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.
DATE: May 28, 2015
[Addressee]
Case # : 161027
SUBJECT : GST/HST INTERPRETATION
Eligibility for the Public Service Bodies’ Rebate at the Municipal Rate
This […] refers to […] [a request for] clarification on whether two housing projects ([…][Project A] and […][Project B]) which are owned by […] ([…][a provincial body]), but are operated by […] ([…][the Organization]), qualify for the municipal rebate under section 259 of the Excise Tax Act (the “Act”).
BACKGROUND
We understand the facts are as follows:
1. […][The Organization] is a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act, and is incorporated […] in […][Province 1]. As a result, [the Organization] is a charity for GST/HST purposes.
2. [The Organization] is registered for GST/HST purposes.
3. [The Organization] was granted municipal designation status with respect to its provision of rent-geared-to-income (“RGI”) housing, effective [mm/dd/yyyy].
4. [The Organization] has signed an […][Agreement] dated [mm/dd/yyyy], with [a provincial body] relating to [Project B] to provide housing for low to moderate income households. The particulars of this project are as follows:
a. The project is located at […], […][City 1, Province 1].
b. The property is owned by [a provincial body].
c. The project has [#] residential units.
d. The units are self-contained as each unit has cooking facilities and a bathroom.
e. The units are provided on a long term basis (month to month).
f. Accommodation for [#] units is provided on an RGI basis.
g. [The Organization] does annual income testing with respect to the tenants’ occupancy of the units.
h. The […] [indicates] that the project provides supportive housing […][Description of how residents are selected].
i. [The Organization] is responsible for collecting all rents and other revenue for the project, and [the Organization] is responsible for paying out of such revenues all costs associated with the operation of the project, including insurance, maintenance costs, staffing costs, etc.
j. The lease agreement with tenants identifies the landlord as [the Organization].
k. [The Organization] receives government funding for the provision of the RGI Housing.
5. [The Organization] signed another [Agreement] dated [mm/dd/yyyy], with [a provincial body] relating to [Project A] to provide housing […]. The particulars of this project are as follows:
a. The project is located at […], [City 1, Province 1]
b. The property is owned by [a provincial body].
c. The project has [#] residential units.
d. The housing units are not considered to be self-contained units as none of the units have cooking facilities.
e. The units are provided on a long term basis (month to month).
f. Accommodation for [#] units is provided on an RGI basis.
g. [The Organization] does annual income testing with respect to the tenants’ occupancy of the units.
h. […] [indicates] that the project provides supportive housing staffed […][continuously].
i. The [Agreement] provides that:
i. The project’s units are for persons who […] [Description of Residents and Financing].
ii. [The Organization] will […] [match persons with housing] […] that best meets their needs.
iii. […][Certain organizations are contracted] to deliver Support Services to Tenants.
j. [The Organization] is responsible for collecting all rents and other revenue for the project, and [the Organization] is responsible for paying out such revenues all costs associated with the operation of the project, including insurance, maintenance costs, staffing costs, etc.
k. The lease agreement with tenants identifies the landlord as [the Organization].
l. [The Organization] receives government funding for the provision of RGI Housing.
6. The […] Agreements […][indicate the Organization is the landlord] for both projects
7. […][Information about the Organization’s RGI funding].
8. [The owner,] [a provincial body] directly pays property taxes and mortgage payments for these two properties from its own accounts.
INTERPRETATION REQUESTED
You would like to know whether the two housing projects ([Project A] and [Project B]) qualify for the Public Service Bodies’ (PSB) rebate at the municipal rate, even though the properties are not owned by [the Organization].
INTERPRETATION GIVEN
Based on the facts set out above, we are of the view that [the Organization] is the person providing supplies of RGI Housing, even though the housing units are owned by [a provincial body]. However, for other reasons, the two housing projects may not qualify for the municipal rebate (but would nonetheless qualify for the PSB rebate available to charities).
1. [Project B]: It is uncertain whether [the Organization] selects the tenants on the condition that the tenants receive [certain support] services […]. If this is the case, then this project will not qualify for municipal rebate under section 259 of the Act, in respect of its supplies of RGI housing.
