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.
[Addressee]
Case Number: 202273
[Dear Client]
SUBJECT: [GST/HST Interpretation]
New residential rental property rebate under subsection 256.2(3)
This […] is in response to your [correspondence], dated [mm/dd/yyyy], with respect to an application for a new residential rental property rebate (the NRRP Rebate) filed by an individual (the Assignee). We apologize for the delay in our response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise indicated.
Facts
Based on the documentation provided and our telephone conversations, (Footnote 1) we understand the following:
1. On [mm/dd/yyyy], an individual who is a non-resident of Canada (the Assignor) entered into an Agreement of Purchase and Sale (the APS) with a corporation (the Vendor) for the purchase of a condominium unit (the Unit) that was to be built in […][province X]. The Assignor is not registered for the GST/HST.
2. On [mm/dd/yyyy], the Assignor and the Vendor entered into […] (the Leaseback) whereby the Assignor (as Landlord) would grant to the Vendor (as Tenant) the right to lease the Unit from and after the […] date.
3. On [mm/dd/yyyy], a property management company, identified as agent for the Vendor, entered into a lease with two individuals who would occupy the Unit as a place of residence for a term of one year and one day.
4. On [mm/dd/yyyy], the condominium complex in which the Unit is located was registered under the […].
5. On [mm/dd/yyyy], the Vendor, the Assignor and another individual (the Assignee) entered into the […] (the Assignment) whereby the name of the Assignor was deleted and the name of the Assignee was inserted as the purchaser of the Unit. (Footnote 2)
6. On [mm/dd/yyyy], ownership of the Unit was transferred from the Vendor to the Assignee, as evidenced by the Statement of Adjustments.
7. On [mm/dd/yyyy], the Assignee filed form GST524, GST/HST New Residential Rental Property Rebate Application (the NRRP Rebate), for a rebate of a portion of the tax that was paid on the purchase of the Unit.
[Interpretations Requested]
You have requested […][interpretations] regarding the obligations and entitlements of the Assignee:
1. Is the Assignee a “builder” of the Unit as defined in subsection 123(1)?
2. Is the Assignee subject to a self-supply under subsection 191(1)?
3. Is the Assignee eligible for the NRRP Rebate under subsection 256.2(3)?
[…], you have [also] requested […][interpretations] in the following additional matters:
- Is the Assignor a “builder” of the Unit?
- Is the Assignor subject to a self-supply under subsection 191(1)?
- Is the Assignor eligible for the NRRP Rebate?
[Interpretations Given]
[Based on the facts set out above, we offer] […] the following comments with respect to […][the interpretations you requested]: […]
Assignee’s GST/HST obligations and entitlements
1. Is the Assignee a “builder” of the Unit as defined in subsection 123(1)?
We limit our discussion to paragraph (d) of the definition of “builder” and specifically to how paragraph (d) applies to a residential condominium unit (RCU).
The first part of paragraph (d) sets out the specific parameters for when a person is found to be a “builder” of a residential complex. If the condition in either of subparagraph (d)(i) or subparagraph (d)(ii) is met, it is necessary to proceed to the second part of paragraph (d) to determine if the primary purpose for which the person acquired the interest in the RCU meets one of the conditions described in subparagraph (d)(iii) or subparagraph (d)(iv).
Subparagraph (d)(i) provides that, in the case of a condominium complex or an RCU, a person may be a builder if the person acquires an interest in the complex at a time when the complex (in which the RCU is situated) is not yet registered as a condominium. Subparagraph (d)(ii) provides that a person may be a builder of the complex if the person acquires an interest in the complex before the complex has been occupied by an individual as a place of residence or lodging.
In the subject case, the condominium complex in which the Unit is located was registered as a condominium on [mm/dd/yyyy]. Further, the Unit was occupied as a place of residence in [mm/dd/yyyy]. Both these events precede the time when the Assignee acquired an interest in the Unit on [mm/dd/yyyy] (the day on which the APS was amended to replace the Assignee as purchaser).
As the condition in neither of subparagraphs (d)(i) nor (d)(ii) is met, there is no need to consider the remaining conditions in paragraph (d): […] that the Assignee is not a builder of the Unit.
Is the Assignee a “builder” by virtue of the Assignment?
