30 April 1999 GST/HST Interpretation HQR0001701 - Application of GST to Municipal Property Taxes as Additional Rent

Dear XXXXX

Thank you for your letter of March 5, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the lease of commercial property.

We understand that a person who is registered for the GST/HST is the owner of certain commercial property. The registrant supplies the property by way of lease to a tenant for consideration in excess of $30,000 annually. The lease is a "net net" and in accordance with the terms of the lease agreement, the tenant pays the property taxes directly to the municipality. The tax bill issued by the municipality is addressed to the registrant but mailed to the tenant.

Interpretation Requested

You are enquiring as to whether the registrant owner of the property is required to collect and remit the GST/HST on the property taxes that are paid directly to the municipality by the tenant. In your letter, you had requested a ruling on this matter, however as discussed in our telephone conversation of April 28, 1999, we will instead issue an interpretation.

Interpretation Given

Property taxes are not subject to the GST/HST when incurred by the property owner and as such, a municipality does not charge or collect the GST/HST on property taxes. Nonetheless, the payment of property taxes by a tenant, pursuant to the terms of a lease agreement, constitutes consideration for the lease of property where the landlord has a joint liability to pay such property taxes.

Accordingly, in the situation you described, the registrant is required to collect the GST/HST from the tenant in respect of the lease, including the GST/HST calculated on the value of the property taxes paid by the tenant and remit the appropriate amount to the Department, irrespective of the party to whom the municipal tax bill is sent or who actually pays the property taxes to the municipality. The tenant, if registered for the GST/HST, is eligible to claim an input tax credit for the GST/HST paid to the landlord, subject to the general provisions of the Excise Tax Act.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above, please do not hesitate to contact me at (613) 954-4393. Should you have any other questions regarding application of the GST/HST, we encourage you to contact your local Tax Services Office at the following address:

Technical Interpretation Services
XXXXX

Yours truly,

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

b.c.c.: XXXXX

ANALYSIS: Municipal property taxes paid by a tenant are consideration for the supply of real property by the landlord who is responsible for collecting and remitting tax on the value of consideration, including the amount of tax paid by the tenant to the municipality in respect of the property taxes