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: 247663
Business Number: […]
Dear [Client]:
Subject: GST/HST interpretation proposed law/regulation - Strata-titled townhomes and the purpose-built rental housing (PBRH) rebate
Thank you for your correspondence of May 6, 2024, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to strata-titled townhomes and the purpose-built rental housing (PBRH) rebate.
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.
We understand that […][the Company] has acquired a property in […][city, province] with the intention of redeveloping the existing single-family house to two identical buildings each containing four residential units by demolishing the single-family house and constructing the two buildings. Each unit in the two buildings will be rented to an individual under a long-term lease as the individual’s place of residence. The fair market value of each unit will be more than $450,000.
You understand that […][the municipal authority]’s bylaws require all new residential properties containing more than one unit to be strata-titled. It is not clear whether each unit in the redevelopment project must be strata-titled or each building in the redevelopment project must be strata-titled.
You also understand that the PBRH rebate may be available for a multiple unit residential complex that contains at least four residential units and as such, you are concerned that the project may not be eligible for this rebate.
INTERPRETATIONS REQUESTED
You would like to know what properties may be eligible for the PBRH rebate. Also, if each unit in the buildings must be strata-titled, you would like to know whether a service agreement or a restrictive covenant stating that each unit will be used for long-term residential rental in perpetuity would make each unit eligible for the PBRH rebate.
INTERPRETATIONS GIVEN
Eligibility for the PBRH rebate
Generally, a GST/HST registrant who constructs a new residential rental property on land that the person owns (the owner referred to as a “builder” of a residential complex) and then supplies the units in the building to individuals as a place of residence under long-term leases is entitled to claim an input tax credit for the GST or HST payable on the costs to construct the building. In addition, the builder is deemed to have made and received a taxable sale of the complex and to have paid the GST/HST on the fair market value of the complex (referred to as a “self-supply”). The builder is required to account for this GST/HST at the later of the time that the complex is substantially completed and the time when a unit in the complex is rented. Further information on this requirement is included on page 10 of the guide RC4052, GST/HST Information for the Home Construction Industry under the heading “What is a self-supply?”.
In general, the PBRH rebate is available to a builder of purpose-built rental housing for 100% of the GST (or the federal part of the HST) that is deemed to have been paid and collected by the builder on the self-supply of the complex provided certain conditions are met. One of the conditions is that, generally, the construction of the purpose-built rental housing must begin after September 13, 2023 but before 2031 and must be substantially completed before 2036.
In addition, generally, the property that the builder received as a self-supply must be a multiple unit residential complex where:
- the multiple unit residential complex includes at least four residential units and at least four of those units each contains private kitchen facilities, a private bath and a private living area, or at least ten residential units; and
- 90% or more of the residential units that form part of the multiple unit residential complex are qualifying residential units held for the purpose of making certain exempt supplies of the unit or making exempt supplies that include giving possession or use of a unit to a person for occupancy of the unit as an individual’s place of residence.
A “multiple unit residential complex” is defined as a residential complex that contains more than one residential unit, but does not include a condominium complex.
A “residential complex” is generally defined to include that part of a building in which one or more residential units are located together with appurtenances and related land. It also includes a residential condominium unit that is, or is intended to be, a separate parcel or other division of real property owned, or intended to be owned, apart from any other unit in the building.
A “residential unit” generally includes a detached house, semi-detached house, rowhouse unit, condominium unit or apartment that is occupied or is intended to be occupied by an individual as a place of residence or lodging.
A “condominium complex” is defined as a residential complex that contains more than one residential condominium unit and a “residential condominium unit” is defined as a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit.
Therefore, generally, if each of the four units in a building that is constructed on the property is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, such as the […][applicable provincial act], then a PBRH rebate is not available for the GST that is deemed to have been paid and collected on the self-supply of each unit.
However, if each building that is constructed on the property (along with appurtenances and related land) is a multiple unit residential complex containing at least four residential units and at least four of those units each contains private kitchen facilities, a private bath and a private living area where each unit in the building is not, or is not intended to be a registered condominium unit, as described above, then a PBRH rebate may be available for the GST that is deemed to have been paid and collected on the self-supply of the multiple unit residential complex.
Service agreement or restrictive covenant
As mentioned above, the PBRH is not available for a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, such as the [applicable provincial act]. This is because the building (appurtenances and related land) is not a multiple unit residential complex. A service agreement or restrictive covenant stating that each unit will be used for long-term residential rental in perpetuity would not change a condominium complex into a multiple unit residential complex.
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 interpretations given in this letter on the proposed amendments to the ETA, including any additional information, are not a ruling and do not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to these proposed amendments, if enacted, or to the CRA’s interpretative policy could affect the interpretations 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
Industry Sector Specialist
Real Property Unit 1
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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