Holdco is a privately-held corporate registrant that has contracted with an arm’s length person to develop a project on its land an apartment complex (with no retail component) the units in which will be occupied by individuals attending one or more of the post-secondary institutions located nearby. The building and land on which the building is constructed (“the Residence”) is represented to be a “multiple unit residential complex.” (“MURC”) On its completion, Holdco will sell it to a registered limited partnership (“LP#1”), whose only use thereof will be its lease (under the “Master Lease”) to a second registered limited partnership (“LP#2”).. A professional management company (“MgmtCo”) will manage and operate the Residence.
It is estimated that during the regular academic session from September to May, more than 10% of the units will be supplied for short-term stays (generating rentals of more than $20 per day) and, during June through August, that 90% or more of the apartment units will be supplied for short-term stays (under one month) – with the balance for long-term stays.
In finding that LP#1 will not be subject to the self-supply rule in s. 191(3) when it leases the Residence to LP#2, CRA noted that LP#1 was a builder because it acquired its interest in the Residence (before any occupancy) for the primary purpose of leasing it other than to an individual and that the conditions in s. 191(3)(b)(i) will not be met given that LP#1 and LP#2 entered into the lease of the multiple unit residential complex (the Residence) for the purpose of managing and leasing the residential units and not for the purpose of occupancy of a unit by an individual as a place of residence. Furthermore, s. 191(3)(b)(i.1) is inapplicable, nor will s. 191(3)(b)(ii) be met given that LP#1 is not an individual.
Furthermore, s. 191(10) would not deem the builder (LP#1) to give possession of the residential units to an individual under a lease for occupancy as a place of residence LP#1 given that the builder will not be making exempt supplies described in Sched. V, Pt.1, s. 6.1 or 6.11. S. 6.1 does not apply as it applies only to a supply of property that is land, or a building (or that part of a building) that consists solely of residential units, whereas here there is a supply of a MURC. S. 6.11 will not apply given inter alia that more than 10% of the apartment units will be leased for short-term stays during the regular academic session (and that percentage will increase to 90% or more during the summer). In this regard, CRA stated that s. 6 “does not deal with the situation where the residential complex is supplied to a person under a head lease (such as the Master Lease) for a subsequent supply to another person.” Therefore, LP#2 will be required to pay GST on its lease payments to LP#1.