A person who enters into a purchase and sale agreement with the supplier of a residential complex may subsequently assign their rights and obligations under that agreement to another person (an assignee). The assignment of a person’s rights and obligations under such an agreement is generally considered to be a sale of the person’s interest in the complex to the assignee. As expressed in GI-120, Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit, the CRA generally takes the view that the purchase and sale agreement is then between the builder (as supplier) and the assignee (as recipient).
There is no indication of any formal agreement whereby the Assignor assigned its rights and obligations to the Assignee. However, the Assignment is evidence of an agreement between the Assignor and the Assignee that the Assignee will complete the transaction with the Vendor. The Statement of Adjustments is further evidence that the transaction for the purchase of the Unit was concluded between the Vendor and the Assignee.
If a person who is considered to be a builder of an RCU assigns its rights and obligations under an agreement to purchase the RCU to another person (an assignee), the assignee does not assume the role of a builder of the RCU by virtue of such an assignment. Rather, a person is found to be a “builder” of an RCU in their own right based on whether the person is described by the definition of “builder”.
Accordingly, a finding that the Assignor is or is not a builder of the Unit has no bearing on finding the Assignee to be a builder, or not a builder.
2. Is the Assignee subject to a self-supply under subsection 191(1)?
Subsection 191(1) applies to a person who is the builder of a residential complex. Where the Assignee is not a builder of the Unit, the Assignee would not be subject to subsection 191(1).
3. Is the Assignee eligible for the NRRP Rebate under subsection 256.2(3)?
Subsection 256.2(3) sets out the requisite conditions for the NRRP Rebate in respect of a portion of the GST/HST paid by a person on the taxable purchase (or the deemed self-supply) of a newly constructed residential complex for supply as long-term residential rental accommodation. (Footnote 3)
Each of paragraphs 256.2(3)(a) through (d) describe a specific condition, all of which must be met in order to be eligible for the NRRP Rebate.
(a) paragraph 256.2(3)(a)
Paragraph 256.2(3)(a) provides that a person may be eligible for the Rebate if the particular person:
i. is the recipient of a taxable supply by way of sale of a residential complex and is not a builder of the complex, or
ii. is a builder of a residential complex, and the person is deemed under section 191 to have made and received a taxable supply by way of sale of the complex.
The facts as presented establish that the Assignee is the recipient of a taxable supply by way of sale of the Unit from the Vendor and that the Assignee is not a builder of the Unit. Accordingly, the condition in subparagraph 256.2(3)(a)(i) is met.
(b) paragraph 256.2(3)(b)
Paragraph 256.2(3)(b) establishes a critical timing element for the NRRP Rebate: for the recipient of a taxable supply (where the person is not a builder), the particular time is when tax first becomes payable in respect of the purchase from the supplier.
Subsection 168(5) provides the time at which the tax is payable for a taxable sale of real property. For the supply of an RCU where possession of the unit is transferred to the recipient of the supply after the condominium complex in which the RCU is situated is registered as a condominium, paragraph 168(5)(b) provides that tax becomes payable on the earlier of the day possession of the RCU is transferred to the recipient and the day ownership of the RCU is transferred to the recipient.
In the subject case, possession and ownership of the Unit were both transferred to the Assignee on April 5, 2018.
(c) paragraph 256.2(3)(c)
Paragraph 256.2(3)(c) further establishes that, at the particular time, the residential unit is a qualifying residential unit of the person or includes one or more qualifying residential units of the person. The term “qualifying residential unit” is defined in subsection 256.2(1); we further note the importance of the terms “first use” and “self-contained residence”. Please refer to the Appendix for the complete text of these definitions.
“qualifying residential unit” – paragraph 256.2(1)(a)
Paragraph (a) of the definition of “qualifying residential unit” in subsection 256.2(1) expresses the fundamental conditions of a “qualifying residential unit”: a “qualifying residential unit” is a residential unit of which, at or immediately before the particular time, the person is the owner, a co-owner, a lessee or a sub-lessee or has possession as purchaser under an agreement of purchase and sale, or a residential unit that is situated in a residential complex of which the person is, at or immediately before the particular time, a lessee or a sub-lessee.
The Unit is a “residential unit” as defined in subsection 123(1). At the particular time when tax first became payable in respect of the purchase from the Vendor (as established in paragraph 168(5)(b)), the Assignee was the owner of the Unit.
