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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 190414r
Dear [Client]:
Subject: GST/HST RULING
Assignment of a right to purchase a residential unit
Thank you for your fax of [mm/dd/yyyy], in which you requested that we reconsider the GST/HST ruling that was issued to you under case number 190414 on [mm/dd/yyyy]. We apologize for the delay responding to you.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the documentation provided with the original request and the additional information you provided with your request for reconsideration, our understanding of the facts is as follows:
1. You are the authorized representative of […](the Assignor).
2. You assert that, in [yyyy], the Assignor resided […][outside of Canada] with her husband and [#] children, but that she and her family intended to move to […][Province A] sometime in [yyyy].
3. On [mm/dd/yyyy], the Assignor and […](the Vendor) entered into an Offer to Purchase and Agreement of Sale (the Agreement) with respect to a proposed strata lot to be constructed […]. The proposed strata lot [located in Province A] would be known as […](the Strata Lot) and would have a municipal address of […][Address A]. The Strata Lot would be constructed on the portion of land legally described as […].
4. You assert that the Assignor entered into the Agreement for purposes of acquiring the Strata Lot to live in when they moved to [Province A]. The Assignor and her family loved the location and size of the Strata Lot as it fit their needs such as the proximity to schools.
5. According to the Agreement:
a) at the time of entering into the Agreement, the Assignor resided […][outside of Canada];
b) the Assignor was required to pay, to the Vendor, a purchase price in the amount of $[…] for the Strata Lot, […][plus GST/HST];
c) the Assignor was required to pay, to the Vendor:
i. an initial deposit in the amount of $[…], generally payable within [#] hours of entering into the Agreement;
ii. a second deposit in the amount of $[…], generally payable [#] days after entering into the Agreement; and
iii. a third deposit in the amount of $[…], generally payable [#] days following the receipt of confirmation […][of a particular milestone in the building process];
d) the Assignor was required to pay, to the Vendor, the balance of the purchase price (presumably $[…] […][plus GST/HST]) on the completion date;
e) the estimated completion date was [mm/dd/yyyy];
f) if the completion date has not occurred by [mm/dd/yyyy] (that is, the outside date) then either the Assignor or the Vendor could cancel the Agreement and the Assignor’s deposits would be returned to her and both parties would be released from their obligations under the Agreement; the Vendor may, at its option, elect to extend the outside date for up to [#] days;
g) the Assignor may not assign her rights and obligations under the Agreement without the prior written consent of the Vendor, which consent may be withheld by the Vendor in its sole discretion; generally, the Vendor charges an administration fee equal to […]; and
h) […][additional information about the terms of the Agreement]
6. Also, on [mm/dd/yyyy]:
a) the Vendor’s agent prepared an Individual Identification Information Record as required under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act; according to that record:
i. […][Information about the Assignor’s Citizenship]; and
ii. […][Information about the Assignor’s business or occupation]; and
b) […]
7. You assert that, also in [mm/yyyy], the Assignor purchased a townhouse located [in Province A] at […][Address B]. You assert that the purchase price for the townhouse was approximately $[…] and that the Assignor purchased the townhouse for […][extended family] […][located outside of Canada] and who intended to move to [Province A] .
8. You have not provided any information pertaining to any financing or mortgage obtained by the Assignor for her purchase of the townhouse […] or the Strata Lot.
9. You assert that the Assignor and her family moved from […][outside of Canada] in [mm/yyyy] and that they settled in the townhouse mentioned in Fact #7 above. You assert that the Assignor and her family resided in the townhouse while they waited for the construction of the Strata Lot to be completed. You assert that in the meantime, the Assignor’s [extended family] decided to postpone their move to [Province A].
10. As mentioned in Fact #5 above, the estimated completion date for the Strata Lot was [mm/dd/yyyy]. In addition, the Vendor had the option to elect to extend the outside date up to [#] days beyond […][the initial outside date]; thus the Assignor was aware of the possibility of being bound under the Agreement until approximately the end of [mm/yyyy] at the latest. You assert that the completion date was postponed [#] times; the […] time being in [mm/yyyy]. You have not provided any information about the postponements, but you assert that in [mm/yyyy] the Assignor was notified that the revised completion date was [mm/yyyy].
11. You assert that after receiving the notification in [mm/yyyy], the Assignor decided to list her interest in the Strata Lot for sale. However, our research indicates that the Assignor listed her interest in the Strata Lot for sale, online, on [mm/dd/yyyy]. […]
12. On [mm/dd/yyyy], with the consent of the Vendor, the Assignor and […](the Assignees) entered into an Assignment of Contract of Purchase and Sale (the Assignment Agreement) with respect to the Strata Lot.
13. According to the Assignment Agreement:
a) the Assignees were required to pay, to the Assignor, an assignment amount of $[…] for the assignment of the Assignor’s rights in the Agreement – $[…] was payable as a deposit and the remaining balance of $[…] was payable on or before the completion date;
b) the assignment amount included an amount to reimburse the Assignor for the deposits of $[…] that were paid under the Agreement; and
c) the Assignor was required to pay, to the Vendor, an assignment fee (that is, the administration fee mentioned in Fact #5 above) of $[…].
