27 June 2000 GST/HST Interpretation 30153 - Definition of "Residential Unit" and Application of Paragraph 6(b)/I/V

This is in reply to your memorandum of March 21, 2000 concerning the definition of residential unit and the application of paragraph 6(b) of Part I of Schedule V to the Excise Tax Act (ETA).

Our understanding of the situation is as follows:

1. XXXXX (XXXXX) requested a ruling, based on the following information, on the tax status of accommodations supplied by it to the XXXXX. XXXXX is registered under the ETA with registration number XXXXX.

2. XXXXX is a registered charity for purposes of the Income Tax Act.

3. XXXXX is a university as defined in subsection 123(1) of the ETA.

4. XXXXX supplies accommodations to the general public by way of lease, licence or similar arrangement during the period May 1 to August 31 of each year.

5. The accommodations supplied are the student residences which are usually inhabited by XXXXX students from September 1 to April 30 of each year.

6. XXXXX has established predetermined rates as per the "XXXXX University 1999 Rate Sheet" which was submitted to you for review.

7. The rates per the Rate Sheet are for individual bordered rooms in "traditional style residences" and two or three bedroom apartments on a per night basis. An exception is the student rate where the student may be placed in an apartment with other students, thereby effectively being on a per bed basis.

8. On occasion, XXXXX negotiates with large groups for preferred rates and has done so with the XXXXX for the years 1998, 1999 and 2000.

9. XXXXX and the XXXXX have agreed that XXXXX shall invoice the XXXXX an amount on a per person per bed per night basis and that this amount is less than $20 per person per bed per night.

10. A two or three bedroom apartment style room may be occupied by any number of persons on a particular night and those persons do not necessarily know each other at the time they share an apartment style room.

11. The consideration charged by XXXXX to the XXXXX for the supply of a block of rooms is invoiced on a per person per bed per night basis and includes accommodations and a meal for the particular individual. This is a single supply for XXXXX with consideration for the supply calculated on the basis of an agreed upon amount for the accommodations and another amount on account of the meal.

12. It was ruled in case XXXXX that, based on the facts provided, the supply of accommodations made by XXXXX to the XXXXX (where the negotiated rate is less than $20 per bed per night, when the regular tourist rate is $35.00 per room per night) is taxable at the XXXXX[.]

Interpretation Requested

1. XXXXX of XXXXX has requested that, in light of his representations, ruling XXXXX issued by the XXXXX be reviewed and confirmed as correct.

2. He also wishes us to confirm his understanding that the CCRA has taken the position that if more than one person occupies an apartment, then the total consideration attributable to the supply of the apartment is taxable since the consideration for the supply as a whole is greater than $20 and that if only a single person occupies an apartment (even if it is a two or three bedroom apartment), the supply will be exempt of XXXXX as the total consideration for the supply is less than $20. XXXXX wishes us to confirm that, pursuant to the agreement between XXXXX and the XXXXX, XXXXX is required to charge and collect XXXXX on the basis of apportioning between supplies made where more than one person occupied an apartment and where only one person occupied an apartment.

XXXXX makes the following representations.

(a) He is not in agreement with our conclusion that a part of a residence room or apartment cannot be considered to be a residential unit because of the inclusion of the phrase "or that part thereof" in the definition of "residential unit" in subsection 123(1) of the ETA.

(b) In the circumstances described and given that the persons who may occupy one bedroom of a two or three bedroom apartment may not know the occupants of the other bedrooms within this apartment, it would appear reasonable to conclude that a single individual occupying one bedroom in a two or three bedroom apartment is occupying that bedroom as a residential unit. Since the consideration for that single bedroom is less than $20 per night, the supply would be exempt from XXXXX.

(c) XXXXX proposes that this treatment seems logical from a number of perspectives. He asks us to consider a situation where, if instead of the XXXXX being the recipient of the supply, the individuals themselves were required to pay the $XXXXX (as outlined in the pricing for 1998) to XXXXX. If XXXXX did not provide a second person a separate bedroom in that same apartment, our ruling would treat that supply as being exempt. If, however, a few hours later another individual requested accommodations for the same evening and XXXXX provided this individual with the use of a second bedroom in the same apartment as the first person (who is occupying a separate bedroom), this second individual would be required to pay XXXXX on the consideration of $XXXXX. XXXXX would then be required to approach the first individual and request that they also pay XXXXX merely because XXXXX has decided to supply accommodations to a person within the same apartment but in a different bedroom within that apartment to someone the first person may or may not have any knowledge of. This seems to be neither logical nor does it seem to be the intent of the definition of "residential unit".

XXXXX states the same result is achieved where a one bedroom apartment contains two beds within that single bedroom. His position is that the application of the XXXXX to the consideration paid by the first individual cannot and should not be dependent upon the decision of XXXXX to provide the use of a second bed that happens to be in the same bedroom as the bed provided to the first person.

In our ruling, we took the position that a room or apartment with more than one bed cannot be considered to be more than one residential unit as it is not possible to define exactly, or even roughly, the boundaries of each since they share, at least, the common space not occupied by the beds. Therefore, it is impossible to determine what real property is possessed, enjoyed or controlled by each occupant. In response to this position, XXXXX asks us to consider that if two individuals, unknown to each other are each the recipient of a supply by XXXXX of the use of a bedroom (one bedroom per person) in the same two or three bedroom apartment, it would appear that each person has, in fact, been given control, use and enjoyment of that particular bedroom. Since part (b) of the definition of "residential unit" includes "a suite or a room. ...", it would appear that each person has, in fact, been supplied a residential unit. In the contract at hand, the supply of such residential unit has been provided for consideration of less than $20 per day and should, therefore, be exempt from XXXXX.

