Charging & Collecting: Navigating the Complexities of GST/HST for Property Managers

Charging & Collecting: Navigating the Complexities of GST/HST for Property ManagersIn the property management industry it is common practice to charge tenants at variable rates as a “reimbursement of expenses incurred”.

Some of these charges are not subject to Goods and Services Tax/Harmonized Sales Tax (GST/HST) when paid by the property manager (i.e. property taxes and salaries), but can be considered taxable supplies. Therefore, the fees are subject to GST/HST when charged to the properties.

In these situations, it is important for the property manager to be accurately charging and collecting GST/HST.

The two most common situations where GST/HST is not correctly charged are:

  1. Common area cost charges in commercial properties
  2. Salary charges in commercial and residential properties

For commercial properties, lease agreements are frequently set up as base rent plus the tenant’s proportionate share of common area costs. The common area costs vary and some of the underlying costs would not include GST/HST (i.e. property taxes, insurance, and municipal utilities). These costs are generally the legal responsibility of the landlord and not the tenant. When these costs are billed out to the tenant, they do not retain their character. Canada Revenue Agency takes the position that the common area cost charges form additional rent (variable portion of the rent) and as commercial rent, the full amount of the charge would be subject to GST/HST.

Similarly, management companies frequently provide part-time superintendent services to properties on an hourly basis. In most cases, the superintendent is employed by the management company and it is the management company’s responsibility to pay salaries and all relevant source deductions. When billed out to the client, the service does not retain its character as salary, but is regarded instead as additional management services provided. Therefore, these charges (although variable based on the underlying salary and number of hours of the individual providing the superintendent services) would generally constitute a taxable supply and therefore be subject to GST/ HST.

In both of these situations, although the exempt costs form the basis for calculating the fees, the amounts being charged are taxable supplies and would generally be subject to GST/HST.

If you provide property management services and some of your charges are variable based on underlying costs, it is important to ensure you are accurately charging and collecting GST/HST.