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: 193347r
Dear [Client]:
Subject: GST/HST RULING
Assignment of an agreement of purchase and sale of a condominium
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 193347 on September 26, 2018. We apologize for the delay in 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, the additional information you provided with your request for reconsideration, and additional information provided by your clients, our understanding of the facts is as follows:
1. You are the authorized representative of […](Assignor 1) and […](Assignor 2, collectively the Assignors).
2. You assert that in [yyyy], the Assignors were looking to downsize from their […] house, located [in Province A] at […][Address A].
3. The Assignors assert that they had been actively trying to start a family since [yyyy], which included increasingly aggressive fertility treatments beginning in [mm/yyyy]. A receipt was provided for the start of treatments at […][the fertility clinic] in […][Province A].
4. After a series of unsuccessful fertility treatments, the Assignors assert that the fertility doctor concluded in that given their ages (both over [#]) and the unsuccessful attempts at conceiving through fertility treatments, future treatments would not be successful.
5. The Assignors assert that they began to plan for a future without children, where early retirement would be possible. The plan included selling their current home and downsizing to a smaller house or condominium unit. Their current home was purchased for $[…] and the market value had increased to approximately $[…] in [yyyy/yyyy].
6. The Assignors assert that they had been helping Assignor 1’s […][Family Member 1] in the search for a condominium unit during this time and a condominium development known as […][Development X] appealed to them.
7. On [mm/dd/yyyy], the Assignors and […](the Vendor) entered into an Offer to Purchase and Agreement of Purchase and Sale (the Agreement) with respect to a proposed strata lot, a residential condominium unit, to be constructed at [Development X]. The proposed strata lot would be known as […](the Strata Lot) and would have a municipal address of […][Address B]. The Strata Lot would be constructed on the portion of land legally described as […].
8. Assignor 1’s [Family Member 1] also purchased a unit in the same building and still occupies the unit currently.
9. In addition to having a family member live in the same building, the Assignors liked the […][unique characteristics of the Strata Lot] and its proximity to […][public transportation]. Assignor 2’s […][Family Member 2], having health problems, could potentially have had to live with them in the future, and the […] unit would meet their needs.
10. According to the Agreement:
a) the Assignors were required to pay, to the Vendor, a purchase price in the amount of $[…], […][plus GST/HST], for the Strata Lot;
b) the Assignors were required to pay, to the Vendor:
i. an initial deposit in the amount of $[…], at the time the offer is made;
ii. a second deposit of $[…] (5% of purchase price less the initial deposit), seven days after the Vendor’s acceptance of the Purchaser’s offer; and
iii. a third deposit requirement was struck out of the Agreement;
c) the Assignors were required to pay, to the Vendor, the balance of the purchase price (presumably $[…], […][plus GST/HST]) on the completion date;
d) the estimated completion date of the Strata Lot was [mm/dd/yyyy] and no later than [mm/dd/yyyy] (that is, the outside completion date); the Vendor may elect to extend the outside completion date for up to [#] days; and
e) the Assignors could not assign their rights and obligations under the Agreement without the prior written consent of the Vendor. No assignments were permitted within [#] days of the completion date. Generally, the Vendor charges an administration fee equal to [#]% of the purchaser price for an assignment.
11. The Strata Lot is a […] residential condominium unit, which includes the right to use one parking stall and one residential storage locker. The Assignors purchased a second parking stall at a cost of $[…] plus applicable taxes.
12. In [mm/yyyy], the Assignors assert that they were presented with an alternative fertility treatment with a success rate […]. They decided to undergo the treatment […].
13. On [mm/dd/yyyy], the Assignors became parents to […][multiple children]and decided that the Strata Lot would be too small for their family and preferred staying in their [significantly larger] current home. Their plans for an early retirement were no longer possible with [#] children and the costs associated.
14. The Assignors assert that after receiving confirmation of the completion date, they listed their interest in the Strata Lot for sale.
15. You have not provided any information pertaining to any financing or mortgage obtained by the Assignors for their purchase of the Strata Lot.
16. On [mm/dd/yyyy], with the consent of the Vendor, the Assignors and […](the Assignees) entered into an Assignment of Contract of Purchase and Sale (the Assignment Agreement) with respect to the Strata Lot.
17. 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 within […][#] hours of final subject removal and the remaining balance of $[…] was payable when the property is transferred by way of land title registry;
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 $[…] plus applicable taxes.
RULING REQUESTED
You would like a ruling that the Assignors are not builders under paragraph (d) of the definition of “builder” in subsection 123(1) and that the Assignors’ assignment of their 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 Assignors are not builders under paragraph (d) of the definition of “builder” in subsection 123(1) and that the Assignors’ assignment of their rights in the Agreement is an exempt supply under Section 2 of Part I of Schedule V.
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 (for example, a residential condominium unit) 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
(iv) 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 proved that the primary purpose stated in Fact #5 for which the Assignors assert that they acquired the interest in the Strata Lot was a firm, fixed and settled intention that was not likely to change.
The CRA views the birth of the Assignors’ […][multiple children] as an unforeseen event, given the highly unlikelihood of it occurring given their ages, past fertility treatment results as well as the fertility doctor’s views in [yyyy] that future fertility treatments would be unsuccessful.
Consequently, the Assignors are not builders of the Strata Lot under paragraph (d) of the definition of “builder” in subsection 123(1). The exemption in Section 2 of Part I of Schedule V applies to make the Assignors’ sale of the interest in the Strata Lot an exempt supply, therefore GST/HST does not apply to the sale.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (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 506-349-7596. 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 2
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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