Where the fundamental conditions of paragraph (a) of “qualifying residential unit” are met, a unit must further meet the requirements as set out in subparagraphs (a)(i), (a)(ii) and (a)(iii)
“qualifying residential unit” – subparagraph (a)(i): “self-contained residence”
The condition in subparagraph (a)(i) is met where, at the particular time when tax first becomes payable in respect of the purchase from the supplier, the RCU is a self-contained residence.
The Unit is a “self-contained residence” as defined in subsection 256.2(1) as it is a residential unit that contains private kitchen facilities, a private bath and a private living area. Thus, at the time when tax first became payable in respect of the Assignee’s purchase from the Vendor, the condition in subparagraph (a)(i) was met.
“qualifying residential unit” – subparagraph (a)(ii): includes clause (a)(ii)(A)
The condition in subparagraph (a)(ii) is met where the person holds the unit for a purpose or use as set out in either of clauses (a)(ii)(A), (a)(ii)(A.1) or (a)(ii)(B).
In part, section 6.11 of Part I of Schedule V exempts a supply by way of lease, licence or similar arrangement of a residential complex where the complex is supplied, or is held for the purpose of being supplied, by the lessee or any sub-lessee for the purpose of the occupancy of the complex by individuals as a place of residence or lodging and where all or substantially all of the supplies of the property are exempt supplies under section 6 of Part I of Schedule V.
It is our understanding that the Assignee continued with the lease arrangement with the Vendor as set out in the Leaseback. At the time when tax became payable to the Vendor, the Vendor was subletting the Unit under the conditions of section 6 of Part I of Schedule V and was thus making exempt supplies of the Unit. Accordingly, the Assignee was holding the Unit for the purpose of making exempt supplies under section 6.11 of Part I of Schedule V at the particular time when tax became payable.
This use is described by clause (a)(ii)(A) of the definition of “qualifying residential unit” in subsection 256.2(1) and thus meets the condition in subparagraph (a)(ii) of the definition of “qualifying residential unit” in subsection 256.2(1).
“qualifying residential unit” – subparagraph (a)(iii): reference to “first use” includes clause (a)(iii)(B)
Subparagraph(a)(iii) of the definition of “qualifying residential unit” in subsection 256.2(1) provides that it is the case, or can reasonably be expected by the person at the particular time to be the case, that the first use of the unit is or will be as described in either of clause (a)(iii)(A) or clause (a)(iii)(B).
The “first use” of the Unit is described by clause (a)(iii)(B): after construction of the Unit was substantially completed, the first use of the Unit was as a place of residence of individuals, each of whom was given continuous occupancy under a lease throughout which the Unit would be used as the primary place of residence of the individuals for a period of one year and one day.
The Unit was put to its first use some months prior to the time when the tax became payable by the Assignee. Accordingly, at the time when the tax became payable by the Assignee, the Assignee had certainty that the first use of the Unit was described by clause (a)(iii)(B).
In summary, we have established that at the particular time when the tax first became payable in respect of the Assignee’s purchase of the Unit from the Vendor, the Unit was a residential unit of which the Assignee was the owner. At that time, the unit was a self-contained residence, and the Assignee held the Unit for the purpose of making exempt supplies of the Unit as described in section 6.11 of Part I of Schedule V. Further, at the particular time when the tax became payable, the first use of the Unit was as described in clause (a)(iii)(B) of the definition of “qualifying residential unit” in subsection 256.2(1).
At the particular time when the tax first became payable by the Assignee, all conditions in paragraph (a) of the definition “qualifying residential unit” in subsection 256.2(1) were satisfied so that the Unit was a “qualifying residential unit” of the Assignee. This further establishes that the condition in paragraph 256.2(3)(c) is satisfied.
(d) Paragraph 256.2(3)(d)
Paragraph 256.2(3)(d) provides, as a condition for the NRRP Rebate, that the person is not entitled to include the tax in respect of the purchase from the supplier in determining an input tax credit (ITC).
The Assignee is not a registrant for GST/HST purposes and thus cannot claim an ITC. Further, if the Assignee were a registrant, the Assignee would have no entitlement to an ITC for the tax in respect of the purchase as the Unit was acquired for the purpose of making exempt supplies. Accordingly, the condition in paragraph 256.2(3)(d) is met.
