5 August 1999 GST/HST Interpretation HQR0001736 - Supplies of Condominium Units by

This is in response to your memorandum of March 26, 1999, concerning the application of the Goods and Services Tax (GST) to supplies of condominium units made by XXXXX[.] All legislative references are to the Excise Tax Act (the Act).

Our understanding of the situation is as follows:

1. XXXXX, a sole proprietor, XXXXX and is registered for the GST.

2. XXXXX owns four condominium units (CUs) XXXXX, each of which he supplies by way of lease, licence or similar arrangement for a period of one month to six months.

3. Some of the supplies by XXXXX are made to companies who are supplying the CUs to employees on a short term basis while they are in XXXXX.

4. XXXXX is not always aware of how a particular company will use the unit which he has supplied to it.

Issue

XXXXX has asked for a written ruling on the tax status of the supply of CUs in the circumstances described above.

Based on the facts provided, the Department is not in a position to issue a ruling on this matter. As outlined in paragraph 20(h) of GST Memoranda Series, Chapter 1.4, "Goods and Services Tax Rulings", we are unable to issue a ruling where a matter on which a determination is requested is one of fact and the pertinent facts cannot be determined at the time of requesting the ruling. You can, however, provide an interpretation on the matter.

Response

Where XXXXX supplies a CU to a particular company by way of lease, licence or similar arrangement for a lease interval, throughout which the company supplies the unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual (e.g. an employee) for consideration that does not exceed $20 for each day of occupancy, XXXXX supply to the company is exempt pursuant to section 6.1 of Part I of Schedule V to the Act.

If the particular company supplies a CU to an individual for consideration that exceeds $20 for each day of occupancy, XXXXX supply to the company will still be exempt under section 6.1 if all of the following conditions are met:

(a) the CU constitutes a residential complex or a residential unit in a residential complex,

(b) the particular company supplies the unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, and

(c) the period throughout which continuous occupancy of the unit is given to the same individual is at least one month.

If the consideration payable by the individual to the company exceeds $20 per day and any of the conditions in (a) through (c) are not met, XXXXX is making a taxable supply to the company.

For purposes of this interpretation, the company could be a partnership or separate legal entity.

Analysis

Section 6.1 of Part I of Schedule V to the Act exempts a supply of

(a) land,

(b) a building, or that part of a building, that forms part of a residential complex,

(c) a building, or that part of a building, that consists solely of residential units, or

(d) a residential complex to a person who in turn leases the property on an exempt basis under either section 6 or section 7 of that same Part. Under section 6.1, and in conjunction with subsection 136.1(1), the exemption in section 6.1 applies to a lease interval rather than the full lease and only if, throughout the lease interval, the recipient lessee or any sublessee is making, or intends to make, an exempt lease of the property under section 6 or 7 of Part I of Schedule V to the Act. A lease interval is the period to which a lease payment is attributable that is the whole or part of the period during which possession or use of the property is provided under the lease, licence or similar arrangement. For example, where a lease agreement calls for annual lease payments, the lease will consist of yearly lease intervals. The exemption is provided for each lease interval throughout which the conditions for the exemption exist.

In the circumstances you described, section 6 is the only provision that requires further examination. If the company is making an exempt supply under that section, XXXXX supply to the company will be exempt under section 6.1.

Paragraph 6(b) of Part I of Schedule V to the Act exempts the supply of a residential unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual where the consideration for the supply does not exceed $20 for each day of occupancy. Accordingly, if the company supplies a CU to an employee at no charge, that supply by the company would be exempt under paragraph 6(b). Consequently, XXXXX supply to the company would be exempt under section 6.1 of Part I of Schedule V to the Act.

If the company supplied a CU to an employee for consideration in excess of $20 per day, the supply by the company may still be exempt under paragraph 6(a) of Part I of Schedule V to the Act. That paragraph exempts a supply of a residential complex or residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual under which continuous occupancy is provided to the same individual for a period of at least one month. It must be determined, therefore, if a particular CU is a residential complex.

The definition of "residential complex" in subsection 123(1) excludes "a building, or that part of a building, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises" where the building is not described in paragraph (c) of the definition and 90% or more of the units supplied, provide, or are expected to provide, for periods of continuous possession or use of less than sixty days.

Policy Paper P-099, "The Meaning Of 'Hotel', 'Motel', 'Inn', 'Boarding House', 'Lodging House' And 'Other Similar Premises', As Used In The Definition Of 'Residential Complex' And 'Residential Unit'", may be of assistance in determining whether a particular CU would be considered a hotel, motel, etc. You indicated in our telephone conversation of July 13, 1999, that you did not have sufficient information to determine whether a particular CU would be a hotel, motel or similar premises under the policy paper. Therefore, you may wish to send a copy of the policy with your response and present the GST implications in circumstances where the CU is and is not a residential complex.

If it is determined that a particular CU is a hotel, motel or similar premises, it must be determined whether all or substantially all of the units are or are expected to be supplied for a period of less than sixty days. Policy Paper P-053, "Application Of All Or Substantially All To Residential Complexes", sets out acceptable methods for determining whether the "all or substantially all" test in the definition of residential complex has been met. As indicated in the policy, the test may be applied on a prospective basis over a reasonable period of time, e.g. one year.

If it is determined that a particular CU falls within the definition of a residential complex, provided the occupancy requirements are met, XXXXX supply to the company would be exempt under section 6.1.

If a particular CU is excluded from the definition of a residential complex and the company's supply to the employee is not exempt under paragraph 6(b), XXXXX supply to the company would not be exempt under section 6.1. In such cases, XXXXX XXXXX would be making a taxable supply and would be required to charge and collect tax on the supply based on the value of consideration for the supply.

The Act does not provide or prescribe methods for determining whether a particular supply is exempt under section 6.1 of Part I of Schedule V. If a particular company claims that XXXXX supply to it is exempt under section 6.1 XXXXX would be required to determine whether that particular supply is, in fact, exempt. Failure to determine whether section 6.1 exempts the supply may result in an assessment against XXXXX if he fails to collect tax on a particular taxable supply.

If a particular CU owned by XXXXX becomes a residential complex, there may be GST implications under subsection 190(1) of the Act. That subsection provides in part, that where a person begins to hold or use real property as a residential complex and

(a) the property was, immediately before that time, held for supply in a business or commercial activity of the person,

(b) immediately before that time, the property was not a residential complex, and

(c) the person did not engage in the construction or substantial renovation of the complex, the person is deemed to have substantially renovated the complex. In most cases (including this one) the deemed substantial renovation leads to the taxing provisions of subsection 191(1) and the person is required to remit tax on the fair market value of the complex at the time any lease, licence or similar arrangement is entered into for the purpose of enabling an individual to occupy the complex as a place of residence or lodging. Pursuant to section 195.1, the provisions of section 191 rather than section 207 would apply where a particular CU owned by XXXXX becomes a residential complex.

Where a CU ceases to qualify as a residential complex, the provisions of section 208 may apply to generate an input tax credit eligibility for XXXXX[.] Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real property Division
GST/HST Rulings and Interpretations Directorate