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: 162951
Dear [Client]:
Subject: GST/HST RULING
Tax status of supplies of real property in […][Province A]
Thank you for your fax of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of real property. I apologize for the delay in responding.
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 information you provided in your letter, telephone conversations, the Application for Incorporation, and the Agreement of Purchase and Sale, we understanding following:
1. Your clients are […](the Union) and […](the Corporation).
2. The Trade Union established the Corporation for the purpose of purchasing a parcel of land upon which to construct a building (“Building” hereafter).
3. The [#] members of the Union are the owners of the Corporation.
4. The Corporation is registered as a non-profit organization (NPO). You have indicated that the Corporation is an NPO established primarily for the benefit of organized labour.
5. According to the Letters Patent and the Application for Incorporation of the Corporation Without Share Capital (“Articles” hereafter), the Corporation was incorporated on [mm/dd/yyyy] as a corporation without share capital and the objects for which the Corporation was incorporated are as follows:
a. To promote and foster the interest and well-being of members of [the Union];
b. To provide an organization for the gathering and disseminating of information and services related to employment, benefits and welfare of the members of [the Union]; and
c. To engage in such other complimentary purposes not inconsistent with the objects noted above.
6. The Corporation was registered for GST/HST purposes on [mm/dd/yyyy].
7. According to the Agreement of Purchase and Sale (“Agreement” hereafter) dated [mm/dd/yyyy]:
a. [The Union] agreed to purchase a vacant parcel of land (“Land” hereafter);
b. the address of the Land is […] and is legally described as: […];
c. the closing date of the Agreement is [mm/dd/yyy];
d. HST was not paid on the purchase of the Land.
8. You have indicated that the name on the purchase agreement was incomplete and that the Corporation purchased the Land.
9. The Corporation intends to construct and own a Building on the Land in [Province A] to house the administrative offices of the Union and […][for use by members of the Union].
10. The Corporation will retain the titles to both the Land and the Building.
11. The Union will be the sole tenant of the Building and will pay monthly rent at fair market value (FMV) to the Corporation for the use of the Building.
12. The Corporation will use the rental income to pay its expenses such as property taxes, mortgage payments, repairs and maintenance and utilities.
RULING REQUESTED
You would like to know:
1. Is the ongoing supply of office space made by the Corporation to the Union subject to the HST?
2. Can input tax credits (ITCs) in regards to the construction of the Building be claimed?
3. Does a self-assessment need to be completed when the construction of the Building is substantially completed?
4. Was it appropriate to purchase the Land without paying the HST and does a self-assessment need to be completed on the purchase of the Land?
RULING GIVEN
Based on the facts set out above, we rule that:
1. The ongoing supply of office space made by the Corporation to the Union is an exempt supply in accordance with section 26 of Part VI of Schedule V. Therefore, the supply is not subject to the HST.
2. The Corporation is not eligible to claim ITCs for tax payable on the construction of the building pursuant to subsection 209(1) in conjunction with subsection 199(2) and 199(4).
3. The Corporation is not required to self-assess the HST on the Building once it is substantially completed.
4. The land was purchased for use otherwise than primarily in commercial activities, therefore, paragraph 228(4)(b) requires the Corporation to self-assess the tax applicable on the acquisition of the land.
EXPLANATION
1. Is the ongoing supply of office space made by the Corporation to the Union subject to the HST?
Generally, supplies of real property are taxable pursuant to section 165 unless specifically exempted.
Part I of Schedule V provides exempting provisions related to real property. However, there are other relevant sections such as section 25 of Part VI of Schedule V, which applies to NPOs, and section 26 of Part VI of Schedule V, which applies to NPOs established primarily for the benefit of organized labour, provide exempting provisions for supplies of real property.
You have indicated that the Corporation is an NPO established primarily for the benefit of organized labour and the Union is a trade union. As such, section 26 of Part VI of Schedule V is applicable. This section exempts supplies made by an NPO established primarily for the benefit of organized labour to a trade union. Therefore, the ongoing supply of office space by the Corporation to the Union is an exempt supply pursuant to section 26 of Part VI of Schedule V.
