11 June 1998 GST/HST Interpretation HQR0001125 - Rebates in Respect of Clergy Residences

Dear XXXXX

This is in reply to your e-mail message of April 2, 1998, sent to Michael Place of this Directorate, concerning the description of prescribed property and services in clause 4(1)(h)(i) of the Public Service Body Rebate (GST) Regulations (the "Regulations"). Specifically, you are inquiring as to whether ongoing purchases made by a charity that relate to the supply of a clergy residence are "prescribed property" under the Regulations in which case the charity would be prohibited from claiming a rebate in respect of such purchases.

Pursuant to subsection 259(3) of the Excise Tax Act (the "ETA"), a charity is entitled to a rebate equal to 50% of the non-creditable tax it was charged in respect of its purchases, other than prescribed property or services. For the purposes of determining a rebate payable to the charity, prescribed property and services are listed in subsection 4(1) of the Regulations which includes, under clause 4(1)(h)(i):

"property or a service that is to be supplied to another person, where

(i) an amount is required by paragraph 6(1)(a) or (e) or subsection 15(1) or (1.4) of the Income Tax Act to be included in computing the income of the person for the purposes of that Act ..."

It is our position that prescribed property includes an amount required to be reported under paragraph 6(1)(a) of the Income Tax Act (the "ITA") even where the amount is deductible elsewhere in the ITA (e.g., paragraph 8(1)(c) of the ITA which provides for a deduction related to a clergyman's residence). That is, clause 4(1)(h)(i) of the Regulations makes no allowance for the fact that an amount may be deductible in arriving at income for income tax purposes.

Furthermore, while paragraph 4(1)(h) of the Regulations, as recently amended, requires that the property or service be "supplied to another person", and clause 4(1)(h)(i) simply refers to "an amount," it is our position that to interpret this clause, the "amount" has to be linked to the property or service supplied to another person. For example, where a charity supplies a residence to another person and subsequently makes repairs to or renovates the residence, it is our view that the repairs or renovations are supplied to that other person. Thus, if no additional amount in respect of the repairs or renovations is required to be included in the person's income under section 6 of the ITA, we would allow the charity a rebate in respect of the repairs or renovations since they would not be "prescribed property". However, where an additional amount in respect of the renovations is required to be included in the person's income, then they will be viewed as prescribed property pursuant to clause 4(1)(h)(i) of the Regulations so that no rebate could be claimed.

In situations where a charity makes available only a part of the property as a residence for another person, not all of the purchases related to the property would be prescribed. In these circumstances, the charity would deduct from its calculation of non-creditable tax, the tax that relates to prescribed property.

Where a charity builds or purchases a residence and supplies it to another person and that person is required to include an amount in respect of the residence as a benefit under section 6 of the ITA, the purchases incurred by the charity will be viewed as prescribed property for rebate purposes pursuant to clause 4(1)(h)(i) of the Regulations.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division

 XXXXX

Legislative References: ETA: subsection 259(3), clause 4(1)(h(i) of the PSB GST/HST Regulations

NCS Subject Code(s): I 7