Tax Tips

• Tax Tips Archive

GST on Property Taxes Paid by Tenants

Subject: GST Number: 06-10 Date: 3/24/2006

Do you have clients who have commercial tenants who pay property taxes directly to the municipality?

You may not realize that your client has to collect GST on these amounts!

Commercial rent is taxable. Unless your client is an unregistered small supplier (no more than $30,000 total revenues in your group), the client must collect and remit GST on commercial rents.

Municipal property taxes are the obligation of the owner of the property. When your client rents out property, the client still has that obligation.

If the tenant pays the property taxes directly to the municipality, the tenant is paying an amount that is your client's obligation to pay. As such, the tenant is really paying additional rent, even though the client never sees a cheque for this amount!

Although property taxes do not bear GST, your client must charge and collect GST on all property taxes paid by the tenant.

If your client has not been remitting GST on these amounts, the client is subject to assessment by the CRA for at least the past four years, and possibly more, plus interest and penalty. The financial cost can be devastating.

Fortunately, there are solutions. If your client is not currently under audit by the CRA, it may be possible to combine a Voluntary Disclosure with various other procedures to resolve this problem without any cost at all (other than professional fees). But it has to be done carefully by a tax expert who is knowledgeable in the GST.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.