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Acquisition or Improvement of an Immovable by a PSB

As a rule, a public service body (PSB) that is registered for the GST/HST and QST can claim input tax credits (ITCs) and input tax refunds (ITRs) in respect of the GST and QST paid to acquire an immovable for use as capital property, provided the percentage of use of the immovable in commercial activities is more than 50%. If, however, the percentage of use is 50% or less, the PSB cannot claim ITCs or ITRs. The same rules apply in respect of improvements made to an immovable.

Election respecting the exempt supply of an immovable

A PSB can elect to have the exempt supply of an immovable treated as a taxable supply. By doing so, the PSB will be able to claim ITCs and ITRs in respect of the GST and QST paid to acquire the immovable or make improvements to it, provided the percentage of use of the immovable in commercial activities is more than 10%.

Once the election has been made, the PSB must collect the GST/HST and QST on its supplies. That said, certain supplies (such as long-term residential leases) remain exempt.

To make the election, PSBs must file form FP-2626-V, Election or Revocation of the Election by a Public Service Body to Have an Exempt Supply of Real Property (an Immovable) Treated as a Taxable Supply.

Example

A PSB acquires a building and plans to use 45% of it in its commercial activities. As a result, unless the PSB makes the above-mentioned election, it cannot claim ITCs or ITRs in respect of the taxes paid to acquire the building. If it makes the election, it will be able to claim ITCs or ITRs equal to 45% of the taxes paid to acquire the building.

For more information, click Special Election for Immovables.

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