Canada: Indirect tax liabilities and rent or lease payment deferrals (COVID-19)
Canada: Indirect tax liabilities
Commercial landlords (or lessors of equipment) may agree to provide deferrals on rent or lease payments in response to the effects of the coronavirus (COVID-19) pandemic.
These commercial landlords or equipment lessors need to be careful to avoid unintended indirect tax (GST/HST and QST*) consequences when possible. Those who offer rent or lease deferrals must remember to remit all GST/HST or QST by 30 June 2020 for returns due after 26 March and before June 2020.
Also, commercial landlords and lessors that offer deferrals outside of the official extension period defined by the Canada Revenue Agency (CRA) and Revenu Quebec may want to review their GST/HST and QST obligations related to these deferrals, to avoid any unforeseen cash flow issues.
The CRA and Revenu Quebec announced that businesses may defer GST/HST and QST remittances related to returns due between 27 March 2020 and before June 2020, to June 30, 2020, without interest and penalties being assessed, in light of COVID-19.
Ordinarily, landlords and other businesses must remit GST/HST and QST to the CRA or Revenu Quebec in the reporting period in which their tenants or lessees are required to pay their lease payments, pursuant to their written lease agreements (although the above extension provides a specific, temporary, exception).
Taxes must be remitted regardless of whether landlords or lessors collect lease payments, as these taxes are owed once rent becomes payable by the tenant, independent of when such taxes are actually paid.
Landlords and lessors may want to review their lease agreements to determine whether they can mitigate probable GST/HST or QST cash flow issues brought upon by deferred rent and lease payments. Depending on a situation's specific facts, options may include amending such agreements, or possibly issuing credit notes to address these issues. The question of what constitutes a proper amendment to a lease agreement (and whether a notification to a tenant of a lease reduction would be sufficient) has been put forward to the CRA for guidance.
Read an April 2020 report prepared by the KPMG member firm in Canada
*GST/HST and QST = goods and services tax / harmonized sales tax and Quebec sales tax
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