On September 14, 2023, the Department of Finance provided details on a proposal to enhance the existing GST rental rebate. In general, the existing rebate provides a 36% rebate of the GST component of the price paid by landlords to construct, or purchase newly constructed, rental property. The existing rebate begins to be phased out for properties valued at over $350,000 and is eliminated at $450,000.

The proposal would increase the rebate from 36% to 100% and remove the phase-out thresholds for properties with a value over $350,000. The proposal would apply to certain rental housing projects that begin construction between September 14, 2023, and December 31, 2030, inclusive, and complete construction by December 31, 2035.

To qualify for the enhanced rebate, new residential units would need to meet the requirements for the existing rental rebate and be in buildings meeting the following criteria:

  • the property must contain at least four private apartment units (units must have a private kitchen, bathroom, and living area) or at least 10 private rooms or suites (examples of residences for students, seniors, and people with disabilities were provided); and
  • at least 90% of the residential units in the building must be designated for long-term rental.

Projects that convert existing non-residential real estate, such as an office building, into a residential complex would also be eligible if all other conditions are met. Public service bodies would also be eligible to access the enhanced rebate.

The enhanced rebate will not apply to other properties, such as individuallyownedcondominiumunits, single-unithousing, duplexes, triplexes, or housing co-ops; however, the existing rebate would still be available. Substantial renovations of existing residential complexes would not be eligible.

On September 21, 2023, the Bill to enact these measures was introduced in the House of Commons. This Bill did not include all the criteria for eligible projects but provided that the remaining specifics would be set by regulation in the future.

ACTION: If involved in developing multi-unit residential rental property, consider whether you are eligible for this enhanced GST rental rebate.

Association and HST

In the tax world, association can have a significant impact on your income taxes, but it can also impact your GST/HST as well.   When it comes to having to register for GST/HST, the small supplier threshold of $30,000 (or $50,000 for public service bodies) applies to a company and its associates.  Association is defined in section 127 of the Excise Tax Act (ETA) and subsections 256 (1) to (6) of the Income Tax Act (ITA).  The rules of association for ITA purposes can be found at:  http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-256.html

When it comes to association and GST/HST, a common error is not factoring in all of the taxable sales of all associated parties when looking at the small supplier test.  Unlike the ITA definition of association, which applies to corporations only, the ETA extends this definition to apply to other persons (such as individuals).  It is common for an individual who controls a corporation to charge management fees or commercial rent to their corporation.  Assuming the corporation they control is not a small supplier, due to the association rules, these fees would be taxable for GST/HST.  Having the individual registered and charging for these services is often overlooked on the incorrect assumption they are not taxable if under $30,000 of taxable supplies.  Please note the appropriateness and income tax consequences of such management fees are beyond the scope of this article.

It should also be noted that, as a trust and a partnership is a person for GST/HST purposes, they should also be factored into association with any corporations with common ownership.

If you have a corporate group with transactions amongst all of the entities and shareholders, it would be prudent to have a GST/HST review done to ensure that all taxes are being charged appropriately.

Removal of GST on Purpose-Built Rentals in Canada

In a significant step toward improving housing affordability and accessibility, the Canadian government recently announced the removal the Goods and Services Tax (GST) on purpose-built rentals.  The GST is being removed by an increase to the GST New Residential Rental Property rebate from 36% to 100%.

Why Remove GST on Purpose-Built Rentals?

The decision to eliminate the GST on purpose-built rentals stems from the government’s commitment to address the housing crisis in many parts of Canada. High housing costs and limited availability have made it increasingly challenging for individuals and families to secure housing. Removing the GST on purpose-built rentals helps contribute to making housing more accessible and affordable for Canadians.

Impact on Property Developers

For property developers, the removal of the GST on purpose-built rentals encourages investment in rental properties, which were previously seen as less profitable due to the GST and HST burden, as neither were fully recoverable and therefore resulted in sunk cost.

This move could lead to an increase in the construction of purpose-built rental units, thus expanding the housing supply and helping to meet the growing demand of Canadians.

Impact on Renters

Canadian renters, especially those in urban areas, have grappled with the rising cost of housing. By eliminating the GST on purpose-built rentals, the government is helping to ease the financial burden on renters. This move will likely result in more affordable rents.

Important date – the enhanced rebate will apply to projects on or after September 14, 2023, and on or before December 31, 2030, and complete construction by December 31, 2035.

While this policy change alone may not solve all housing-related challenges, it is a step in the right direction.

Are All Healthcare Services GST/HST Exempt?

Generally, healthcare professionals are not registered for GST/HST due to the fact that the majority, if not all, of their services supplied to their patients are exempt from GST/HST.  Changes made back in 2013 caused medical practitioners to have some taxable services, and therefore, there was a need to register for GST/HST. From speaking with practitioners, there still seems to be some misunderstanding of these changes.

Under the provisions in the Excise Tax Act (ETA), services that are provided solely for non-healthcare purposes, even if supplied by healthcare professionals, are not considered to be basic healthcare and are not intended to be eligible for the exemption. For instance, the GST/HST legislation specifies that all supplies for purely cosmetic procedures are a taxable supply, and thus subject to the GST/HST.   Given a number of past court cases, the scope of the GST/HST exemption was expanded beyond the original legislative policy intent to limit the GST/HST exemption to basic health care services.

The 2013 Federal Budget provided some clarity in the fact that GST/HST will apply to reports, examinations, and other services that are not performed for the purpose of the protection, maintenance, or restoration of the health of a person or for palliative care. For example, taxable supplies for GST/HST purposes include reports, examinations, and other services performed solely for the purpose of determining liability in a court proceeding or under an insurance policy.  They may also include the preparation of back-to-work notes and the completion of disability tax credit forms.   Supplies of property and services in respect of a taxable report, examination, or other service would also be taxable.

A report, examination, or other service will continue to be exempt if it is performed for use in the protection, maintenance, or restoration of the health of a person or use in palliative care. As well, reports, examinations, or other services paid for by a provincial or territorial health insurance plan will continue to be exempt.

Overall, what this means is that it is no longer safe to assume that just because a service is provided by a healthcare professional that it will not be subject to GST/HST. If you are a medical practitioner and are providing services that are not direct to your patients, you should discuss all of your revenue streams with your local CPA to ensure you do not have a GST/HST liability.  If you need assistance, please don’t hesitate to call a DJB Professional.

GST/HST and Damage Payments

Given the vastness of the GST/HST rules, it is wise to check the GST/HST rules for all transactions, especially those that are non-routine, such as damage payments.  Generally, damage payments do not constitute consideration for a taxable supply under the Excise Tax Act (ETA), so GST/HST is normally not payable. However, section 182(1) of the ETA deems certain damage payments to be consideration for a taxable supply, and inclusive of GST/HST.

Generally, subsection 182(1) applies under the following conditions:

  • there must be a breach, modification, or termination of an agreement for the making of a supply subject to GST/HST, of property or a service in Canada (other than a zero-rated supply);
  • an amount must be paid or forfeited to the supplier, or a debt or other obligation of the supplier must be reduced or extinguished;
  • that amount must be paid as a result of the breach, modification, or termination, and not as consideration for a supply; and
  • exceptions referenced in subsection 182(3) cannot apply (i.e. the section 161 late payment provisions).

The application of this provision is limited, in that it does not apply to damage payments, which are made by the supplier to the recipient.  These rules would seem to apply for the liquidated damages, which can occur in large dollars in construction contracts.   There are common situations that the CRA comments on in Policy Statement P-218, where the rules under subsection 182(1) would not be met, and they include:

  • no prior agreement for the making of a supply existed between the parties;
  • the original agreement was for the making of an exempt or a zero-rated supply;
  • the amount is not paid or forfeited to the person making the original supply, or used to reduce or extinguish a debt of the supplier, e.g., where the person making the payment is the supplier of the original supply;
  • the original agreement was for the making of a supply by a person who was not a registrant;
  • the payment is consideration for the supply under the agreement; or
  • the amount is paid otherwise than as a consequence of the breach, modification or termination of the agreement for the making of a supply.

The CRA does provide a number of examples as to when these rules would and would not apply. If your payment does fall into this provision, subsection 182(1) provides that the place of supply rules that applied to the original supply also apply to the deemed consideration. Thus, if the original supply was zero-rated, the deemed supply under subsection 182(1) will also be zero-rated and no tax will be remittable by the registrant. Furthermore, if the original supply was made in the participating province, then the deemed supply will also be made in the participating province.

We often see contracts where subsection 182(1) of the ETA is not considered in advance; and as this provision deems the payment to be inclusive of GST/HST, it can result in the monies you actually receive to be reduced by 5/105 or 13/113 in Ontario.  If this oversight in the contract is noticed after the fact, as this is a deeming provision, even if the person receiving the damages payment separately is charged GST/HST, this will result in GST/HST being paid twice, as this provision deems GST/HST to have already been included in the damage payment.   Thus, resulting in GST/HST to have been paid twice; first by virtue of the deeming rule discussed above and secondly by virtue of the separate invoice that charged GST/HST in error.

If you are the party making the damage payment, this deeming provision allows you to claim an ITC for the GST/HST deemed to have been paid pursuant to section 182 of the ETA.   If you have made these payments in the prior 4 years, it would be prudent to see if the damages met the rules under 182 of the ETA to recover any GST/HST deemed to have been paid.

Overall, when drafting agreements, it would be wise to contemplate the rules in section 182 of the ETA that apply.  If they do apply, the agreement should ensure the damage payment as calculated in the agreement is grossed up by an amount equal to the GST/HST applicable to the transaction.  Therefore, when the payment is received and GST/HST is calculated into the total payment, you will not be out of pocket the GST/HST.

GST/HST and Dentists

Generally speaking, under Section 5 of Part II of Schedule V of the Excise Tax Act (ETA) services provided by a medical practitioner, as defined, in a health care facility, a private clinic, or a doctor’s private office are exempt from HST.  “Medical practitioner” is defined as a person who is entitled under the laws of a province to practice the profession of medicine or dentistry.  In addition, the majority of dental appliances are considered to be zero-rated under the ETA.   That being said, there are various situations when services or goods provided by a dentist may be taxable for GST/HST.

One example where a dentist may be supplying a taxable service as it relates to GST/HST is cosmetic procedures.  The CRA states in GST Memorandum 300-4-2 that surgical and dental procedures that alter or enhance a patient’s appearance but that otherwise has no medical or reconstructive purposes are considered to be cosmetic surgery. The criteria for cosmetic surgery to be medically necessary, and thus not applicable to GST/HST is also listed in the same GST memorandum and includes:

  1. the surgery is necessary to alter a significant defect in appearance caused by disease, trauma, or congenital deformity;
  2. it is recommended by a mental health facility, or
  3. the patient is less than 18 years of age and the defect is in an area of the body that normally and usually would not be clothed.

Examples of GST/HST taxable services and  products provided by a dentist, assuming they are not a small supplier, may include the following if done for cosmetic or other purposes:

  1. Teeth whitening
  2. Mouth guards
  3. Possibly inlays and outlays (see below)

Artificial teeth and orthodontic appliances are zero-rated for GST/HST purposes.  That being said, an implant, crown, cap or onlay that is fabricated to replace 50% or more of a natural tooth will qualify for zero-rating as an artificial tooth.  As a general rule, if it does not replace more than 50% of the existing tooth, it would be taxable for GST/HST purposes.

As a result of the above, dentists may have a mix of exempt and taxable revenue streams, which would result in some portion of the GST/HST paid being claimable as an Input Tax Credit (ITC), and some not.  Generally when there are mixed revenue streams, the taxpayer must allocate the ITC’s on a fair and reasonable basis amongst the taxable and exempt revenue streams.  The allocation of these expenses as it relates to an ITC claim can be complex and heavily scrutinized by the CRA.  The CRA has published GST/HST Memorandum 8.3 as a guideline to what the CRA considers to be ‘fair and reasonable’ allocation methods.   It is important that when determining your fair and reasonable allocation method, that it be documented to defend its reasonableness should it be challenged by the CRA.

Please note that the definitions and rules are more complex than outlined above.  Before you make any changes to your GST/HST, please consult your GST/HST advisor for clarification and what your next course of action should be.

How Do I Correct My GST/HST Return?

It isn’t uncommon that you find an error in your accounting records after you have already filed your GST/HST return.  The CRA has stated policies on its website about how to fix common problems such as forgetting to claim input tax credits (ITC) or correcting your GST/HST collected amount.

Forgotten ITCs

The CRA states that if you forgot to include an ITC, which you were entitled to, you are not to adjust your return. Instead, they require you to include any missed ITCs in your next GST/HST filing.   In most instances, you have up to four years to claim your ITCs.  Other than lost cash flow, you will eventually get to claim the credit you are eligible for.  For more on the time limits for claiming ITCs please refer to CRA’s website.

Correcting a previously filed GST/HST return

If you need to change the amount of GST/HST collected or collectible or make any other change to another line, the CRA states not to file another return. Instead, they ask that you request an adjustment for the reporting period that contains the incorrect or missing amount, indicating:

  • your 9-digit business number;
  • the GST/HST reporting period to be amended; and
  • the corrected or revised amounts for each line number on your GST/HST return

Most changes can be made either through the online service: My Business Account, if you are registered for this service, or by sending a letter to your tax centre.    You will need to send a letter to your tax centre following the guidelines above.  Find your tax centre.

If you had significant errors on your return, especially unreported amounts, you may want to consider filing any adjustments through the CRA’s Voluntary Disclosure Program, which you can find more information.

If you are having issues getting the correct information from your accounting software, or have noticed prior errors in your GST/HST filings, we would be pleased to help correct these returns, in addition to implementing an appropriate reporting system for you and your company.

How Does GST/HST Apply to Airbnb/Short-term Rentals?

The popularity of Airbnb, short-term rental pools for cottages and vacation properties continues to grow.  One aspect of venturing into the short-term rental game is how GST/HST applies.  The volume of rental income and the length of the rentals is the determining factor on whether you will need to charge GST/HST.

Essentially, long term-rentals are exempt from GST/HST, while short-term rentals are subject to the tax.

What is considered a short-term rental?

A short-term rental is generally one where the period of occupancy is less than one month and the consideration for the supply is more than $20 a day.

Am I considered a small supplier?

If you are supplying short-term rentals, you will need to determine if you are considered a small supplier for GST/HST purposes.  A small supplier is one whose worldwide annual GST/HST taxable supplies, (including zero-rated supplies and including the sales of any associated parties) are less than $30,000, or less than $50,000 for public service bodies (colleges, non-profit organizations, charities, hospitals).

One of the most common oversights we see is forgetting to include any other associated business revenue into the small supplier test.

Should I voluntarily register for GST/HST?

If you are under the $30,000 of taxable supplies for your associated group, you can elect to voluntarily register for GST/HST.  The benefits of this would be to enable the claim of any GST/HST paid on expenses related to your short-term rental income.  It may also permit you to recover some or all of the GST/HST you may have paid on the unit.

But be aware – if you choose to register, you will be required to collect and remit the GST/HST on your short-term rental income.

There are many factors to consider when venturing into this market; especially if you will be using a portion of your principal residence.

GST/HST Implications on Associate Agreements

Associates are a key part of the healthcare industry as a large majority of practitioners either are one or have hired one throughout their careers.  It can be a way for someone to gain experience as they start their career or a viable way to mitigate some of the hard costs that go along with running a practice.  As part of this process, practitioners and their associates arrange some form of fee-sharing arrangement with each other to account for the fact that the associate typically must directly bill and collect their OHIP revenues, but also has use of the main practitioner’s office space in order to generate those revenues.  While this arrangement may be somewhat formal in the eyes of the practitioner and associate, it is commonly a verbal agreement and therefore can create some complications, especially when it comes to GST/HST (“HST”) rules.

The applicability of HST on associate fees has been a bit of a hot topic with the Canada Revenue Agency (CRA) in recent years.  They have been looking more closely at these associate arrangements and have reassessed and charged HST to a number of health care providers (particularly optometrists).

The starting assumption made by most involved in these fee-sharing arrangements is frequently that since the healthcare services provided to the patients by the associate are HST exempt, the revenues from these services that are transferred in either direction under the associate agreement would also be considered HST exempt.

