- Under the Excise Tax Act, long-term residential rent is treated as an exempt supply — landlords don't charge HST on it, and correspondingly can't claim input tax credits on most of the…
- Commercial leases rarely charge a single flat number.
- - [ ] Register for HST if operating a commercial leasing business as required - [ ] Charge HST on base rent and on additional rent components, not just the headline rent figure - [ ]…
Anyone who has rented a home and later signed a commercial lease notices the difference quickly: the commercial invoice has HST added on top, and the residential one didn't. That isn't an error or a landlord's choice — it reflects a real distinction in how the HST commercial lease rules work in Ontario. Long-term residential rent is exempt from HST, while commercial rent generally is not.
This guide explains why that distinction exists, what counts as taxable rent under a commercial lease, and what it means practically for both landlords and tenants.
Why Commercial Rent Is Taxed Differently Than Residential Rent
Under the Excise Tax Act, long-term residential rent is treated as an exempt supply — landlords don't charge HST on it, and correspondingly can't claim input tax credits on most of the related expenses. Commercial rent doesn't get that exemption. A landlord leasing space for a business use — retail, office, industrial, or professional — is generally making a taxable supply, and HST applies to the rent charged.
The practical result: a business tenant almost always sees HST added to its rent invoices, while a residential tenant almost never does.
What Counts as Taxable Rent Under a Commercial Lease
Commercial leases rarely charge a single flat number. HST generally applies to the full amount the tenant pays as consideration for the lease, which typically breaks down into:
- Base rent — the core amount charged for occupying the space
- Additional rent — amounts like the tenant's share of property taxes, common area maintenance (CAM) charges, insurance, and utilities, often billed separately from base rent but still part of what the tenant pays under the lease
- Percentage rent, where applicable — additional rent tied to the tenant's sales, common in some retail leases
- Lease inducements and allowances, which can have their own HST treatment depending on how they're structured in the lease
The key point: HST generally follows the full economic substance of what the tenant pays for occupying the space, not just the number labelled "base rent" on the invoice.
Landlord Obligations
- [ ] Register for HST if operating a commercial leasing business as required
- [ ] Charge HST on base rent and on additional rent components, not just the headline rent figure
- [ ] Issue invoices or statements that clearly show the HST charged
- [ ] Remit collected HST to the CRA on the applicable schedule
- [ ] Keep records supporting how rent and additional rent were calculated and taxed for each tenant
Tenant Considerations: Claiming Input Tax Credits
A tenant that is itself HST-registered and uses the leased space in its commercial activity can generally claim an input tax credit for the HST paid on rent, offsetting it against the HST the tenant collects from its own customers. This is one of the reasons commercial tenants are often less sensitive to HST on rent than the sticker price suggests — the tax is frequently recoverable rather than a true added cost, provided the space is used for commercial purposes and the tenant keeps proper supporting invoices.
A tenant using part of the space for exempt activities, or mixing commercial and non-commercial use, may only be able to recover a portion of the HST paid — which makes accurate recordkeeping and allocation important from the start of the tenancy.
Common Lease-Drafting Issues Around HST
Silence on Whether Rent Is "HST Included" or "Plus HST"
A lease that doesn't clearly state whether the quoted rent figure includes HST or is charged in addition to it invites disputes later. The lease should say explicitly which applies.
Additional Rent Calculated Without Reference to HST
Landlords sometimes calculate a tenant's share of CAM or property tax without addressing whether HST applies to that specific component, leading to disagreements at reconciliation time.
Assuming a Mixed-Use Building Is Treated Uniformly
A building with both residential and commercial units doesn't get one blanket HST treatment — the commercial portions are generally taxable and the residential portions generally aren't, and the lease and accounting need to reflect that split correctly.
Frequently asked questions
Is HST charged on a commercial lease security deposit?
A genuine refundable security deposit is generally treated differently than rent itself, but if a deposit is applied against unpaid rent or forfeited, it can take on the tax treatment of the rent it's applied to. Confirm the treatment in your specific lease structure.
Does a home-based business that rents part of its residence pay HST on that rent?
Generally, residential rent stays exempt even where the tenant runs a business from part of the unit, since the exemption depends on the nature of the tenancy, not what the tenant does inside the space. Sub-leasing dedicated commercial space is a different situation.
Can a landlord choose not to charge HST on commercial rent to make the space more attractive?
No. Whether HST applies is a matter of law based on the nature of the supply, not a landlord's pricing choice — a landlord that fails to charge required HST can still be assessed for it later, regardless of what was invoiced.
What happens if a lease doesn't specify who bears the HST on additional rent?
This becomes a matter of interpreting the lease as a whole, and it's exactly the kind of ambiguity that leads to disputes at year-end reconciliation. Clear drafting up front avoids the argument entirely.
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