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: 192033r2
Dear [Client]:
Subject: GST/HST RULING
Assignment of an agreement of purchase and sale of a condominium unit
We have reviewed our previous ruling dated [mm/dd/yyyy], issued under case number 192033r, regarding the application of GST/HST to an assignment of a purchase and sale agreement for a condominium unit. The Canada Revenue Agency (CRA) honours the ruling given in case number 192033r and will not revoke or amend that ruling, given that the assignment has already taken place. However, following further review, we would like to clarify that the previous ruling is not applicable to other transactions with similar facts. We are providing the following letter for your information, to reflect the CRA’s position based on the facts presented.
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 previously, related to cases 192033 and 192033r, we understand the following:
1. You are the authorized representative of […](the Assignor).
2. The Assignor is a non-resident of Canada and a non-registrant for GST/HST purposes.
3. The Assignor is not engaged in a business of purchasing and selling real property in Canada.
4. On [mm/dd/yyyy], the Assignor and […](the Vendor) entered into an Agreement of Purchase and Sale ([…][the Agreement]) with respect to a residential condominium unit (the Unit) legally described as: […] with a municipal address of […].
5. According to [the Agreement]:
a) the Assignor was required to pay, to the Vendor, a purchase price in the amount of $[…] for the Unit, plus [GST/HST]; it was the sole responsibility of the Purchaser to apply for any applicable rebates.
b) the Assignor was required to pay, to the Vendor, a first deposit in the amount of $[…] (the Deposit);
c) although [the Agreement] included areas that would normally be used to identify the amount of a second, third and fourth deposit that the Assignor would be required to pay to the Vendor on a predetermined date, the amount of each of these deposits was identified as being $[…] and the information indicating the predetermined dates was struck-through; and
d) the Assignor was required to pay, to the Vendor, the balance of the purchase price (presumably, $[…], but subject to closing adjustments including [GST/HST]) on the Completion Date (anticipated between [mm/dd/yyyy] and [mm/dd/yyyy]).
6. The Assignor entered into a confidentiality agreement, dated [mm/dd/yyyy], under which they agreed to keep information about the sale of the Unit under [the Agreement] in strict confidence, given that the Vendor had entertained the Assignor’s offer to purchase the Unit prior to the date of acceptance of offers, from the public, for units in the development in which the Unit is situated.
7. The Deposit was paid [by the Assignor to the Vendor] on [mm/dd/yyyy]; the same day that [the Agreement] was signed by the Assignor.
8. No information was provided with respect to financing.
9. The Assignor’s stated primary purpose for entering into [the Agreement] with the Vendor was to purchase the Unit for her daughter to live in while she attended […][the post-secondary institution].
10. According to the documentation provided by the Assignor (note: dates were taken from documentation received and not the summary provided on fax cover sheets, as these were often contradictory):
a) Her daughter’s date of birth is [mm/dd/yyyy]; therefore, at the time she entered into [the Agreement] with the Vendor, her daughter was [#] years old;
b) her daughter received conditional acceptance to [the post-secondary institution] in the Spring of [yyyy];
c) her daughter received her […][secondary school examination] results on [mm/dd/yyyy];
d) the results did not meet [the post-secondary institution]’s conditional acceptance requirements, and as a result, [the post-secondary institution] revoked her daughter’s conditional acceptance on [mm/dd/yyyy]. Consequently, the Assignor decided to sell her interest in the Unit.
11. On [mm/dd/yyyy], the Assignor and […](the Assignee) entered into an Assignment of Contract of Purchase and Sale (the Assignment Agreement) with respect to the Unit.
12. According to the Assignment Agreement:
a) the Assignee was required to pay, to the Assignor, an assignment amount of $[…] for the assignment of [the Assignor’s] rights in [the Agreement]. […][An amount of ]$[…] was payable [by the Assignee to the Assignor] as a deposit and the remaining balance of $[…] was payable [to the Assignor] on the Completion Date;
b) the Assignee was required to pay, to the Developer, an assignment fee of $[…] plus [GST/HST];
c) the assignment amount included an amount to reimburse the Assignor for the Deposit of $[…] that was paid upon execution of [the Agreement] thus, the Assignor’s profit before commissions was $[…] (that is, $[…] - $[…] = $[…]);
d) the Assignor was responsible for paying, to the Sub-agent, both the listing and selling agent portions of the commission in respect of the assignment of the Assignor’s rights in [the Agreement], which was a total of $[…] thus, the Assignor’s profit after commissions was $[…] (that is, $[…] - $[…] = $[…]); and
e) the assignment amount (that is, $[…]) was inclusive of any [GST/HST] payable with respect to the assignment of the Assignor’s rights in [the Agreement], and the Assignor must remit any [GST/HST] payable.
13. At the time that the Assignor assigned her rights in [the Agreement] to the Assignee, the Unit had not been registered as a condominium complex, and was not occupied.
RULING REQUESTED
You would like a ruling that the Assignor is not a builder of the Unit 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 of the Unit under paragraph (d) of the definition of “builder” in subsection 123(1) and that the Assignor’s assignment of their rights in the Agreement is a taxable supply.
EXPLANATION
Upon entering into an agreement for the purchase and sale of a new residential condominium unit that has yet to be constructed, the purchaser is considered to have acquired an interest in the residential condominium unit. An assignment of such an agreement of purchase and sale is considered to be a supply by way of sale of the interest in the residential condominium unit. Pursuant to section 2 of Part I of Schedule V, the supply by way of sale of an interest in a residential condominium unit (for example, the assignment of the Agreement with respect to the Unit) is generally an exempt supply for GST/HST purposes where the person selling the interest is not a builder of the residential condominium unit.
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 in the original ruling and the request for reconsideration, the Canada Revenue Agency (CRA) is of the view that you have not proven that the primary purpose for which the Assignor asserts that she acquired the interest in the Unit 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 #9 about the primary purpose for which the Assignor acquired the interest in the Unit was a tentative, provisional or exploratory contemplation that was conditional or dependent on future events occurring (that is, the Assignor’s daughter being accepted and attending [the post-secondary institution]).
In the absence of sufficient outward indicators to support your assertion at Fact #9, and the presence of outward indicators of a tentative contemplation with respect to the purchase at Fact #10, the CRA views the Assignor’s action of assigning her rights in the Agreement as evidence that the Assignor acquired the interest in the Unit 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 Unit 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 Unit an exempt supply, the Assignor’s assignment of her rights in the Agreement is a taxable supply for GST/HST purposes.
For GST/HST purposes, the supplier of a taxable supply is generally required to collect and account for the tax payable by the recipient of the supply. However, paragraph 221(2)(a) provides that a non-resident of Canada who makes a taxable supply of real property by way of sale is not required to collect the tax payable by the recipient. Instead, paragraph 228(4)(b) requires the recipient to remit the tax payable directly to the Receiver General.
The Assignor’s assignment of their rights in the Agreement is a taxable supply of real property by way of sale. The tax payable by the Assignee on the assignment is calculated on the total consideration (that is, the assignment amount) payable for the real property.
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. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
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
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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