Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 246443
Business Number: [#]
Dear [Client]:
Subject: GST/HST interpretation
Recovery of tax paid on construction of [...][a building]
In correspondence dated [mm/dd/yyyy], [...], you expressed concern that you cannot claim an input tax credit (ITC) for the goods and services tax/harmonized sales tax (GST/HST) paid on the construction of a [...] [building] for seasonal workers and purchases of related furnishings, dishes, etc.
We understand that you operate [...][the Company] and that as an agricultural producer, it hires temporary foreign workers as seasonal labour. [The Company] is required to meet certain standards in providing accommodation to the temporary foreign workers it employs. [The Company] has constructed a [...] [building] on its property to provide such accommodation and it is a GST/HST registrant.
In a telephone call on [mm/dd/yyyy], we discussed the application of the GST/HST to the construction of accommodation (for example, a [...] [building]) and the reason that [the Company] cannot claim an ITC to recover the tax paid. As you requested, we are following up with a written explanation of the application of the GST/HST to certain supplies of accommodation, with references to the legislative provisions that apply.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
INTERPRETATION REQUESTED
You have asked for an interpretation of the applicable legislation so that you can understand why [the Company] cannot claim ITCs for the tax payable on these expenses.
INTERPRETATION GIVEN
Generally, subsection 169(1) provides that a GST/HST registrant can claim an ITC to recover the GST/HST paid in respect of property or services to the extent that the property or services are for consumption, use or supply in the registrant’s commercial activity. The supply of agricultural products is a commercial activity and accordingly, an agricultural producer can claim an ITC for the GST/HST paid or payable on goods or services acquired for consumption, use or supply in making such supplies of agricultural products. For example, the supply of apples is a supply that is zero-rated (taxable at 0%) and therefore, the tax paid on costs incurred in directly making the supply of apples can be claimed as an ITC.
As defined in subsection 123(1), “commercial activity” does not include the making of an exempt supply. A person cannot claim an ITC for the GST/HST paid on purchases of goods or services to provide an exempt supply. Exempt supplies are listed in Schedule V.
Part I of Schedule V sets out circumstances where the supply of accommodation is exempt from the GST/HST. Generally, section 6 of Part I of Schedule V exempts the lease a residential unit in a residential complex for occupancy as a place of residence or lodging where the period of occupancy is at least one month or as a place of residence or lodging where the consideration does not exceed $20 for each day of occupancy regardless of the period of occupancy.
As defined in subsection 123(1), a “residential unit” includes a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or any similar premises (such as a [...] [building]) that is occupied by an individual as a place of residence or lodging. As also defined in subsection 123(1), a “residential complex” includes that part of a building that contains residential units and common areas that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals.
We recognize that an agricultural producer incurs costs in providing temporary foreign workers with appropriate accommodation. Such accommodation may be in a commercial establishment such as a hotel, motel or boarding house, or it may be on the property of the agricultural producer, for example, in a [...] [building]. The agricultural producer may acquire certain purchases (such as construction materials to construct a [...] [building]) in supplying exempt accommodation to the temporary foreign workers. As a result, the agricultural producer cannot claim an ITC for the GST/HST paid to acquire or to construct the accommodation. In addition, the agricultural producer cannot claim ITCs to acquire related furnishings, dishes, etc.
The supply of exempt accommodation to temporary foreign workers is not made in the course of a commercial activity and is a distinct supply from the supply of agricultural products, which is made in the course of a commercial activity.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 306-914-1122.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Ron Litzenberger
Manager
Real Property Unit 1
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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