14. The Strata Lot was not occupied prior to [mm/dd/yyyy].
15. […][Information from the Assignor’s Statement of Adjustments]
16. You provided […][documentation related] to a Contract of Purchase and Sale that was entered into on [mm/dd/yyyy], between […][X] and […] with respect to […][the Additional Strata Lot] that would be:
a) known as Strata Lot [#] and would have a municipal address of […][Address C];
b) constructed on property [in Province A] legally described as […]
c) completed on [mm/dd/yyyy].
17. With respect to the Contract of Purchase and Sale mentioned in Fact #16 above, you assert that […][the Additional Strata Lot] was a residential condominium unit that was being purchased for the Assignor’s [extended family] who decided to proceed with their plans to move to [Province A]. It is not clear whether […][X] who entered into the Contract of Purchase and Sale [for the Additional Strata Lot] is the Assignor’s husband or a […][member of the Assignor’s extended family].
18. You assert that other than the townhouse […] and the Strata Lot, the Assignor has not purchased real property in Canada, and is not in the business of buying and selling real property. Since [mm/yyyy], the Assignor and her family have resided in the townhouse […].
RULING REQUESTED
You would like a ruling that the Assignor is not a builder under paragraph (d) of the definition of “builder” in subsection 123(1) and that the Assignor’s assignment of her rights in the Agreement is an exempt supply under section 2 of Part I of Schedule V.
RULING GIVEN
Based on the information set out in the statement of facts, we rule that the Assignor is a builder under paragraph (d) of the definition of “builder” in subsection 123(1) and that the Assignor’s assignment of her rights in the Agreement is a taxable supply.
EXPLANATION
The term “builder” is defined in subsection 123(1). Generally, paragraph (d) of the definition provides that a person is a builder of a residential complex where the person acquires an interest in the complex
(i) in the case of a condominium complex or residential condominium unit, at a time when the complex is not registered as a condominium, or
(ii) in any case, before it has been occupied by an individual as a place of residence or lodging,
for the primary purpose of
(iii) making one or more supplies of the complex or parts thereof or interests therein by way of sale, or
making one or more supplies of the complex or parts thereof by way of lease, licence or similar arrangement to persons (other than to individuals who are acquiring the complex or parts otherwise than in the course of a business or an adventure or concern in the nature of trade).
However, a person that meets the conditions in paragraph (d) of the definition of “builder” might nonetheless be excluded from the definition if the person meets the conditions set out in subparagraph (f)(iii). Generally, subparagraph (f)(iii) of the definition provides that a person is not a builder of a residential complex if the person is an individual who acquires the complex or interest in it, otherwise than in the course of a business or an adventure or concern in the nature of trade.
The matter of whether an individual is a builder of a residential complex under paragraph (d) of the definition of “builder” in subsection 123(1) depends, in part, on the primary purpose for which the individual acquires an interest in the complex. The primary purpose for which the individual acquires the interest in the complex is a question of fact that can only be judged by outward indicators (that is, the presence or absence of physical actions and/or evidence).
Generally, if an individual acquires an interest in a residential complex (that is, acquires the interest in the complex before it has been occupied by an individual as a place of residence or lodging) and sells the interest before or while the complex is under construction, then the action of selling the interest is viewed strongly as evidence that the individual acquired the interest in the complex for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade. However, if the individual asserts that they acquired the interest in the complex for the primary purpose of using the residential complex as a place of residence either for themselves or a relation, then outward indicators must support the asserted primary purpose in order for it to be proven true. Practically, this means that the onus is on the individual to prove two things.
First, the individual must prove that the primary purpose for which they assert that they acquired the interest in the residential complex was a firm, fixed and settled intention that was not likely to change. Put differently, the asserted primary purpose of using the complex as a place of residence either for the individual or a relation must have been more than a tentative, provisional or exploratory contemplation and must not have been conditional or dependent on future events occurring.
Second, the individual must prove that, objectively, they had reasonable prospects of bringing the primary purpose for which they assert that they acquired the interest in the residential complex to fruition or fulfillment within a reasonable time. Put differently, the individual must have the means and resources necessary to acquire the complex for use as a place of residence either for themselves or a relation.
Based on the information that you have presented as part of your request for a GST/HST ruling, the Canada Revenue Agency (CRA) is of the view that you have not proved that the primary purpose for which the Assignor asserts that they acquired the interest in the Strata Lot was a firm, fixed and settled intention that was not likely to change. To be clear, the CRA is of the view that your assertion at Fact #4 about the primary purpose for which the Assignor acquired the interest in the Strata Lot is a tentative, provisional or exploratory contemplation that is conditional or dependent on future events occurring. Also, the CRA is of the view that you have not proved that, objectively, the Assignor had the means and resources necessary to acquire the complex for use as a place of residence either for themselves or a relation.
In the absence of any outward indicators to support your assertion at Fact #4, the CRA views the Assignor’s action of selling the interest in the Strata Lot as evidence that the Assignor acquired the interest in the Strata Lot for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade. Consequently, the Assignor is a builder of the Strata Lot under paragraph (d) of the definition of “builder” in subsection 123(1). As no exemption in Schedule V applies to make the Assignor’s sale of the interest in the Strata Lot an exempt supply, the Assignor’s assignment of her rights in the Agreement is a taxable supply for GST/HST purposes.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 506-636-3140. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Nicole Collins
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
Email this Content