2. [Project A]: This project is not eligible for municipal rebate since the housing units are not “self-contained”. That is, these units do not have cooking facilities. Hence, this project will not qualify for municipal rebate under section 259 of the Act, in respect of its supplies of RGI housing. In addition, please note that it is also not clear whether tenants are provided support services and that the receipt of such services is a condition of selection as a tenant. Should it be the case that such conditions/restrictions apply, these would further disqualify this project from qualifying for the municipal rebate.
EXPLANATION
We have reviewed the […] Agreements and other information provided by [the Organization]. We are of the view that [the Organization] is the person providing the RGI housing even though the housing units are owned by [a provincial body]. The […] Agreements signed with [a provincial body] […][indicate the organization manages and operates the housing projects in the manner of an owner], and that the full normal […] landlord and tenant [relationship] will exist between [the Organization] and the Tenant. The […] Agreements also state that [the Organization] will be responsible for collecting rent and other revenue and be responsible for paying out all expenses, insurance, maintenance costs, etc. Furthermore, […] [another] Agreement indicates that [the Organization] is the landlord. Given the preceding, it is our view that [the Organization] is the supplier of the housing.
However, despite our position that [the Organization] is the person providing the RGI housing, we are of the view that these two projects may not qualify for municipal rebate.
The Minister of National Revenue may designate an organization to be a municipality but only in respect of activities, specified in the designation, that involve the making of supplies (other than taxable supplies) of municipal services by the organization. The supply of long-term residential accommodation to tenants on an RGI basis by a non-profit organization (or a charity) that receives government funding to assist it in providing this accommodation qualifies as a municipal service for designation purposes. We consider the supply of long-term residential accommodation to mean the rental of self-contained housing units (private living quarters which include cooking facilities and a bathroom) for periods of one month or more. The government funding must be payable to subsidize the cost of those housing units that are supplied on an RGI basis and more than 10% of the housing units must be provided on an RGI basis. Note that the government funding in these situations includes funding provided by a municipality. The activities described above must be undertaken within a program to provide housing to low to moderate-income households.
For purposes of municipal designation, a supply that includes accommodation as one element but also includes other elements such as meals, personal care services, laundry, or housecleaning is not considered an eligible supply of long-term accommodation.
The CRA’s administrative policy in this regard is summarized in GST/HST Info Sheet GI-124 Municipal Designation of Organizations Providing Rent Geared to Income Housing. It should be noted that the CRA’s administrative policy was considered by the Federal Court of Canada in Wellesley Central Residences Inc. v. Canada (National Revenue) - 2011 FC 760, where the Court opined that there were valid taxation policy grounds to support the Minister’s exercise of discretion as outlined on the previous page and above (with respect to denying a municipal designation to a person who provides RGI housing in circumstances where other mandatory elements such as personal care services were concurrently provided by the housing provider or a third party).
As indicated above, we consider the supply of long-term residential accommodation to mean the rental of self-contained housing units (private living quarters which include cooking facilities and a bathroom). The units which do not include cooking facilities do not qualify as self-contained units. Since [Project A] units have no kitchen facilities, this project is not eligible for the municipal rebate.
It is also our position that where there is a direct link between accommodation provided by the housing provider and personal care or other support services provided by housing provider or third parties, then the accommodation would be outside the scope of the self-reliant living and qualifying activities contemplated by the municipal designation process. In other words, it is necessary to consider the context in which supplies of housing are made. It is the CRA’s policy to designate organizations as municipalities that provide long-term accommodation to residents on an RGI basis under a program to provide housing to low to moderate-income households. Where residents are provided with a variety of services in addition to the supply of accommodation, either by the housing provider itself or by a third party, then, this supply is no longer considered an eligible activity as the activities take place in a program that is broader than a program to provide housing to low to moderate-income households.
[There are indicators] […] that [Project B] may be supportive housing, and the tenants were selected based on the requirement that they receive [support] services […]. [However, this has not been confirmed] […]. If the tenants receive tenancy on the condition that they receive support services from [the Organization] or other service providers, then this project would not qualify for the municipal rebate, as the activities are outside the scope of qualifying activities contemplated by the municipal designation process. As previously mentioned, it is also unclear whether tenants at the [Project A] also receive mandatory support services […], which would provide additional support to disqualify this project from receiving the municipal rebate. […].
[…]
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5172.
Yours truly,
Dan Maharatnam
Rulings Officer
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise & GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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