Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
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Case Number: 85850NCS Code: 11950-1
XXXXX
July 22, 2008
Subject:
GST/HST INTERPRETATION
Supply of Guest Suites
XXXXX:
Thank you for your letter XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of guest suites by a residential condominium corporation. We apologize for the delay in providing this response.
The following interpretation is also based on our telephone conversation and your facsimile transmission XXXXX.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
BACKGROUND
• Two residential condominium corporations have entered into a joint venture arrangement for the purpose of managing and maintaining facilities and costs which they share in a XXXXX%:XXXXX% ratio.
• The condominium corporations make supplies of guest suites, which are rented for $XXXXX per night.
• The guest suites are supplied to guests of the condo unit owners of the two condominium corporations.
• Substantially all of the guest suites are provided for periods of continuous occupancy by guests of less than XXXXX days.
• Total income from the supply of guest suites is approximately $XXXXX annually. Revenues from the supply of the guest suites are divided between the two condominium corporations on the basis of their proportionate interest in the real property, with one corporation earning $XXXXX and the other earning $XXXXX annually from the supply of guest suites.
Interpretation Requested
You would like to know whether an unincorporated joint venture must register for and collect GST/HST on income earned from the rental of guest suites. You also seek confirmation of your understanding that a residential condominium corporation with over $XXXXX annually in "commercial" type income must register.
Interpretation Given
Based on the information provided, we are pleased to provide you with the following interpretation.
In general, a person who makes a taxable supply in Canada, otherwise than as a small supplier, is required to be registered and to collect and remit GST/HST on the value of the consideration for the supply.
Supply of Guest Suites
A "taxable supply" is defined in subsection 123(1) as a supply made in the course of a commercial activity. A "commercial activity" is defined under the same subsection to mean, in part, "(c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply." Accordingly, the making of a supply of real property is taxable unless the supply is specifically exempted under a provision of the ETA.
Part I of Schedule V sets out certain exemptions with respect to the supply of real property. In particular, section 13 of Part I of Schedule V exempts a supply of property or a service made by a residential condominium corporation to the owner or lessee of a residential condominium unit described on the condominium or strata lot plan, if the property or service relates to the occupancy or use of the unit. While this provision exempts many of the supplies made by a residential condominium corporation to the owners or lessees of condominium units in the complex, it is our view that the exemption under section 13 does not apply to the supply of guest suites in the circumstances described above. In order to qualify for exemption under section 13, the supply by a residential condominium corporation to the owner or lessee of a condominium unit must relate to the "occupancy or use of the unit". A guest suite is in and of itself a unit which is provided for the use of guests. Accordingly, in our view, it is not a supply that relates to the occupancy or use of an owner's or lessee's condominium unit. As such, the supply of a guest suite by a residential condominium corporation does not meet the requirements for exemption under section 13.
In addition, based on the information provided, it is our view that none of the exemptions under Schedule V apply to exempt the supply of the guest suites. As such, the supply of a guest suite by a residential condominium corporation is a taxable supply. A residential condominium corporation that is not a small supplier is required to charge and collect GST at 5% or HST at 13% calculated on the value of the consideration payable for the supply of a guest suite.
Small Supplier Threshold
Sections 148 and 148.1 set out the rules for small suppliers.
In general, a small supplier is a person whose total world-wide taxable supplies (from all commercial activities of the person or associated person) in the preceding four calendar quarters does not exceed $30,000 or, where the person is a public service body, $50,000. A person ceases to be a small supplier at any time in a calendar quarter if the total value of the consideration for taxable supplies that became due, or that was paid in that calendar quarter without having become due, to the person or an associate of the person, exceeds $30,000 or, if the person is a public service body, $50,000.
Whether a non-profit residential condominium corporation qualifies as a "non-profit organization", and therefore a public service body under the ETA, is a question of fact. Policy Statement P-215, Determination of Whether an Entity is a "Non-Profit Organization" for purposes of the ETA, sets out the conditions that an entity must meet to qualify as a non-profit organization for purposes of the ETA.
The small supplier threshold of $30,000 will apply to a residential condominium corporation that is not a non-profit organization for purposes of the ETA and consequently, not a public service body.
Joint Ventures
The term "person" is defined in subsection 123(1) mean an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind." Generally, a joint venture is an arrangement in which two or more persons work together in a limited and defined business undertaking, which does not constitute a partnership, a trust or a corporation, the expenses and revenues of which will be distributed in mutually agreed portions. Whether an arrangement between two or more persons is a joint venture is a question of fact. Policy Statement P-171R, Distinguishing Between a Joint Venture and a Partnership for the Purposes of the Section 273 Joint Venture Election, provides some guidelines that may be used in making this determination, such as the intention of the parties, a right of mutual control or management, the contribution by each participant and joint ownership in the venture subject matter.
If the two residential condominium corporations are not a joint venture, each would account for the tax on the taxable supplies of the guest suites that they make in their own right. It is not clear from the information provided whether both corporations are in fact making a supply of a guest suite that is a residential condominium unit located in a residential condominium complex that relates to only one of the corporations.
Where the residential condominium corporations are, in fact, a joint venture, since a joint venture is not a "person" for GST/HST purposes, it cannot register in its own right. Under the general rules, each joint venture participant, if a registrant, must account for the tax on its share of joint venture supplies and claim input tax credits for GST/HST paid or payable on its share of joint venture purchases, whether the participant makes the supplies or receives the purchases directly or through another participant of the joint venture.
These general rules do not apply where the participants in the joint venture have elected under section 273 to make a joint venture election as described below.
Under section 273, participants in a qualifying joint venture may make an election with the operator of the joint venture to have the operator account for the GST/HST in respect of the joint venture activities. Where the operator and a joint venture participant make the joint venture election, section 273 deems supplies and purchases made by the operator on behalf of the electing participant to have been made by the operator and not the participant. It also deems most supplies made by the operator to the joint venture participant under the joint venture agreement not to be supplies. Accordingly, the operator will collect and account for the GST/HST with respect to supplies made in the course of the activities of the joint venture and claim input tax credits for the GST/HST paid or payable with respect to purchases made in the course of the activities of the joint venture. The election is only available if the joint venture agreement is evidenced in writing and the activity of the joint venture is the exploration or exploitation of mineral deposits or a prescribed activity. Reference may be made to the Joint Venture (GST/HST) Regulations which lists the prescribed activities that are eligible for the joint venture election. Should you require additional information regarding the joint venture election and whether it applies in your particular situation, please send us a complete copy of the joint venture agreement.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9212. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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