23 March 2017 CBA Commodity Taxes Roundtable, Q.20

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.

In an appreciating housing market, an individual purchaser whose plans have changed, assigns his purchase contract back to the builder for an amount based on the appreciation to date.

On the assignment, the purchaser would be considered to be transferring an interest in a residential complex. If the purchaser was not a builder (which generally would be the case if he had entered into the purchase contract for the purpose of using the house for personal use rather than for resale), the general exemption for sales of interests in residential complexes would be available. If the purchaser instead was a builder, the assignment would be taxable - but still no GST/HST would be charged given that the builder/assignee would be registered.

In an appreciating housing market, an individual purchaser (Mr. X), whose plans have changed, assigns his purchase contract back to the builder for an amount based on the appreciation to date. CRA stated:

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.

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? After first noting that Mr. X would not be a builder if he had agreed to purchase the new residence for his own personal use (in which case, the question would be moot), CRA went on to state::

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.