[…] the Assignee meets the eligibility conditions for the NRRP Rebate.
Assignor’s GST/HST obligations and entitlements
1. Is the Assignor a builder of the Unit?
Our analysis of the term “builder” with respect to the Assignor is limited to a discussion of paragraph (d) of that definition, and specifically to how paragraph (d) applies to an RCU.
The Assignor acquired an interest in the Unit at a time when the condominium complex was not yet registered as a condominium nor had the Unit been occupied by an individual as a place of residence or lodging. Where the condition in either of subparagraphs d(i) or (d)(ii) is met, we proceed to consider whether the condition in either of subparagraph (d)(iii) or subparagraph (d)(iv) is met.
Paragraph (d) provides that a person’s primary purpose for acquiring an interest in the complex is a factor in finding a person to be a builder. Specifically, subparagraph (d)(iv) provides that a person is a builder of the complex where the person acquires an interest in the complex for the primary purpose of supplying the complex by way of lease, licence or similar arrangement, with the exception that the person is not a builder of the complex if the person’s intention is to supply it by way of lease, licence or similar arrangement to an individual who will use it other than in the course of a business or an adventure or concern in the nature of trade (that is, where the recipient is an individual who will use it for their personal use).
Certain persons are excluded from the definition of builder by paragraphs (f) through (h). Paragraph (f) provides, in part, that an individual described in paragraph (d) is not a builder of the complex where the individual acquires the complex (or interest therein) otherwise than in the course of a business or an adventure or concern in the nature of trade. The definition of “business” includes any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement.
It is our understanding that the Assignor expressed no intention to reside in the Unit. The APS included an option for the Assignor to lease the Unit back to the Vendor, and the Assignor subsequently exercised that option and entered into the Leaseback with the Vendor. These actions suggest the Assignor’s primary purpose for acquiring the interest in the Unit was to lease the Unit for the purpose of receiving rental income, that is, in the course of a business.
These facts suggest the Assignor is potentially a builder of the Unit as described by paragraph (d) of that definition; the exclusion in paragraph (f) does not apply. (Footnote 4)
[…].
2. Is the Assignor subject to a self-supply under subsection 191(1)?
Under subsection 191(1), the builder of a residential complex may be subject to a self-supply when the builder leases a newly constructed residential complex for its occupancy by an individual as a place of residence. Where all conditions of subsection 191(1) are met, the builder is deemed to have made and received a taxable sale of the complex, and to have paid as a recipient and collected as a supplier, the tax in respect of the sale. The tax that is deemed to have been collected is calculated on the fair market value of the complex at the later of the time when construction of the complex is substantially completed, and the time when possession or use of the complex is so given for its occupancy by an individual as a place of residence.
A builder is subject to a self-supply under subsection 191(1) where all the conditions are met. As noted above, the limited documentation provided for our review (and the inconsistencies therein) is not sufficient to make a determination as to whether the Assignor meets all the conditions of subsection 191(1).
[…]
3. Is the Assignor eligible for the NRRP Rebate?
(a) paragraph 256.2(3)(a)
As noted earlier, paragraph 256.2(3)(a) provides that a person may be eligible for the NRRP Rebate if the person:
i. is the recipient of a taxable supply by way of sale of a residential complex and is not a builder of the complex, or
ii. is a builder of a residential complex, and the person is deemed under section 191 to have made and received a taxable supply by way of sale of the complex.
If the Assignor was not the recipient of a taxable supply by way of sale of the Unit from the Vendor, the condition in subparagraph (a)(i) would not be met. However, the Assignor could be eligible for the NRRP Rebate if the Assignor were described by subparagraph (a)(ii), that is, a builder of the Unit who is subject to a self-supply under section 191.
[…] the Assignor could potentially be a builder of the Unit.
However, in the absence of certain facts, we cannot determine whether the Assignor meets the conditions for a self-supply under subsection 191(1).
Below, we set out the remaining eligibility conditions for a person who is described by subparagraph 256.2(a)(ii), that is, a builder of a residential complex who is deemed under section 191 to have made and received a taxable supply by way of sale of the Unit.
