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.
DATE February 25, 2014
TO
[Addressee]
FROM
John Smith
Manager
Special Provisions – General
Excise and GST/HST Rulings Directorate
1st Floor
78 Richmond Street West
Oshawa
Case Number: 155876
SUBJECT : GST/HST INTERPRETATION
Application for rebate of tax paid in error
This concerns your [correspondence] of July 30, 2013, regarding an application by a corporation for a rebate of tax paid in error.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
FACTS
We have summarized the relevant facts as follows:
1. On [mm/dd/yyyy], two individuals, […][individual A] and […][individual B] (the Nominees), entered into an agreement (the Agreement) with […][seller A] and […][seller B] (the Sellers) to purchase real property (the Property) located at […] for $[…].
2. The Property comprises a [#]-room […] bed and breakfast, including, among other things, a […] restaurant, multiple large conference rooms, and a garden and guest parking. No part of the Property comprises a residential complex for GST/HST purposes.
3. On [mm/dd/yyyy], […] (the Corporation) was incorporated under […][Province A]’s Business Corporations Act. [Individual A] is the president of the Corporation, and[individual A], [individual B], and […][individual C] are its shareholders.
4. Also on [mm/dd/yyyy], the Corporation and the Nominees entered into a bare trust and agency agreement, which provided, among other things, that:
* Legal title to the Property would be registered effective [mm/dd/yyyy], in the names of the Nominees as joint tenants.
* The Nominees would hold legal title to the property for the sole benefit and account of the Corporation.
* The Nominees would have no equitable or beneficial interest in the property; the equitable and beneficial interest in the Property would be vested solely and exclusively in the Corporation.
* The Nominees would be appointed with full power to manage and deal with the Property and execute any instrument, document, or encumbrance in respect of the Property for, and on behalf of the Corporation, all at the direction of the Corporation.
* Any benefit, interest, profit, or advantage arising out of, or accruing from, the Property would be, and would continue to be, a benefit, interest, profit, or advantage of the Corporation.
* The Corporation would reimburse the Nominees for any disbursements or payments made in respect of the Property.
* The Nominees would transfer legal title to the Property to, or as directed by, the Corporation forthwith upon demand by the Corporation.
5. According to the Business Number System, the Corporation was registered for the GST/HST effective [mm/dd/yyyy].
6. The sale of the Property closed on [mm/dd/yyyy]. According to the Statement of Adjustments for the transaction, possession of the Property was transferred on [mm/dd/yyyy].
7. The Sellers provided the Nominees with a GST/HST Certificate certifying that the sale of the property was taxable for GST/HST purposes, and they charged and collected GST/HST in the amount of $[…] in respect of the sale.
8. The Corporation claimed an input tax credit (ITC) for the tax paid on the purchase of the Property in its GST/HST return for the period [mm/dd/yyyy] to [mm/dd/yyyy]. The CRA audited the return. […], the auditor adjusted line 205 of the return to account for tax payable by the Corporation on the acquisition of the Property in accordance with subsection 228(4) and told the Corporation to apply for a rebate of tax paid in error under section 261 for the tax paid to the Sellers.
9. On [mm/dd/yyyy], the Corporation changed its name to […].
10. On [mm/dd/yyyy], the CRA received a GST/HST rebate application (form GST 189, General Application for Rebate of GST/HST) from the Corporation for the amount paid as tax to the Sellers in error on the purchase of the Property.
11. […], the CRA originally disallowed the rebate application because the statement of adjustments showed that the Nominees purchased the Property. However, the Corporation subsequently provided the CRA with a copy of the bare trust agreement, which was intended to show that the Nominees purchased the Property on behalf of the Corporation.
12. The Corporation’s [yyyy] financial statement lists the Property as a corporate asset and the mortgage payable to […][the bank] as a corporate liability. Other expenses, such as interest, property taxes incurred, insurance, incorporation fees, and registrations fees, are also reflected in the books and records of the Corporation. The GST/HST recoverable, which is the subject of this enquiry, is also listed in the financial statement.
13. The Nominees are residents of Canada but are not GST/HST registrants.
ISSUE
Is the Corporation eligible for a rebate under section 261 for tax paid in error on the purchase of the Property?
RESPONSE
The Corporation is eligible for a rebate under section 261, provided the other requirements set out in section 261 are satisfied.
EXPLANATION
Since the Corporation was registered for the GST/HST when tax became payable in respect of the supply of the Property, it was required under subsection 228(4) to self-assess tax in respect of the supply, […]. Furthermore, the Sellers were relieved under subsection 221(2) of their obligation under subsection 221(1) to collect tax in respect of the supply, and therefore the amount paid by the Corporation (through the Nominees) to the Sellers as or on account of tax on the purchase of the Property was paid in error. Consequently, it is our opinion that the Corporation is eligible for a rebate under section 261, provided the other requirements set out in section 261 are satisfied.
If you require clarification with respect to any of the issues discussed in this letter, please feel free to call Marlon Latchana at 905-721-5201 or me at 905-721-5062.
Yours truly,
John W. Smith
Manager, Special Provisions – General Unit
Excise and GST/HST Rulings Directorate
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