CRA Ruling Finds Charity’s Facility Exempt from GST/HST

By Adriel N. Clayton and Nancy E. Claridge

Nov 2022 Charity & NFP Law Update
Published on November 24, 2022



Supplies of property and services by charities are generally exempt from GST/HST. However, exceptions to this rule are set out in section 1, Part V.1, Schedule V of the Excise Tax Act (the “ETA”). One of the exceptions to the tax exemption for charities is set out in paragraph (j) of that section, being a supply of “a residential complex, or an interest therein, where the supply is made by way of sale.” This means that sales of residential complexes are exempt from GST/HST when sold by a charity. This exception was the subject of a recent Canada Revenue Agency (CRA) GST/HST Ruling, Document 222713 (the “Ruling”), published on March 24, 2022 and released on October 18, 2022, in which the CRA was asked to confirm whether a charity’s facility constituted a “residential complex” for GST/HST purposes in order to determine whether a sale of the facility would be subject to GST/HST.

While most of the details in the Ruling are redacted, the general facts involve a proposed sale of property by a registered charity. The charity had previously acquired vacant property in an arm’s length transaction and constructed a facility on the land. It did not claim input tax credits in relation to the construction costs, and did not self-assess GST/HST when construction was substantially completed and the first client arrived, on the understanding that the facility was not a multiple unit residential complex. It then began to operate certain programs at the facility for its clients, who reside at the facility for less than 30 days on average without a lease agreement.

Pursuant to a proposed reorganization between the charity and a non-arm’s length party, the charity sought to transfer title of its property to the third party. As part of the proposed reorganization, it was agreed that the charity would continue to be permitted to use the facility free of charge after transferring title to the third party.

Based on the facts, the CRA indicated that the facility was not a residential complex for GST/HST purposes, and that its sale constituted an exempt supply of real property under the ETA. It referred to the paragraph 123(1)(a) definition of “residential complex” and stated that “a residential complex is that part of a building in which one or more residential units are located, together with certain common areas of, appurtenances to, and land subjacent and immediately contiguous to the building”. It then found, based on subsection 123(1) that a “residential unit” is:

(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

(c) any other similar premises,

or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals.

Given that the facility was not primarily established and operated to provide a place of residence or lodging for individuals, the charity’s client accommodations were not residential units as defined in the ETA. Therefore, the facility was found not to be a residential complex for GST/HST purposes.

This Ruling is a helpful reminder that many, though not all, sales of real property will be exempt from GST/HST, and that charities need to pay particular attention to the circumstances surrounding the use and sale of the property in order to properly assess GST/HST issues. In particular, the Ruling demonstrates that the sale of facilities that provide short-term accommodation but whose primary purpose is not to provide places of residence are likely to be exempt. 


Read the November 2022 Charity & NFP Law Update