housing facilities for the aged [...] ii) to provide relief and assistance for the aged, in and around XXXXX by building and operating a housing facility for the aged and in such facility, providing such activities, amenities, assistance, including financial, care comfort, companionship, facilities, services and support to the aged residents of the facility [...]

3. To be able to qualify as a resident, the candidate has to be XXXXX years of age or older. However, they would accept younger persons provided they suffered from some conditions associated with, or a product of, old age.

4. The Society constructed a XXXXX unit housing complex known as XXXXX XXXXX is advertised as providing attractive, comfortable homes for "independent seniors".

5. XXXXX of the units in the complex will be used for rental purposes. The Society will make the remaining units available by selling the right to reside in the units. However, title to these units remain with the Society.

6. Individuals purchase, at fair market value (established by appraisal), the right to occupy a unit from the Society.

7. The Society repurchases the right from individuals who no longer wish to reside in the complex. The purchase price paid by the Society is equal to the fair market value at the time it repurchases the unit.

8. The Society is responsible for operating expenses (e.g. service contracts, maintenance) related to XXXXX rental units and any unit it repurchases for which the right to reside has not been sold. The residents of the other units are responsible for expenses related to their units.

Ruling Requested

The Society seeks a ruling as to whether they are eligible for a rebate of GST on operating expenses associated with the maintenance of the properties it has retained for purposes of providing accommodation by way of lease, to elderly individuals.

If so, you wish to be advised on the procedures for claiming a rebate.

Ruling Given

Based on the facts set out above, we rule that:

The XXXXX is eligible for a rebate of GST on operating expenses associated with the maintenance of the properties it has retained for purposes of providing accommodation by way of lease and licence, to elderly individuals. The Society's activities are not prescribed and therefore not excluded from the application of section 259.

In order to claim the 50% rebate, a charity must file an application for rebate with the Department using form GST 66 "GST/HST Rebate Application For Public Service Bodies". When the charity is registered for purposes of the GST, the period covered by the rebate is the same as the reporting period of the charity (e.g. if the charity is an annual filer, the claim period of the charity is also annual). The charity has up to four years from the day the return is required to be filed to submit the rebate application.

You can get more information by contacting our local Technical Interpretations Services located at XXXXX. Their phone number is XXXXX[.] I have contacted XXXXX who has agreed to be your contact in order to assist you in filing a rebate claim.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-1175.

Yours truly,

Don Gagnon
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Explanation

The Society is eligible for a rebate of the amount of tax paid when it self-assessed and the operating expenses associated with the maintenance of the properties it has retained for purposes of providing accommodation by way of lease and licence to elderly individuals.

Under subsection 191(3) of the Excise Tax Act (ETA) the builder of a multiple unit residential complex or of an addition thereto is deemed to have made and received a taxable supply of the complex by way of sale. GST is generally calculated on the fair market value of the complex or addition at the later of the time when:

(i) the complex or addition is substantially completed, or

(ii) the first occupant takes possession of a unit in the complex or addition as a place of residence under a lease, licence or similar arrangement.

Certain supplies of real property made by a charity or NPO are exempt of GST under Schedule V, Part VI, Section 25 of the Act, however, this general exemption does not apply to deemed supplies of real property such as a self-supply under section 191. This rule is intended to ensure that, for GST purposes, persons who construct or engage others to construct a residential complex or addition thereto are treated in the same manner as those who purchase newly constructed real property fro m a third party. "Builder" is also a defined term under section 123 and includes a person who carries on or engages another person to carry on the construction or substantial renovation of the residential complex.

It appears that, the Society on granting a right to occupy a unit to an individual as a place of residence, the Society has entered into an arrangement which will trigger a self-assessment of GST under subsection 191(3) of the Act. Each unit that is intended to be used as a place of residence or lodging for individuals, together with common areas such as a dining hall and land related to the residential units, will comprise the residential complex. It appears that the Society is the builder of the multiple unit residential complex because it carries on or engages another person to carry on the construction of the residential complex. GST will, therefore, be payable on the fair market value of the complex at the later of the time of substantial completion of the construction or the time that possession of a residential unit within the complex is given to the first individual to occupy the premises.

The Society is entitled to register for GST purposes and claim full input tax credits for any GST paid or payable in respect of the acquisition and construction costs relating to the new residential complex as the costs are incurred. At the time of self-supply, the Society becomes eligible for the charity rebate of 50 percent of the GST owing as a result of section 191 of the Act.

Pursuant to section 259 of the ETA, a charity is eligible for a 50% rebate of the GST paid on the acquisition of property and services where the charity was not eligible to claim an input tax credit, and where the property and services acquired by the charity was not "prescribed" property and services.

Prescribed property is defined in the Public Service Bodies Rebate (GST) Regulations and generally includes the lease or licence of a residential complex. However, where a charity pays the GST on purchases that are used in the course of providing accommodation to "elderly" individuals by way of lease or licence in a multiple unit residential complex that contains more than two residential units, the charity may claim a 50% rebate of the tax provided that 10% or more of such accommodation is restricted to "elderly individuals".

The ETA does not provide a definition for the term "elderly". However, for purpose of the application of the Public Service Body Rebate Regulations, the Department will consider that more than 10% of the units are restricted to elderly individuals if the supplier is a registered charity whose purpose is the relief of a need associated with old age. Also, if more than 10% of the units are designated for occupancy by individuals who have conditions normally related to aging, the Department will view the supply of the residential units as being restricted to elderly individuals. Finally, the Department will consider that more than 10% of the units are restricted to elderly individuals if the supplier can demonstrate that more than 10% of the units are designed for the elderly, given the nature of programs, services, equipment and facilitates, available to the residents. These guidelines are not meant to be all-encompassing but are intended to offer some assistance in determining whether the supply of the residential units are restricted to elderly individuals.

The reasons why it is suggested that the Department does not rely on a chronological age e.g. 65 years, although much easier to administer, is that first, it could be contentious in views of the Charter of rights, second it is not the most effective means of measurement. Furthermore, the case law does not identify any support for a specific age, neither is there any reference in the Income Tax Act to a chronological age where you are considered aged. The Charities Division used to refer to 65 years of age as a cut off limit to determine the charitable status of an organization, because it was administratively convenient. However, a number of organizations expressed dissatisfaction with these criteria. It was judged not to be the best means of measurement. They decided to abandon the use of 65 years as a criterion for determining when a person is to be considered aged and instead based their determination on the facts of each case. XXXXX[.] The charities are registered with the Charities Division and have provided sufficient evidence of their charitable purpose i.e. relief of the aged. If they have met all the requirements to obtain a charity number for purpose of providing accommodation to elderly individuals, then they should not be denied the rebate. As for NPOs, it will only be qualifying NPOs that are eligible for the rebate. These QNPOs have been provided with funding from government for the purpose of providing accommodation to elderly individuals and therefore have satisfied the requirements of the funding agreement, similarly they should no be denied the rebate.

Legislative References:           Section 259
Public Service Body Rebate (GST) Regulations