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.
FROM
Béatrice Mulinda
Real Property Unit
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Place de Ville
Ottawa, Ontario
TO
[Addressee]
Case Number : 153618
July 15, 2013
Subject: GST/HST INTERPRETATION
Provincial transitional new housing rebates and the degree of completion of the construction or substancial renovation of a residential complex
This is in reply to your [correspondence] of [mm/dd/yyyy] to [...] in which you requested an interpretation in regard to paragraph 57(1)(e) (Footnote 1) of Division 4 of Part 9 of the New Harmonized Value-added Tax System Regulations, No. 2 (the Regulations).
Sections 56 and 57 of the Regulations generally allow for a provincial transitional new housing rebate in respect of certain newly constructed or substantially renovated residential complexes in Ontario and British Columbia where the construction or substantial renovation of the complex is at least 10% complete as of July 1, 2010 and certain other conditions are met.
ISSUE
GST/HST Info Sheet GI105, How to Determine the Percentage of Completion for Purposes of the Provincial Transitional New Housing Rebates and the Transitional Tax Adjustment in Ontario and British Columbia (GI105), contains the statement: "Generally, a provincial transitional new housing rebate is available in respect of a newly constructed or substantially renovated residential complex, or an addition to a multiple unit residential complex, where the construction or substantial renovation of the complex, or addition, is at least 10% complete as of July 1, 2010." You interpret this statement to mean that the actual physical construction of the complex must be at least 10% complete as of July 1, 2010 in order for a claimant to be eligible for the rebate. [...][You question] if the residential complex is physically at least 10% complete as of July 1, 2010 by using only hard costs. [...]. [...][You do not consider] soft costs such as costs of builder's permits and development cost charges in determining whether the construction or substantial renovation of a residential complex is at least 10% complete as of July 1, 2010. However, if that percentage is met by using the hard costs only then the soft costs are added in determining the total percentage of completion used to calculate the provincial transitional new housing rebate.
RESPONSE
GI-105 contains information regarding the determination of the percentage of completion, as of July 1, 2010, of the construction or substantial renovation of a residential complex situated in Ontario or British Columbia for the purpose of the provincial transitional new housing rebate.
GI105 states that in the case of a newly constructed residential complex, the construction begins when the excavation of the site within the activity of constructing the complex begins. The Federal Court of Appeal case you referred to, 1096288 Ontario Ltd v The Queen [2010] ETC 3074, discusses the meaning of "construction" and how it was defined by the Tax Court of Canada in the initial appeal, i.e., as "the act of forming something by putting together parts." However, neither the Tax Court of Canada decision, nor the Federal Court of Appeal decision, in 1096288 Ontario Ltd. address when construction of a residential complex begins.
GI105 proposes six methods that can be used to determine the percentage of completion of the construction or substantial renovation of a residential complex for purposes of the provincial transitional new housing rebate. One of those methods, Method 1, is based on the capital and operating costs incurred in the construction or substantial renovation of the complex as of July 1, 2010 as a proportion of the total expected capital and operating costs for that complex. This includes all costs (hard costs and soft costs) necessary to put the complex in a position to fulfil its function as a place of residence, except for the cost of acquiring the land and certain related costs as set out in the appendix to GI-105.
In the case of new construction, if the excavation began before July 1, 2010, soft costs necessary to prepare for the construction of the complex are included in determining the percentage of completion, including whether the construction is at least 10% complete as of July 1, 2010.
The appendix to GI-105 outlines the costs that may be included in determining the degree of completion of the construction or substantial renovation of a residential complex to the extent that such costs are necessary for the completion of the complex as a place of residence. When Method 1 is used, costs of materials that have been purchased as of July 1, 2010 but not yet incorporated into the construction or substantial renovation cannot be included. Conversely, costs invoiced to the builder after July 1, 2010, but related to work performed or material delivered and incorporated into the construction or substantial renovation on or before July 1, 2010 may be included in determining the total capital and operating costs as of July 1, 2010.
If you would like to discuss this matter further, please contact me at 613-952-9587.
Footnotes:
1. 57(1)(e) states: "if the specified residential complex is a residential condominium unit and the condominium complex in which the unit is situated is being constructed or substantially renovated, the construction of the condominium complex or, in the case of a substantial renovation, the last substantial renovation of the condominium complex, is, immediately after June 2010, 10% or more completed."
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