29 September 2000 GST/HST Ruling 32542 - Application of GST to Business Taxes as Additional Rent

Dear XXXXX:

Thank you for your letter of August 18, 2000, concerning the application of the Goods and Services Tax (GST) to the transaction described below.

Statement of Facts

On the basis of your letter of August 18, 2000, and my telephone conversation of September 18, 2000, with XXXXX, our understanding of the facts is as follows:

1. You rent a portion of a building in a strip mall from a GST/HST registrant, and you use the space for retail purposes, XXXXX.

2. Under the lease agreement, your landlord collects rent calculated as a percentage of your sales. In addition, your landlord invoices you for an amount that is a percentage of the "business" portion of the property taxes that he is obliged to pay to the municipality for the building in which you are a tenant.

3. When your landlord invoices you for rent, he charges GST on the entire amount of the invoice, including the amount that is listed as "business taxes" and which relates to the municipal taxes that he has paid on the building.

4. If the taxes were not paid to the municipality, it is not the tenants but the landlord who would be liable to the municipality.

Ruling Requested

You have requested a ruling as to whether your landlord is correct in charging GST when he invoices you for an amount described as "business taxes", and which is a portion of the municipal property taxes that he pays on the building in which you are tenants.

Ruling Given

Based on the facts set out above, we rule that GST applies to the amount that the landlord invoices to you as "business taxes", as it is actually additional rent, not taxes. Therefore, as your landlord is a registrant, he is required to collect and remit GST on that amount.

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 none of the above issues are currently under audit, objection or appeal, there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy, and you have fully described all necessary facts and the transaction for which you requested a ruling.

Explanation

Your landlord has no statutory authority to collect taxes, and is not doing so in invoicing you for a portion of the taxes that he is obliged to pay to the municipality. Rather, the landlord is collecting from you an additional amount of rent, in order to recover a portion of the municipal taxes that he was obliged to pay on the building in which you are tenants. Since your landlord is a registrant, he is required to collect and remit GST in respect the rent he charges you, including the additional rent that he refers to as "business taxes".

If you have any further questions concerning this particular matter, please contact me at 613-952-9211. If, in future, you have further questions concerning GST, please contact your local Tax Service Office at XXXXX.

Yours truly,

Don Dawson
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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