10 June 2005 GST/HST Interpretation 55232 - Change in input tax credit methodology - ITC restrictions - subsection 225(3) of the Excise Tax Act (ETA)

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX program operated by XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand the following:

1) XXXXX. It manages a wide variety of housing operations for seniors. It is a registered charity under the provisions of the Income Tax Act and is a charity for purposes of the ETA.

2) XXXXX has been designated as a municipality XXXXX pursuant to subsection 259(1) of the ETA. XXXXX this designation was in respect of residential units in XXXXX housing project supplied to tenants on a rent-geared-to-income basis. XXXXX.

3) XXXXX.

4) XXXXX.

5) XXXXX.

6) XXXXX.

7) The operation of the XXXXX programs are managed separately with XXXXX distinct funding subsidies and separate financial statements.

8) XXXXX claims the municipal public service body rebate rate for the GST paid in respect of the operations of the XXXXX program. It claims a 50% public service body rebate for the GST paid in relation to the operations of the XXXXX program.

XXXXX Program

9) XXXXX.

10) XXXXX.

11) XXXXX.

12) XXXXX.

13) XXXXX.

14) XXXXX program offers single or double bed/sitting rooms, meals, housekeeping services, linen/laundry and recreational services. Services beyond these basic offerings may vary XXXXX.

15) XXXXX services provided by XXXXX are:

•   basic room furnishings, if required;

•   housekeeping services;

•   three meals per day plus daily snacks;

•   building security;

•   24 hour non-medical staffing;

•   access to community based services; and

•   XXXXX activities to enhance physical, emotional, social, spiritual and intellectual needs.

Ruling Requested

You would like to know whether the XXXXX program qualifies for inclusion in designated activities of XXXXX for purposes of subsection 259(1) of the ETA.

Ruling Given

Based on the facts set out above, we rule that activities carried on by XXXXX in the course of operating the XXXXX program are not designated activities for purposes of subsection 259(1) of the ETA.

Explanation

Under subsection 259(1) of the ETA, 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.

The supply of long-term residential accommodation to tenants on a rent-geared-to-income basis by a charity or by a non-profit organization is considered to be a municipal service for purposes of municipal designation where the charity or non-profit organization receives government funding to assist it in providing this accommodation.

As indicated above, XXXXX was designated as a municipality in respect of residential units in XXXXX housing project supplied to tenants on a rent-geared-to-income basis.

For purposes of this designation, long-term residential accommodation is considered to be the rental of self-contained housing units, meaning private living quarters that include cooking facilities and a bathroom, for periods of one month or more. The government funding provided to these entities must be made to subsidize housing supplied on a rent-geared-to-income basis. These activities must be undertaken within a program to provide housing to low to moderate income households.

Based on the information provided, residents in the XXXXX operated by XXXXX are not provided with self-contained residential units. Rather, these individuals are provided with private rooms and bathrooms, meals and daily snacks, housekeeping services, building security and access to non-medical staff, community based services and recreational, social and spiritual activities. Accommodation of this nature that includes daily meals and daily support services does not qualify as a municipal service for purposes of designation under subsection 259(1) of the ETA.

Accordingly, activities carried on by XXXXX in the course of its XXXXX program are not activities for which XXXXX has been designated as a municipality. It is not entitled to claim the 100% rebate available to municipalities for the tax charged on purchases to the extent that they are used in the course of its operation of the XXXXX Program. As a charity, XXXXX is entitled to claim a 50% rebate in respect of this tax.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2005/06/03 — RITS 55989 — Timing Issue - Interest and Penalties - Rebate Overpayments - Assessments Against Suppliers