CRA indicates that comparable sales of used MURCs for s. 191(3) purposes may reflect embedded GST/HST

In the context of an inquiry on determining the fair market value of a new apartment building (or other ”MURC”) when there is a self-supply at the time of substantial completion and first occupancy, CRA noted that where the cap rate used in applying the income approach to valuing the MURC was derived from comparable sales of occupied MURCs, such comparables may reflect “GST/HST that may be imbedded in the consideration for a supply as a result of the GST/HST having been imposed at an earlier time.” On the other hand, “where the consideration of a taxable supply of a residential complex is used as a comparable in a valuation methodology, the GST/HST imposed on that supply, even where the supply was ‘GST/HST included’, is excluded from the consideration.”

This might imply that where a newly-occupied Ontario apartment building had an FMV of $11M having regard to comparable sales of other apartment sales in the area, that same apartment building might have had an FMV of $10M immediately before the time of the deemed self-supply (treating the Ontario tax rate as being around 10% net of new rental housing rebates), i.e., a purchaser at that point in time would discount for the impending self-supply tax. S. 191(3) is unclear as to whether, in this example, the FMV of the building should be treated as $10M or $11M (and CRA did not address this issue), but one could confidently predict that it would go for the higher number.

Neal Armstrong. Summary of 27 February 2020 CBA Roundtable, Q.15 under ETA s. 191(3).