19 October 2007 GST/HST Interpretation 86120 - Administrative Policy and Eligibility Criteria for Municipal Designation

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a tax sale.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

We understand the facts are as follows:

1) The owner of a commercial bare land property in your city is in arrears for municipal taxes owing to you. At this time, property taxes on the parcel of land have become delinquent.

2) Your city has seized the property after you have issued a tax arrears certificate, which you have registered against the property.

3) Your city has put the property for sale in its annual tax sale held under the XXXXX Act XXXXX. XXXXX. Prior to the sale, a Notice of Tax Sale was published in at least two issues of a newspaper, providing the description and street address of the properties subject to the tax sale. A valid bid at this tax sale must be at least equal to the "upset price", which is the sum of the municipal taxes outstanding, interest and various charges specified in the XXXXX.

4) No bids were received on this property during the tax sale. Under section XXXXX of the XXXXX, the city is deemed to be the purchaser, but title does not pass to the city immediately, to allow the original owner to redeem XXXXX property.

5) During the XXXXX period of redemption, the original owner of the property is entitled to redeem XXXXX property at a price calculated as indicated in the XXXXX (taxes outstanding, plus interest plus various fees). In most cases, the original owner redeems XXXXX property during this period, but in the case at hand XXXXX did not. Title is transferred to the city.

Ruling Requested

You would like to know at what point of time, if any, your city is liable for GST on the property.

Ruling Given

Based on the facts set out above, we rule that you are not liable for GST on the above transactions until the time you supply the property under taxable conditions or you use the property for your own use.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Under subsection 183(10), where the city is selling parcels of real property on which municipal taxes are delinquent, such a tax sale is considered to be a seizure or repossession for purposes of the ETA. Consequently, just before the tax sale, your municipality is deemed to have acquired the parcel at issue for nil consideration under subsection 183(1). As consideration is deemed to be nil, at this point, your municipality is not liable for paying GST on this deemed acquisition.

Under the XXXXX, where there are no bids at a tax sale, your municipality is declared to be the purchaser of the parcel. The effect of this declaration is that at the end of the XXXXX redemption period, if the original owner does not redeem the property, XXXXX must transfer title to the municipality. For GST purposes, there has been no supply made since no consideration has been paid and no change has occurred to the deemed supply for no consideration under subsection 183(1). In short, your municipality is not liable for GST in respect of being declared purchaser.

At the end of the redemption period, title to the property is transferred from the original owner to the municipality. Such a transfer of title is a "supply" under the definition of "supply" in subsection 123(1). However, since the municipality is already the deemed recipient of the property under subsection 183(1), the transfer of title is not considered to be a new supply but a perfection of title and part of the earlier deemed supply for no consideration. Consequently, at this point, your municipality is not liable for GST in respect of the transfer of title.

After the transfer of title to your municipality, if and when you sell the property, whether in an annual tax sale or otherwise, you would be deemed to have made that supply in the course of your commercial activities under subsection 183(2) and you would be required to collect and remit GST on the supply if the supply is subject to GST.

If you use the property in any other use than in the making of a supply of the property, you would be deemed to have made a supply of it, and except when the supply is an exempt supply, you would be required to remit GST based on the fair market value of the property, under subsection 183(4).

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-1433.

Yours truly,

Bao Tran
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/10/19 — RITS 92317 — FCTIP Rebate for Accommodation