Mr. X has agreed to purchase a newly constructed home from its builder and is subsequently paid $100,000 by the builder for the purchase agreement’s cancellation, does s. 221(2) apply to relieve the builder from having to pay GST/HST on the $100,000 if Mr. X is registered? CRA responded:
Generally, when a purchaser, such as Mr. X, enters into an agreement of purchase of sale for the acquisition of a newly constructed house, the purchaser, Mr. X, is acquiring an interest in real property, namely an interest in a residential complex. If Mr. X subsequently receives consideration to transfer that interest to builder (the Vendor), Mr. X would be considered to be making a sale of the interest in the residential complex. …
If Mr. X is not a builder in his own right (for example, at the time of entering into the agreement of purchase and sale, he intended to acquire the house for his personal use), the sale of that interest would generally be exempt under section 2 of Part I of Schedule V to the ETA. Where that is the case, tax would not be payable by the recipient and, therefore, subsection 221(2) would not apply.
If Mr. X, however, is considered to be a builder in his own right (for example, at the time of entering into the agreement of purchase and sale, he did so for the primary purpose of selling the interest or the house itself), tax would be payable by the Vendor calculated on the value of consideration ($100,000) for the supply. If Mr. X is a non-resident or is resident by reason only of subsection 132(2), or the Vendor in the scenario is GST/HST registered, pursuant to paragraph 221(2)(a) or (b) respectively, Mr. X would be relieved of his obligation to collect the tax payable.