Application of all or Substantially all to Residential Complexes

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-053

Date of Issue

November 2, 1992

Subject

Application of all or Substantially all to Residential Complexes

Legislative Reference(s)

Subsection 123(1), definition of "residential complex", of the Excise Tax Act

National Coding System File Number(s)

11870-5

Effective Date

January 1, 1991

A "residential complex" is defined in subsection 123(1). It does not include a hotel, motel or other similar establishment that supplies or is expected to supply all or substantially all of its accommodation by way of lease, licence or similar arrangement, for periods of less than 60 days.

This policy statement will discuss the meaning and application of the "all or substantially all" test in the exclusion to the definition of "residential complex" in subsection 123(1) of the Act.

The phrase "all or substantially all" is, generally, to be interpreted as meaning 90% or more.

In calculating the proportion of supplies by way of lease, licence or similar arrangement of 60 days or more and supplies of less than 60 days, for purposes of the "all or substantially all" test the registrant will be allowed to choose a method which is appropriate in the circumstances provided it is used consistently. The preferable method, however, would be to base the calculation on revenues from such supplies (either daily or total), or identical lease periods or intervals (such as number of "room nights" rented or rooms available for rent). The various calculations using these methods are illustrated in the attached Appendix. The appropriateness of each method will depend on the individual circumstances of the registrant.

The time period to be used for this determination is also flexible provided the period is reasonable for the particular supplies in question and is used on a consistent basis. Normally, a one year period would be appropriate, however, the period could differ depending on the nature of the operations (e.g. seasonal) and the business operations for the period in question.

Since the test may be based on expectations, the test may be applied on a prospective basis over a reasonable period of time. The determination made would not normally need to be revised unless the actual operations are materially different from the expectations. In addition, applying the test prospectively may prevent the triggering of the change of use rules where the determination is made over a specific period of time (eg. one year) even though periods of accommodation may change over the period of time depending on the business (for example, seasonal residences).

SAMPLE RULINGS

EXAMPLE:

Assumption

1. The building is a two room inn.

2. One room is, or is expected to be, rented on a daily basis for 300 nights to 300 different customers at $50.00 per night.

3. The second room is, or is expected to be, rented to one customer for 200 nights at an average of $30.00 per night.

4. The reference to "short term" for this purpose refers to periods of less than 60 days and has no relation to the meaning of "short term accommodation" in subsection 123(1) of the ETA.

Calculations

Revenue Method

(i) Daily revenue:

Short-term daily revenue/total daily revenue

= $50 / ($50 + $30)
= $50 / $80
= 62.5%

(ii) Total revenue:

Short-term total revenue/total revenue (one year period)

= (300 nights x $50) / [(300 nights x $50) +(200 nights x $30)]
= $15,000 / $21,000
= 71%

Room Supply Method

(i) Number of roomsavailable for rent:

Short-term rooms/total rooms

= 1 / (1 + 1)
= 1/2
= 50%

(ii) Number of room-nights sold:

Short-term rentals/total rentals

= 300 / (300 + 200)
= 300/500
= 60%

Any of the foregoing methods may be used for purposes of applying the "all or substantially all" test provided the method is used consistently by the taxpayer and is appropriate in the circumstances. In each of the examples, the test is not met since the factor is less than 90%. Accordingly, the building may be considered a residential complex.

The following methods are not acceptable as they do not compare equivalent supplies of room rentals and result in distortions.

Invoice Method: Short-term invoices/total invoices

= 300 / (300 + 1)
= 300/301
= 99.8%

Tenant Method: Short-term tenants/total tenants

= 300 / (300 + 1)
= 300/301
= 99.8%