April 20 update: Commercial Rent Deferrals GST/HST Consequences

Commercial landlords are entering into rent deferral arrangements with their tenants who have been impacted by COVID-19 and are unable to pay their rent in accordance with their lease agreement. If these arrangements are not documented correctly there can be adverse GST/HST consequences to the landlord.

For GST/HST purposes, commercial rent is considered collected by the landlord and paid by the tenant on the earlier of the day the rent is due under the lease and the date the rent is paid. As a result, the GST/HST liability of a landlord still exists regardless of whether the tenant pays the rent. The tenant can claim an input tax credit even though they did not pay their rent.

Landlords should document any rent deferral arrangements so that the lease payments in the lease agreement are legally changed to reflect the rent deferral arrangement. This will change the date that rent is due in the lease agreement and ensure that the landlord does not have a GST/HST liability when they have not received the rent payment. Landlords should consult with their legal advisors to make sure the rent deferral arrangement is properly documented.

Another option would be for the tenant to continue to pay the GST/HST portion of their lease payment in full rather than documenting the lease deferral arrangement. The landlord would have the cash to pay their GST/HST liability and the tenant would be able to recover the GST/HST paid on their GST/HST return assuming they are registered for GST/HST.

The government has deferred the due date for any GST/HST owing in March and April until June 30th, 2020. So very short-term arrangements will not be impacted as long as the GST/HST is collected before the June 30th payment due date.

Please contact your Fruitman Kates LLP advisor if you would like to discuss further.

We hope you and your family continue to stay healthy and safe.