Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 248223
Business Number: N/A
Dear [Client]:
Subject: GST/HST interpretation
Application of the GST/HST on […][a supply] of real property
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][a supply] of real property.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following :
1. […][Corporation X] owns and manages residential rental properties in […][Province X].
2. […].
3. […][A residential rental property] will be sold by […][Corporation X] to the […][lender] who […][has] a registered mortgage on […][the property].
4. […].
INTERPRETATION REQUESTED
You would like to know if GST/HST is applicable to the […][sale of a residential rental property] by [Corporation X] to […][the lender].
INTERPRETATION GIVEN
[…], where real property being supplied by […][Corporation X is] a Residential Complex under the definition of that term in subsection 123(1) (and consequently is not being supplied on a short-term basis such that it would be excluded from that definition), and the vendor has not claimed input tax credits (ITCs) with respect to the last acquisition of the residential complex or improvements thereto and is not a Builder as that term is defined in subsection 123(1) in respect of the property it is supplying, whether or not the transaction is subject to section 183, the supply of the property would generally not be subject to the GST/HST.
Supply of a Residential Complex
Sales of real property made in Canada are generally taxable pursuant to section 165 of the ETA unless a specific provision applies to exempt them.
Generally, the sale of a used residential property may be exempt from the GST/HST if it is a “residential complex” (other than one that is "substantially renovated" under the definition of that term in subsection 123(1)). Pursuant to paragraph (a) of the definition, a “residential complex” includes that part of a building in which one or more residential units are located, together with that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals.
It should be noted that the definition of “residential complex” will not include a rental property used as short-term accommodation. This supply would usually be taxable unless another exemption is applicable.
For more information on the definition of “residential complex”, please refer to GST/HST Memorandum 19.2, Residential Real Property.
Part I of Schedule V identifies supplies of real property that are exempt from the GST/HST.
In particular, section 2 of Part I of Schedule V lists the sale of a residential complex as exempt from GST/HST if the sale is by a person who is not a builder or, in the case of an addition to a multiple unit residential complex, by a person who is not the builder of the addition, provided the vendor has not claimed ITCs with respect to the last acquisition of the residential complex or improvements thereto.
The vendor would be a “builder” under the definition in subsection 123(1) if it is described by any of paragraphs (a) to (e) therein. […] if any of those paragraphs apply, section 2 above would not exempt the sale of the residential complex; however, it may still be exempt pursuant to section 4 or 5 of Part I of Schedule V.
Section 4 of Part I of Schedule V exempts the sale of a single unit residential complex where the sale is made by the builder and the builder has self-supplied under section 191 in respect of the complex, provided the builder did not claim an ITC after the self-supply.
Section 5 of Part I of Schedule V exempts the sale by a builder of a multiple unit residential complex or an addition thereto, where the builder last acquired the complex or addition by way of an exempt supply or a deemed sale under the self-supply rules found in subsections 191(3) or 191(4).
Generally, a builder would be required to apply the self-supply rules of section 191 where they supply the newly constructed or substantially renovated residential complex by way of lease, licence or similar arrangement for use by an individual as a place of residence. Under those rules, the builder is deemed to have sold and repurchased (i.e., self-supplied) the residential complex at its fair market value generally when the unit is first rented. In the case of a multiple-unit residential complex, such as an apartment building, the builder is treated as having sold and repurchased the whole of the residential complex, i.e., the whole apartment building, at its fair market value generally when the first unit is first rented. For more information on the application of section 191 as well as exceptions to the self-supply rules, please refer to GST/HST memorandum 19.2.3 - Residential Real Property-Deemed supplies.
Application of section 183
Subsection 183(1) provides that where property is seized or repossessed from a person to satisfy a debt or obligation (in whole or in part) owed to another person under a right or power exercisable by that other person, a supply of property by way of sale will be deemed to have been made by the first person and to have been received by the second person. Furthermore, the supply will be deemed to have been made for no consideration. Consequently, no GST will apply to the seizure or repossession.
Under subsection 183(9), where a debtor voluntarily transfers property to a creditor to satisfy a debt or other obligation in respect of which the debtor is in default, the creditor will be deemed to have seized or repossessed the property in circumstances giving rise to the application of subsection 183(1).
If the vendor is in default under a mortgage agreement and voluntarily transfers a property to satisfy that debt or obligation that is in default, such as a quitclaim transaction, then subsection 183(9) could apply. If so, subsection 183(9) deems there to have been a seizure or repossession and the transaction, pursuant to subsection 183(1) would be deemed to have been made for no consideration, and consequently there would be no GST/HST liability regardless of whether or not the supply would be exempt.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 514-213-6075.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Stéphanie Blanchette, CPA, M. Fisc.
Industry Sector Specialist
Real Property Unit 2
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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