(b) paragraph 256.2(3)(b)
For a builder who is deemed under subsection 191(1) to have made a taxable supply by way of sale of the complex, paragraph 256.2(3)(b) establishes that the particular time is when tax in respect of the deemed purchase is deemed to have been paid by the builder as set out in paragraph 191(1)(d), that is, at the later of the time the construction of the Unit is substantially completed and the time possession or use of the Unit is given for its occupancy by an individual as a place of residence.
(c) paragraph 256.2(3)(c)
Paragraph 256.2(3)(c) requires that, at the particular time, the residential complex is a qualifying residential unit of the person or includes one or more qualifying residential units of the person.
“qualifying residential unit” – paragraph (a) of the definition in subsection 256.2(1)
As explained earlier, a “qualifying residential unit” is a residential unit of which, at or immediately before the particular time, the person is the owner, a co-owner, a lessee or a sub-lessee or has possession as purchaser under an agreement of purchase and sale, or a residential unit that is situated in a residential complex of which the person is, at or immediately before the particular time, a lessee or a sub-lessee.
“qualifying residential unit” – subparagraph (a)(i): “self-contained residence”
The Unit is a residential unit that contains private kitchen facilities, a private bath and a private living area; the Unit is thus a “self-contained residence” as defined in subsection 256.2(1).
“qualifying residential unit” – subparagraph (a)(ii): includes clause (a)(ii)(A)
We have explained that section 6.11 of Part I of Schedule V exempts the supply by way of lease, licence or similar arrangement of a residential complex where the complex is supplied or is held for the purpose of being supplied by the lessee or any sub-lessee for the purpose of the occupancy of the complex by individuals as a place of residence or lodging and where all or substantially all of the supplies of the property are exempt supplies under section 6 of Part I of Schedule V.
Where a person holds the unit for the purpose of making exempt supplies under section 6.11 of Part I of Schedule V, the condition in clause (a)(ii)(A) of the definition of “qualifying residential unit” is met, thus satisfying the condition in subparagraph (a)(ii).
“qualifying residential unit” – subparagraph (a)(iii): reference to “first use” includes clause (a)(iii)(B)
Subparagraph (a)(iii) of the definition of “qualifying residential unit” in subsection 256.2(1) provides that it is the case, or can reasonably be expected by the person at the particular time to be the case, that the first use of the unit is or will be as described in either of clause (a)(iii)(A) or clause (a)(iii)(B).
In the subject case, we understand that the first use of the Unit may be as described in clause (a)(iii)(B): after construction of the Unit was substantially completed, the first use of the Unit was as a place of residence of individuals, each of whom was given continuous occupancy under a lease throughout which the Unit would be used as the primary place of residence of the individuals for a period of one year and one day.
For a builder who is subject to subsection 191(1), the particular time is the later of the time the construction of the Unit is substantially completed and the time when possession or use of the Unit is given for its occupancy by an individual as a place of residence.
Where all conditions in paragraph (a) of the definition of “qualifying residential unit” in subsection 256.2(1) are satisfied, the Unit is a “qualifying residential unit” of a person, in which case the condition in paragraph 256.2(3)(c) would be satisfied.
(d) paragraph 256.2(3)(d)
Paragraph 256.2(3)(d) provides, as a condition for the NRRP Rebate, that the person is not entitled to include the tax in respect of the deemed purchase in determining an ITC. A person who is not a registrant for GST/HST purposes cannot claim an ITC.
Bearing in mind that the Assignor has paid no tax in respect of the purchase of the Unit from the Vendor, a NRRP Rebate would be contingent on the Assignor being found to be a builder of the Unit and that, as builder, the Assignor is deemed to have paid the tax on the deemed purchase of the Unit.
Subsection 256.2(7) provides that in the case of a taxable supply in respect of which the person is deemed to have collected the tax, a NRRP Rebate will not be paid to the person unless the person has reported the tax the person is deemed to have collected and has remitted all net tax that is remittable.
[…].
[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.]
Yours Truly,
Johanne Cairo
Rulings Officer
Real Property Unit, Financial Institutions and Real Property Division,
Excise and GST/HST Rulings Directorate
320 Queen Street
Ottawa ON K1A 0L5
FOOTNOTES
1 […].
2 […].
3 Please refer to the Appendix for the complete definition of “qualifying residential unit”.
4 No other exclusion applies to a builder described by paragraph (d).
PROTECTED B / PROTÉGÉ B
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