5 July 2000 GST/HST Interpretation 8464 - Charges to Owners of Condominium Units Under a Rental Program

Dear XXXXX:

Thank you for your letter of November 16, 1999 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the above charges, which was forwarded to us by the XXXXX XXXXX for reply.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

We understand the circumstances to be as follows:

1. Individuals, who may or may not be registered for GST/HST purposes, purchase condominium units ("units") in a XXXXX condominium complex in XXXXX.

2. The condominium corporation owns a second corporation ("the management company"), which was established to operate a program of short term rentals of the units for the benefit of the unit owners ("the rental program").

3. None of the unit owners are related and no unit owner or group of unit owners has legal or de facto control of either the condominium corporation or the management company.

4. The management company is registered for GST/HST purposes.

5. In order to participate in the rental program, a unit owner must enter into a XXXXX ("the agreement") with the management company, a copy of which has been provided by you.

6. Under the rental program, the management company rents the units to third parties, collects the rents and GST, and accounts for the GST collected with the CCRA.

7. The revenue and expenses generated or incurred by the management company from the rental of the units under the rental program are pooled and allocated among the unit owners based on a "sharing formula". The sharing formula relates to the type of unit, not to the revenue and expenses generated or incurred by the particular unit.

8. Each calendar quarter, any surplus is distributed by the management company to the unit owners, which is received by them as "rental income".

9. If unit owners wish to use their units personally, they must advise the management company in advance and are required to pay the following charges to the management company:

1. "Staying charge" (characterized in your letter as "rent"): Unit owners are charged 50% of the published room rental (approximately $200) per night of occupancy if the occupancy is on a "Designated Peak Night" (for example, Saturday nights in July and August) and the occupancy level for the rental program exceeds 85%. At all other times, the charge is $4 or $6 per night, depending on the type of unit. This charge is described in XXXXX to the agreement as being "to recover a share of the cost of running" the rental program and "to compensate the [rental program] for potential lost revenue from Guests".

2. Additional charge: upon check out following each stay, unit owners are required to pay $15 or $21, depending on the type of unit occupied.

Interpretation Requested

You wish to know whether the unit owners are required to pay GST on the charges incurred by them when they stay in their units.

Interpretation Given

Based on the information provided, it is our view that the unit owners are not required to pay GST with respect to a particular night of occupancy where the total of the "staying charge" for that night and the pro rata additional charge for the stay comprising that night does not exceed $20. In such circumstances the total amount would be regarded as consideration for an exempt supply pursuant to subsection 6(b) of Part I of Schedule V to the Excise Tax Act (the ETA). In all other cases the total amount so calculated would attract GST of 7% pursuant to subsection 165(1) of the ETA.

Analysis

On the basis of the circumstances described in your letter and set out in the agreement provided, it is our view that the "staying charge" should be characterized as rent. It would appear that the unit owners established the management company for the purpose of renting units to members of the public and that in order to facilitate those activities the unit owners participating in the rental program have leased their units to the management company. When the unit owners use the units themselves they are receiving a licence back from the management company; the staying charge is part of the consideration for this supply.

As the additional charge is related to the supply of the units by way of licence to the owners and is required under the agreement, we would also regard the additional charge as part of the consideration paid for the supply. Therefore, we would view the nightly rent as including the additional charge, applied on a pro rata basis.

By virtue of paragraph 6(b) of Part I of Schedule V to the ETA, the supply of a "residential unit" (such as a condominium unit intended to be used as a place of lodging for individuals) by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual is exempt from GST where the consideration for the supply does not exceed $20 for each day of occupancy. As the units in question are rented out on a nightly (i.e. per day) basis, and the staying charge is a nightly charge, this provision would exempt the supply of the units to their owners when the total of the staying charge for the particular day of occupancy and the pro rata additional charge of the particular stay is $20 or less.

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 Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9212.

Yours truly,

J. Michael C. Wolff
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate