Municipal designation of organizations providing rent-geared-to-Income housing

GST/HST Info Sheet GI-124
December 2011

This info sheet discusses the eligibility criteria for municipal designation of certain organizations in respect of their supplies of rent-geared-to-income (RGI) housing. This info sheet also outlines the documentation to be submitted in support of an organization's request to be designated.

For purposes of this info sheet, "RGI housing" means housing for individuals (referred to in this info sheet as tenants) whose eligibility for occupancy of the housing unit or for reduced lease payments depends on a means or income test.

Background

An organization can request to be designated as a municipality in respect of its supplies of RGI housing. The Canada Revenue Agency (CRA), on behalf of the Minister of National Revenue, may designate the organization to be a municipality in respect of activities specified in the designation that involve the making of exempt supplies of long-term residential accommodation to tenants. The organization must provide this accommodation on a RGI basis within a program to provide housing to low to moderate-income households. The organization must also receive funding from a government or municipality to assist it in providing this accommodation.

Once designated as a municipality, the organization is able to claim the municipal public service body rebate (PSB rebate) for GST/HST paid or payable on its purchases or on expenses incurred to provide the RGI housing. This rebate is available only to the extent that the property or services acquired are intended for consumption, use or supply in the course of the activities for which the organization has been designated.

The organization that provides the accommodation is the person that may apply to be designated as a municipality for purposes of the municipal rebate. More specifically, it is the legal entity that provides the RGI housing that should apply to be designated, not the individual housing project. Accordingly, once an organization has been designated as a municipality, it does not need to reapply for designation if it builds or acquires additional housing projects where RGI housing is provided.

Designation criteria

An organization can be designated as a municipality if it meets all of the four eligibility criteria listed below:

1. the organization is a charity, a cooperative housing corporation, a non-profit organization or a public institution;
2. the organization supplies long-term residential accommodation within a program to provide housing to low to moderate-income households;
3. more than 10% of the housing units in a particular housing project are provided on a RGI basis; and
4. the organization receives funding from a government or municipality to assist it in providing the accommodation within a program to provide housing to low to moderate-income households.

Further information and guidance on these criteria are provided below.

Eligibility criterion 1 – Eligible organizations

Supporting documentation required: certified copies of the applicant's incorporating documents or other governing documents

To qualify for municipal designation, an organization must be a charity, a cooperative housing corporation, a non-profit organization or a public institution.

"Charity" means a registered charity or a registered Canadian amateur athletic association within the meaning of the Income Tax Act. For GST/HST purposes, a charity does not include a public institution.

"Cooperative housing corporation" means a corporation that was incorporated, by or under a law of Canada or a province providing for the establishment of the corporation or respecting the establishment of cooperative corporations, for the purpose of making supplies by way of lease, licence or similar arrangement of residential units to its members for the purpose of their occupancy as places of residence for individuals where

1. the statute by or under which it was incorporated, its charter, articles of association or by-laws or its contracts with its members require that the activities of the corporation be engaged in at or near cost after providing for reasonable reserves and hold forth the prospect that surplus funds arising from those activities will be distributed among its members in proportion to patronage,
2. none of its members (except other cooperative corporations) have more than one vote in the conduct of the affairs of the corporation, and
3. at least 90% of its members are individuals or other cooperative corporations and at least 90% of its shares are held by such persons.

"Non-profit organization" (NPO) means a person (other than an individual, estate, trust, charity, public institution, municipality, or government) that meets the following conditions:

• it was organized and is operated solely for a purpose other than profit;
• it does not distribute or make available any of its income for the personal benefit of any proprietor, member or shareholder, unless they are a club, a society or an association that has, as its primary purpose and function, the promotion of amateur athletics in Canada.

"Public institution" means a registered charity for income tax purposes that is also a school authority, a public college, a university, a hospital authority, or a local authority determined to be a municipality.

Eligibility criterion 2 – Long-term residential accommodation

Supporting documentation required: copy of a dated and signed financial and/or operating agreement that demonstrates that the applicant is providing long-term residential accommodation within a program to provide housing to low to moderate-income households

To be designated as a municipality, an organization must supply long-term residential accommodation within a program to provide housing to low to moderate-income households.

The organization that applies for municipal designation must be the person that provides the RGI accommodation. The organization must have an interest in the real property that allows it to act as landlord to the individual tenants. Generally, the CRA would expect the organization to either own the housing project or lease the housing project from the owner and sub-lease housing units to the tenants.

The CRA considers the supply of long-term residential accommodation to mean the rental of self-contained housing units for periods of one month or more. A self-contained housing unit is considered to be private living quarters which include cooking facilities and a bathroom.

A supply of accommodation is not considered to be eligible accommodation if it includes, or must be supplied with other elements such as meals, health care services, personal care services, laundry services, or housecleaning as such supplies are considered to be provided in a program that is broader than a program to provide housing to low to moderate-income households. This would be the case whether the other elements are supplied directly by the housing provider or by a third party.

In some situations, the supply of accommodation is made by one organization and the supply of non-optional services related to the accommodation is made by another organization. Where there is a link between the supplies made by these organizations – for instance, tenants are eligible for housing only if they are also eligible for the specific services offered in conjunction with the housing – then the activities of the organization providing the accommodation take place in a program that is broader than a program to provide housing to low to moderate-income households. Therefore, the organization providing the accommodation is not providing eligible accommodation for the purpose of municipal designation.

Eligibility criterion 3 – More than 10% of the housing units in a particular housing project must be provided on a RGI basis

Supporting documentation required: documents indicating the number of RGI units for which the applicant receives funding from a government or municipality relative to the total number of units in the project for the current year such as: annual reports or returns filed with the funding body, written policies, guidelines and operating manuals that apply to the eligibility of tenants for housing in the project

The organization must demonstrate that rent for the RGI units is calculated in relation to the tenant household's income and/or that there is an income-based test for occupancy in a RGI unit. More than 10% of the housing units in a particular housing project must be provided on a RGI basis for the organization to be designated.

Eligibility criterion 4 – Government or municipal funding

Supporting documentation required: signed and dated copies of funding agreements with a government or municipality in respect of the organization's supplies of RGI housing, including all schedules and appendices.

In order to be designated as a municipality, an organization must receive government funding to subsidize the provision of RGI housing to individual tenants. Government funding may be provided by a municipality, by a province or territory, or by the federal government. Acceptable types of funding include on-going subsidies that make up the difference between the organization's costs to operate the housing units and the RGI paid by the tenants to the organization, and capital funding.

The funding received must be linked to the organization's provision of RGI housing within a program to provide housing to low to moderate-income households. An example of capital funding would be where an organization is required to provide RGI housing for twelve years pursuant to the funding agreement. If the organization does not respect this condition, it will be required to repay the capital funding to the funding organization. Such funding would be considered to be linked to the provision of RGI housing.

If an ongoing government subsidy in respect of the provision of RGI housing ceases, the housing provider no longer meets the government funding criterion. For example, this may be the case where the term of an operating agreement expires and is not renewed, or where the funding ceases because the housing provider no longer meets the necessary terms and conditions for funding.

Where an organization receives capital funding, it will cease to meet the government funding criterion when the requirement to provide funded RGI housing ceases. For example, an organization receives capital funding and is required to provide RGI housing for 15 years. After the 15 years, the organization will no longer meet the criterion to be designated as the housing will not be considered to be funded by a government or a municipality.

Supporting documentation

An applicant must demonstrate that it meets the eligibility criteria for municipal designation in connection with at least one of its housing projects. The applicant must provide sufficient documentation to demonstrate how it meets these eligibility criteria in respect to this housing project, but it does not need to provide documentation that it meets these requirements for each of its housing projects.

As noted earlier, these documents include:

• A copy of the Letters Patent or Articles of Incorporation for the organization.
• Signed and dated copies of applicable operating or other funding agreements, including all schedules and appendices, as well as an explanation of the nature of the housing and how RGI is calculated.
• Documentation that demonstrates that the selection of eligible tenants is within a program that is geared to low to moderate-income households. If this is not evident from the operating or funding agreement, then this may be demonstrated by policies, guidelines or excerpts from operating manuals that apply to the eligibility process.
• A copy of a document such as an annual information return or another accountability document that attests to the number of RGI units for which the organization receives funding from a government or a municipality, relative to the total number of units in the project. This information is generally provided to the funding source annually. The applicant organization should provide this information for at least the latest or current year.

Effects of municipal designation

An organization that has been designated as a municipality for its supplies of RGI housing is eligible to claim the municipal PSB rebate for the GST and HST paid or payable in respect of this designated activity. The municipal designation does not apply to any other activities that the organization may be engaged in such as the supply of residential units to tenants that are not on a RGI basis or for which no government subsidy is payable or for the supply of commercial space.

Designated municipalities are eligible to claim a 100% rebate of the GST and federal part of the HST with respect to their eligible expenses. They may also be entitled to claim a rebate of the provincial part of the HST. The municipal rebate rates for eligible expenses are as follows:

Where an organization has already been designated as a municipality, it will be a question of fact whether its activities meet all of the eligibility criteria to qualify for the municipal rebate. For instance, an organization may qualify for the municipal rebate in respect of one of its housing projects but not another.

The Excise Tax Act and its Regulations contain other provisions that set out conditions that apply to the PSB rebate, including the calculation of amounts eligible for rebate and filing frequency.

If an organization that has been designated as a municipality is a charity, a public institution or a qualifying non-profit organization, it may also be eligible to claim other rebates.

Although other PSB rebates may be available in some circumstances for residential units that do not qualify for the municipal PSB rebate, special rules may apply to determine which residential units and complexes can qualify. Information on the PSB rebate and on which expenses are eligible for the rebate may be found in Guide RC4034, GST/HST Public Service Bodies’ Rebate, and in Guide RC4049, GST/HST Information for Municipalities.

Application

An organization may request municipal designation by applying in writing, with supporting documents, to the following:

Director
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville Tower A 5th floor
320 Queen Street
Ottawa ON  K1A 0L5

An organization in Quebec may request municipal designation by applying in writing, with supporting documents, to Revenu Québec via email at designations-municipalite@revenuquebec.ca. Alternatively, they can mail their request, with supporting documents, to:

Directeur de l’interprétation relative au secteur public
Direction générale de la législation
Revenu Québec
3800, rue de Marly, secteur 5-2-2
Québec QC  G1X 4A5

Where a third party such as a tax professional is applying on behalf of the organization, the application should include authorization from a representative of the organization for the third party to act on its behalf, unless such authorization is already on file with the CRA.

If insufficient documentation has been provided, the applicant or its authorized representative will be contacted and asked to provide additional material to support its request. If the additional material is not provided, the CRA may close the file until the material is provided. The CRA will provide its decision in writing.

There is no fee to apply for municipal designation.

Effective date of designation

Generally, a municipal designation is effective the first day of the month in which the designation is approved.

However, the CRA may, on a case-by-case basis, consider an effective date of up to four years prior to this time. If an applicant would like a retroactive effective date, it must provide the reason and ensure that its supporting documentation demonstrates that it met the requirements for designation during the prior period.

For example, if an organization's only potentially qualifying activities for designation are in respect of a newly-constructed housing project, the earliest possible effective date of designation will generally be the date shown in the applicable signed and dated Certificate of Substantial Completion or similar document for that housing project.

If a designated municipality receives a retroactive effective date, it may telephone or write the CRA contact person indicated in the designation letter for assistance in amending any PSB rebates it has already filed for past reporting periods. This contact person may also assist the designated municipality if it has any other questions regarding its entitlements or obligations under the GST/HST.

Further information

All legislative references in this publication are to the Excise Tax Act unless otherwise specified. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or call GST/HST Rulings at 1-800-959-8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, see GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province.