2. Can ITCs in regards to the construction of the Building be claimed?
Generally, pursuant to subsection 169(1), a person who is registered for GST/HST purposes may claim an ITC for the GST/HST paid or payable on purchases of property to the extent that the property is to be used in the course of commercial activities of the person. Please note that the definition of commercial activity under subsection 123(1) excludes the making of exempt supplies. With respect to the construction of the Building by an NPO, subsection 209(1), in conjunction with subsections 199(2) and 199(4), provides that where an NPO purchases real property, or makes improvements to real property, for use primarily in exempt activities, the NPO is not eligible to claim ITCs for the tax payable on the purchase of, or improvements made to, the real property.
As we have determined above, the ongoing supply of office space made by the Corporation to the Union is an exempt supply under section 26 of Part VI of Schedule V. The Corporation will use the Building primarily in making exempt supplies. Consequently, the Corporation is not entitled to claim ITCs on the tax paid on the purchase of the Land or tax payable on the construction of the Building.
We refer you to GST/HST Memorandum 8.1, General Eligibility Rules for further information on claiming an ITC and GST/HST Memorandum 8.3, Calculating Input Tax Credits.
3. Does a self-assessment need to be completed when the construction of the Building is substantially completed?
As stated in the facts above, the Corporation plans to construct the building and supply office space by way of lease to the Union. The Building will not be used for residential purposes. The real property self-supply provisions in section 191 are only applicable in cases where the real property is used for residential purposes. Therefore, the Corporation is not required to complete a self-assessment of the building when the building is substantially completed.
4. Was it appropriate to purchase the Land without paying the HST and does a self-assessment need to be completed on the purchase of the Land?
Supplies of real property made in Canada are generally taxable under section 165, unless specifically exempted. Generally, the exempting provisions relating to supplies of real property are found in Part I of Schedule V. Assuming the supply of the Land by way of sale to the Corporation (the recipient) was a taxable supply, GST/HST must be collected pursuant to subsection 221(1).
More specifically, paragraph 221(2)(b) relieves a supplier who makes a taxable sale of real property from collecting the tax payable by the recipient of the supply in situations where the recipient is registered for GST/HST purposes.
Therefore, if the Corporation is the recipient of the supply of the Land and is registered for GST/HST purposes at the time the supply was made, then the supplier of the Land is relieved from collecting the HST and HST is not charged on the sale of the Land.
Please note that subsection 123(1) defines recipient of a supply of property or a service to mean
(a) Where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,
(b) Where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration, and
(c) Where no consideration is payable for the supply,
(i) In the case of a supply of property by sale, the person to whom the property is delivered or made available,
(ii) In the case of a supply of property otherwise than by way of sale, the person to whom possession or use of the property is given or made available, and
(iii) In the case of a supply of a service, the person to whom the service is rendered,
And any reference to a person to whom a supply is made shall be read as a reference to the recipient of the supply
That being said, where subsection 221(2)(b) applies, the recipient of the supply of real property is required to self-assess the tax payable under subsection 228(4), which states
(4) Where tax under Division II is payable by a person in respect of a supply of real property and the supplier is not required to collect the tax and is not deemed to have collected the tax,
(a) where the person is a registrant and acquired the property for use or supply primarily in the course of commercial activities of the person, the person shall, on or before the day on or before which the person's return for the reporting period in which the tax became payable is required to be filed, pay the tax to the Receiver General and report the tax in that return; and
(b) in any other case, the person shall, on or before the last day of the month following the calendar month in which the tax became payable, pay the tax to the Receiver General and file with the Minister in prescribed manner a return in respect of the tax in prescribed form containing prescribed information.
You indicated […] on [mm/dd/yyyy] and [mm/dd/yyyy] that the Corporation was the recipient of the land. It was purchased for use otherwise than primarily in commercial activities (e.g., uses the property 50% or more in making exempt supplies such as the supply of office space made by the Corporation to the Union described above), paragraph 228(4)(b) requires the Corporation, which is registered, to self-assess the tax applicable to the acquisition of the land by filing return GST60, GST/HST Return for Acquisition of Real Property. This form is required to be filed, along with the relevant payment, by the end of the month following the calendar month in which the purchase of the real property took place.
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 2 Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate