|
|||||||||||||||||||||||
|
|||||||||||||||||||||||
Real propertyOn this page ...
This section explains the GST/HST rules for sales and leases of real property made by non-profit organizations. It provides information on ITCs and subsidized residential complexes. It also explains the special election that allows you to treat certain exempt supplies of real property as taxable supplies. Taxable supplies of real propertyGenerally, most sales and leases of real property made by non-profit organizations are exempt. However, the following supplies are subject to GST/HST:
ITCs for real propertyThe rule for calculating ITCs on purchases of capital real property is the same as for calculating ITCs on purchases of other capital property (the primary use rule):
It is possible that the use of the real property will change over the years. If the use of the real property changes from non-commercial to primarily commercial, you can claim an ITC at the time of the change in use. On the other hand, if the use changes from commercial to non-commercial, you may have to remit part of the ITCs you claimed earlier. The other expenses related to real property such as maintenance and utilities are subject to the usual rules. You can claim ITCs based on the percentage of use of those expenses in your commercial activities, see the section "General operating and overhead expenses". Subsidized residential complexThe following rules apply to non-profit organizations that receive government funding to build (or build an addition to) a residential complex where at least 10% of the residential units are intended to be leased to seniors, youths, students, or individuals with a disability or limited financial resources. Government funding means financial payments from a grantor that can be measured and identified in your financial statements as government funding, and includes the following:
A grantor can be from any level of government--federal, provincial, and municipal. It also includes Indian bands and bodies established by federal, provincial, or municipal governments or bands to fund charitable or non-profit activities for Indian bands or the government. However, we do not consider federal and provincial Crown corporations that perform substantially all (90% or more)commercial activities to be grantors. During the construction phase, you can register for the GST/HST and claim ITCs for the goods and services you buy that relate to the construction of the complex. When the construction is substantially completed, and you first give possession of a unit in the building under a lease to an individual as a place of residence, a deemed sale occurs and you have to calculate and account for the GST/HST based on the greater of the following:
Example Election for real property of a public service bodyAs a non-profit organization, you can choose to file an election that allows you to treat certain exempt sales and leases of real property as taxable supplies. This election allows you to claim ITCs for the GST/HST you paid or owe when you acquired the property, or for any improvements to it, to the extent that the property is used to make taxable supplies (as long as it is used at least 10% in commercial activities). This election applies to the following real property:
To make this election, you have to complete and file with us Form GST26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply. Note When you make this election for a particular real property, the following rules apply:
You can make the election when you acquire the real property, or in later reporting periods. Election effective the day of acquisitionIf the election becomes effective on the day when you acquire the real property, you claim your ITC based on the percentage of use of the property in your commercial activities (as long as it is used at least 10% in your commercial activities). Example However, if you file Form GST26 and make the election effective on the day you acquire the property, GST/HST applies to the leases of the offices on the second, third, and fourth floors. If you determine that 75% of the property is now used in commercial activities, you can claim an ITC for 75% of the GST/HST paid on the acquisition of the property. You can also claim ITCs to recover the GST/HST paid on utilities and maintenance that relate to the second, third, and fourth floors. Election effective after the day of acquisitionIf the election becomes effective after you acquire the real property, you can generally claim an ITC to recover all or part of the GST/HST you paid or owe on the last acquisition and were not able to recover because the property was not used primarily (more than 50%) in commercial activities. Before calculating your ITCs, you have to determine the basic tax content of the property. This formula is explained in the section "Capital property" under "Change in use". When you make this election effective at some time after the day of acquisition of the property, the following rules apply:
Example You first have to determine the basic tax content of the property:
In addition, you can now claim ITCs for 30% of the GST you paid or owe on operating expenses, such as electricity, maintenance, and utilities related to the commercial use of the property. You cannot claim another PSB rebate for the deemed tax paid for which an ITC was not available. For the purposes of this election, “real property” means the entire estate or interest in the real property held by the non-profit organization included in the legal description or leasehold interest (which include all structures and other improvements that are fixtures to the land). Filing the electionTo make the election, you have to file Form GST26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply, no later than one month after the end of the reporting period in which the election is to become effective. You file this election for each property you want to treat as taxable. You can revoke this election by filing another Form GST26. The revocation will be effective on the day you specify on Form GST26, as long as you file the form within one month after the end of the reporting period in which the election ceases to be effective. Note Change-in-use rulesThe following rules apply only to capital real property for which you made an election to treat exempt supplies of real property as taxable supplies, and if you are registered for the GST/HST. As explained earlier, when you make the election to treat certain exempt supplies of real property as taxable supplies, ITCs are calculated based on the percentage of use in commercial activities. It is possible that this percentage will change over the years. If you increase the percentage of use in commercial activities, you may be able to claim additional ITCs. On the other hand, if you decrease the percentage of use in commercial activities, you may have to account for tax that you are considered to have paid. Increasing commercial useWhen you increase the commercial use of capital real property by 10% or more cumulatively, you can claim an ITC equal to the basic tax content of the property multiplied by the percentage of increase in commercial use of the real property. Reducing commercial useWhen you decrease the commercial use of real property by 10% or more cumulatively (without ceasing or reducing the total commercial use to 10% or less), we consider you to have collected GST/HST on the part you no longer use in your commercial activities. The amount of GST/HST you have to account for in determining your net tax is equal to the basic tax content of the property multiplied by the percentage of decrease in commercial activities. Ceasing commercial useWhen you stop using the real property for commercial use or decrease the commercial use to 10% or less, we consider you to have sold and reacquired the property. If the deemed sale is taxable, the amount of GST/HST you have to account for in determining your net tax is equal to the basic tax content of the property. If the real property was used partially in other than commercial activities before the change in use, contact us for more information. We review our publications every year. If you have any comments or suggestions to help us improve them, we would like to hear from you. Please send your comments to: Taxpayer Services Directorate Previous page | Table of contents |
|||||||||||||||||||||||
|