Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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XXXXX
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Case Number: 78066File Number: 11950-1
XXXXX
XXXXX
December 22, 2008
Subject:
GST/HST INTERPRETATION
Assignment of a right to purchase a condominium
Dear Mr. XXXXX:
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to an assignment of a right to purchase a residential condominium unit. We apologize for the delay in providing this response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that:
1. Mr. X entered into a purchase and sale agreement for a residential condominium unit with a developer who will be constructing a condominium complex (the Builder).
2. The purchase and sale agreement required a deposit to be paid by Mr. X at the time the agreement was entered into and the remainder of the purchase price to be paid on the completion date.
3. The purchase and sale agreement states that the freehold transfer of the strata lot will not occur until the completion date.
4. Mr. X did not carry on a business of selling real estate property or any related business. However, at the time the purchase and sale agreement was entered into, Mr. X had the intention to sell his right to purchase the unit prior to or at the completion date.
5. Prior to the completion of the construction of the unit, Mr. X assigned his right to purchase the unit to Mr. Y. In accordance with the assignment agreement, Mr. Y paid to Mr. X at the time of the assignment an amount identified as the assignment price and an amount equal to the deposit paid by Mr. X to the Builder.
6. On completion, the Builder charged Mr. Y the balance of the purchase price (i.e., the total purchase price less the deposit paid) plus GST calculated on the total purchase price.
Interpretation Requested
You would like to know:
1. Whether Mr. X acquired an interest in real property, as that term is defined in subsection 123(1), when he entered into the purchase and sale agreement to purchase the residential condominium unit from the Builder.
2. Whether the amount paid to Mr. X by Mr. Y in accordance with the assignment agreement is subject to GST/HST.
Interpretation Given
Based on the information provided, our interpretation is as follows:
Mr. X entered into a purchase and sale agreement for the acquisition of a completed residential condominium unit from the Builder. For GST/HST purposes, the Builder is considered to have made a supply of the unit to Mr. X at the time the agreement is entered into but Mr. X would not be the legal owner of the unit unless and until ownership of the unit is transferred to him.
By signing a binding purchase and sale agreement, Mr. X acquired an interest in the unit, which is an interest in a residential complex for GST/HST purposes. It is that interest in a residential complex that Mr. X sold to Mr. Y by assigning the purchase and sale agreement to Mr. Y.
For GST/HST purposes, Mr. X is a "builder" of the unit as Mr. X entered into the purchase and sale agreement with the intention of reselling the unit or the interest in the unit. Since the unit was acquired with the intention of reselling the unit or the interest in the unit, the unit is not capital property of Mr. X. The supply made by Mr. X would generally be considered to be made in the course of an adventure or concern in the nature of trade (rather than in the course of business) if no activities were undertaken with respect to the supply of the interest in the unit other than those merely to facilitate the supply of the interest by way of sale. If Mr. X were involved in the business of buying and reselling residential units, the supply would be considered made in the course of a business.
The supply of the interest in the residential complex made by way of sale to Mr. Y by Mr. X as a builder is subject to GST/HST as there are no exemptions applicable to the sale. Mr. Y is required to pay GST/HST to Mr. X calculated on the value of the consideration for the supply of the interest in the unit, i.e., the amount payable under the assignment agreement. In this case, Mr. Y is required to pay Mr. X GST calculated on the total amount payable under the assignment agreement, that is the amount identified as the assignment price plus the amount equal to the deposit paid by Mr. X to the Builder.
The GST/HST payable by Mr. Y to the Builder will be calculated on the total consideration charged by the Builder under the agreement for the supply of the unit, i.e., the total price charged by the Builder before deducting the deposit.
Since Mr. X is a builder for GST/HST purposes, Mr. X's sale of his interest in the residential complex is not exempt under paragraph 2(a) of Part I of Schedule V to the ETA. That paragraph exempts a supply by way of sale of a residential complex or an interest in a residential complex made by a particular person who is not a builder of the complex if the particular person has not claimed an input tax credit for tax paid in respect of the residential complex or an interest in the residential complex. For further information on the definition of builder for GST/HST purposes, reference may be made to GST/HST Memorandum 19.2, Residential Real Property, which is available on our Web site at www.cra-arc.ca.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9587. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Béatrice Mulinda
Real Property Unit
Financial Institution and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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