Subsidized Residential Complexes

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The following rules apply if your public service body (PSB) receives government funding to build a residential complex, provided the PSB intends to lease at least 10% of the residential units to the following types of individuals:

  • seniors
  • youths
  • students
  • individuals with a disability
  • low-income individuals

Government funding is an amount that is paid to you or a forgivable loan that is granted to you to support your building project. It must be paid to you by one of the following:

  • a government (federal or provincial)
  • a municipal administration
  • an Indian band
  • a body established by a government or an administration to fund charitable or non-profit endeavours on its behalf

During the construction, you can register for the GST and QST. That way, you can claim input tax credits (ITCs) and input tax refunds (ITRs) for the property and services you purchase. If you are not registered for the GST and QST, you are entitled, as a public service body, to a rebate of the GST and QST paid.

When the construction is substantially completed, and you lease the first residential unit for use by an individual as a place of residence, the building is deemed to have been sold. You must then calculate and remit the GST and QST, based on the greater of the following amounts:

  • the GST and QST calculated on the fair market value (FMV) of the residential complex
  • the GST and QST paid on the acquisition of the land, on the construction of the building or on any improvements to the property

You are considered to have reacquired the immovable for the value of the deemed sale. You may claim, as a public service body, a rebate of the GST and QST you paid, calculated on this value, since you use the immovable to lease residential units (exempt lease).

If you are not registered for the GST and the QST, you may claim, after the taxes have been remitted, an additional rebate, which is equal to the lower of the following amounts:

  • the taxes remitted on the deemed sale
  • the basic tax content of the value of the immovable at that time. The basic tax content is the GST and QST you paid for the construction of the immovable minus the rebate for public service bodies to which you are entitled, multiplied by the depreciation factor of the immovable (that is, the fair market value of the immovable divided by the cost of its construction)
Example

A PSB (a charity, in this example) registers for the GST and the QST in order to build a multiple-unit residential complex for seniors. It receives government funding for the building's construction. The organization paid $10,000 GST and $19,950 QST on the purchase of the land, and $48,750 GST and $97,256 QST on the construction of the building. It claimed ITCs and ITRs to recover the taxes. The building's fair market value is less than the cost of the land and the construction.

When the charity first leases a unit in the complex to an individual as a place of residence, it must remit GST and QST equal to the taxes it paid on the purchase of the land and the construction of the building. In other words, it must remit $58,750 ($10,000 + $48,750) GST and $117,206 ($19,950 + $97,256) QST.

However, as a PSB, the charity may claim a rebate of the taxes paid. The rebate rate is 50% for charities. As a result, the charity must pay $29,375 (50% × $58,750) in GST and $58,603 (50% × $117,206) in QST.

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