However, it needs to be considered what the associate is actually paying the main practitioner for and what kind of support exists for that.  The CRA has taken the position in a number of instances that these associate fee payments are effectively rent/admin type fees that the main practitioner is charging the associate for use of the clinic space and therefore there is to be HST charged on this amount, as that is a taxable supply.  The CRA has said that only if there is a bona fide arrangement between the two parties that shows this is simply a fee-sharing arrangement, then HST can be avoided. 

As we have found, many health care professionals do not have adequate associate agreements in place to support the “fee sharing” position and avoid potential HST reassessments by the CRA.  In this situation, the more conservative approach is to charge the HST and then have the payor register for HST to at least recover a portion of this cost. 

To avoid these difficulties, health care practitioners should consider looking at the associate agreements that they have in place to determine if changes should be made.  Qualities of a valid bona fide arrangement are that it:

  • Is a written document signed by both parties involved and is not just verbal;
  • Clearly states that the arrangement is an apportionment of the fee for the health care service provided to the individual patient;
  • Should not refer to any of the fee sharing amounts as payment for use of facilities by the associate;

Lastly, many associate agreements have slightly different terms, depending on the situation.  This could include the agreed-upon percentage of fees to share, further revenues to be shared in addition to the healthcare billings, which party is making the payments, and how frequently the payments are being made.  Most of these differences will not have an effect on the HST obligations, but care should be taken to examine all revenue sources included in the agreement as certain types may in fact require HST to be charged.  For example, an optometrist associate may receive a percentage of the net revenues generated from their sale of eyeglass frames to patients, which is a HST taxable supply.  Therefore that portion of the associate agreement will require HST to be charged and remit if the principal party is a HST registrant.

Consider involving your lawyer and one of our Professional Specialists in this process to obtain a template agreement and ensure that your agreement will meet the CRA requirements.

The 7 Most Common HST Audit Issues

We have a specialized team at DJB that specializes in Commodity Tax.  GST/HST can be complex and confusing if not dealt with by a knowledgeable professional. Oversights may trigger an audit and unnecessary penalties and interest assessed by the CRA. 

We’ve compiled a list of the most common audit issues that we’ve seen to date.  If you feel that you may need assistance with any of these HST areas, please contact us – we are happy to assist.

  1. Claiming Input Tax Credits (ITCs) without proper documentation (see criteria table for specifics)
    • Ensure that the vendor’s GST/HST number is always on the invoice, if not, ask for another to be prepared.
    • Do not used credit cards statements as your support. It is not considered acceptable proof for the CRA.
    • Also note, the CRA does not allow amendments where the sole purpose is to claim additional ITCs – any additions must be claimed on a future return.
  2. Invoices made out to the wrong company
    • Holding company invoices cannot be claimed by the operating company
  3. Intercompany transactions – Section 156 elections and form RC4616
    • Section 156 elections cannot be filed solely based on a controlling interest
    • Most situations required 90% ownership (parent/sub)
  4. Claiming ITCs when a portion of the related revenue is exempt
    • Exempt income does not require GST/HST to be charged however no corresponding ITCs can be claimed on related expenses
  5. Self-assessment errors on acquisitions of real estate (two scenarios to be mindful of)
    a. If the real estate acquisition is primarily used for taxable activities (e.g. commercial) – full ITCs can be claimed and the amount of HST owing would be nil. If a self-assessment is not completed, the CRA can reassess and add the HST due on the HST return. Thus, not having the ability to amend a return to add additional ITCs can result in significant cash flow issues and interest assessed by the CRA.
    b. If the real estate acquisition is used for exempt activities (e.g. long-term residential) than no ITCs can be claimed and HST would be owing. In this scenario, if a self-assessment is not completed, CRA can also reassess and include interest (same as scenario a).
  6. Claiming 100% ITCs on meals/entertainment and passenger vehicles
    • Meals/entertainment claims are only eligible at 50% of the ITCs.
    • Passenger vehicle ITCs are capped at the GST/HST on $30,000 capital cost (typically $3,900).
  7. Failure to charge/collect GST/HST on the sale of assets
    • Commodity tax registrants are required to charge GST/HST when selling an asset used for commercial purposes.