HST Update as it relates to Commercial Real Estate

A co-worker passed these questions / answers around the office for general information on the impact of HST on rental rates.

1. Are last month’s rent deposits after July 1, 2010 charged HST?
2. Are all net rents charged HST after july 1, 2010?
Questions 1 and 2, if related to commercial leases – Technically, rent deposits are not YET subject to HST. Where a deposit is given in respect of a supply (i.e., rent), the deposit is not regarded as consideration for the supply until, the supplier applied the deposit against an amount payable for that supply. However, administratively, rent deposits that will be applied to first month’s rent should include the applicable HST so that when the lease is actually used the following month (i.e. July 1, 2010), and HST is charged, landlord already has the HST portion for that month’s rent.

3. Previous GST costs in many cases were a flow through, meaning that the tenant could remit and get back the GST costs. Is any of the HST treated as the GST was? Is a portion of the HST a flow through?
4. If yes to above, when can the Tenant’s get back their portion of the HST on last month rent deposits, and what % would that be (5% eg)?
Questions 3 and 4, if related to commercial leases – As mentioned above, if the tenant is a GST registrant, tenant should be able to claim input tax credits to recover HST paid. As to last month’s rent deposit that will be applied to this month’s rent, ITC should be claimed this month.

5. If rents are contractual (the tenant is in mid term) is the landlord obligated to collect HST if the lease is a) a net lease and/or b) a gross lease, if the lease is silent on HST.
Question 5 – again if related to commercial leases – HST should apply to consideration due or paid on or after June 30, 2010. By law, although existing contracts do not mention HST, HST should be applicable to rents after June 30, 2010. For contracts going forward, our Legal Department is reviewing the contracts and will provide changes in clause related to taxes.

6. Will the HST cause additional rent to go up, and if yes, is any portion of that additional rent increase subject to the same GST flow through as other GST charges.
Question 6 – for commercial leases, since HST is a flow-through cost, it should not cause an increase in rent. However, for residential leases, since landlords could not recover ITCs and could not collect HST, they may try to pass on the additional costs to their tenants. Hence, rent may increase.