29 July 2011 Headquarters Letter Case No. 122272r

In order to finance the purchase of a new condo from a builder, an individual (the "Purchaser") enters into a "Declining Partnership Agreement," or Loan Agreement, with FinanceCo which is intended to comply with the Islamic principle of declining Musharaka. Under this arrangement, Purchaser alone obtains legal title to and possession of the condo while FinanceCo obtains an equitable interest in the condo upon contributing money to Purchaser, and agrees to sell its equitable interest in the condo to Purchaser over time on a basis that permits it to earn the 'Profit" described in the Loan Agreement. As there is no indication in the agreement of purchase and sale with the builder that FinanceCo is liable to pay the consideration for the supply by the builder of the condo, CRA rules that Purchaser is liable for the GST on the value of the consideration for that supply, and that FinanceCo is not the recipient of that supply.

In order to finance the purchase of a new condo from a builder, an individual (the "Purchaser") enters into a "Declining Partnership Agreement," or Loan Agreement, with FinanceCo which is intended to comply with the Islamic principle of declining Musharaka. Under this arrangement, Purchaser alone obtains legal title to and possession of the condo while FinanceCo obtains an equitable interest in the condo upon contributing money to Purchaser, and agrees to sell its equitable interest in the condo to Purchaser over time on a basis that permits it to earn the 'Profit" described in the Loan Agreement. After noting that s. 183(1) could apply in a default scenario, CRA stated:

If subsection 183(1) does not apply, it is a question of fact whether there would be a supply of the property from the Purchaser to [FinanceCo], whether there is consideration payable for the supply, and the GST status of the supply.