XXXXX is of the view that the provision of a bed or a bedroom for use by a single individual as contemplated in the contract between XXXXX and the XXXXX is the supply of a "residential unit". Specifically, it is the supply of "a suite or a room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students ... or that part thereof that is occupied by an individual as a place of residence or lodging, or is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals ...". Since the consideration for the supply of that residential unit is less than $20 per night, the contract between XXXXX and the XXXXX is exempt from XXXXX pursuant to section 6 of Part I of Schedule V to the ETA.

Interpretation Given

1. We confirm that ruling XXXXX issued by the XXXXX is correct. XXXXX of the "Proposal for 1998 XXXXX" states that "Prior to the arrival of groups, the residence will provide a list of rooms assigned to the XXXXX. Rooms will be assigned by XXXXX staff according to groups, name, XXXXX (as required), gender, arrival and departure date." and XXXXX of the same document states that "All rooms must accommodate one or two people, each having a single bed or beds, desk, chair, curtains, closet and lamp. Rooms containing two beds must be of sufficient size to comfortably accommodate two guests". Based on the facts as I understand them, the supply being made by XXXXX to the XXXXX is that of a block of rooms for a stated consideration.

2. We confirm XXXXX understanding that GST is imposed on the actual consideration for the supply of a room or an apartment in the residence. In this case, if only one individual occupies the room or apartment and the consideration charged for the room or apartment does not exceed $20 per day of occupancy, then the supply will be exempt from tax pursuant to paragraph 6(b) of Part I of Schedule V to the Excise Tax Act (ETA). If more than one individual occupies the room or apartment and the consideration for the supply exceeds $20 per day of occupancy, then the supply will be subject to tax. It is not the sleeping capacity or the number of individuals occupying a residential unit as a place of residence or lodging that determines whether a supply is or is not exempt under the provisions of paragraph 6(b) of Part I of Schedule V. It is the consideration for the supply of the residential unit that determines the tax status of the supply.

XXXXX proposes that if the individuals themselves were the recipients of the supply, and an individual occupies a bed in a room or a room in a suite, our ruling would treat that supply as being exempt. However, if a few hours later, a second individual requested accommodation and XXXXX provided a bed in the same room or a room in the same suite as the first individual, the second individual would have to pay tax on the supply. XXXXX would then have to approach the first individual and charge that individual tax on the supply because XXXXX has decided to supply accommodation in the same bedroom or suite to a person the first individual may or may not know.

A distinction is made between the supply XXXXX is making to the XXXXX and the supply XXXXX describes in his representations. XXXXX is supplying a block of rooms to the XXXXX for a stated price. This supply gives the XXXXX members the right to use the rooms and the right of exclusive possession. The supply described in XXXXX representations is of numerous single supplies to different individuals of the right to use the room. However, in this latter case, the individuals do not receive an exclusive right of possession.

A distinction is made between a single supply of a licence to use a hotel/motel room/suite when it is supplied to two or three family members or friends and a supply of "hostel" accommodation. In hostels, the pricing practice will usually take the form of a "per occupancy charge" as opposed to a "per room charge". Where the supply of such shared accommodation is for a per diem rate of $20/day per day or less, the supply will be exempted under paragraph 6(b) of Part I of Schedule V.

In the case at hand, XXXXX is charging a specific dollar amount for a specific number of rooms. If it is not possible for XXXXX to determine the consideration it is charging for each room, we would consider the room charge to be the total consideration for the supply divided by the number of rooms.

In addition, the definition of "residential unit" in subsection 123(1) of the ETA is composed of a "structural" component as described in paragraphs (a) to (c) of the definition and a "functional" component as described in paragraphs (d) to (g) of the definition. To be considered a "residential unit" as defined, the part of the room or part of the suite in the hotel or motel must meet any one of the "structural" components described in paragraphs (a) to (c) as well as any one of the "functional" components in paragraphs (d) to (g).

The phrase "or that part thereof that" of the definition of "residential unit" can be interpreted to refer to the functional components described in paragraphs (d) to (g) of the definition and to carve out of the meaning of "residential unit" those parts of a structure described in paragraphs (a) to (c) that are used for a function or purpose other than those functions described in paragraphs (d) to (g).

In the case of a hotel/motel room or suite, the whole of the room/suite is used for the functions described in paragraphs (d) to (g) of the definition of "residential unit" and not for any other functions. A part of a room/suite in a hotel/motel is not normally used for any function other than those functions described in paragraphs (d) to (g). That is, the whole room or suite is either occupied by an individual as a place of residence or lodging or it is supplied by way of lease, licence or similar arrangement for occupancy thereof as a place of residence or lodging for individuals etc. It is not necessary to carve out of the definition of "residential unit" that part of a room/suite in a hotel/motel that is used for any other purpose unless there is actual use of a part of the room/suite for some other purpose.

This interpretation is consistent with the legislative intent to exempt supplies of low cost accommodation in rooming, boarding houses and similar establishments where the consideration for the supply does not exceed $20 per day of occupancy and to tax supplies of accommodation in hotels and motels where the consideration for the supply of a room or suite exceeds $20 per day of occupancy. Our position in this regard, is stated in paragraph 11 of GST Memoranda Series chapter 19.2.2, "Residential Real Property - Rentals". This paragraph states that, where the consideration for a supply of a room at an inn is $40 per day and the supplier splits the invoice between two individuals such that each is invoiced $20, the supply is still taxable and splitting the invoice does not exempt the supply.

Should you have any questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8816.

Yours truly,

Anne Kratz
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate