CRA considers that there is a strong presumption that any flip of a condo purchase agreement is a taxable supply

A non-resident individual entered into an agreement to purchase a condo to be constructed in Canada for occupancy by the individual’s daughter while the latter attended a post-secondary institution, which had granted a conditional acceptance. However, the exam results of the daughter at the secondary school she was attending did not meet the standards of the post-secondary institution, and it revoked its conditional acceptance. This resulted in the individual assigning her purchase agreement to another purchaser at a gain.

The Directorate ruled that this assignment was a taxable supply for GST/HST purposes on the basis that the individual had acquired her real estate interest “in the course of a business or an adventure or concern in the nature of trade” (under para. (f) of the definition of “builder”).

The Directorate found that in order to satisfy this test, she was required to inter alia “prove” that her stated primary intention of acquiring the condo for use as a residence for her daughter “was a firm, fixed and settled intention that was not likely to change.” Instead, it viewed the stated purpose as “a tentative, provisional or exploratory contemplation that was conditional or dependent on future events occurring (that is, the … daughter being accepted and attending [the post-secondary institution]).” It also applied the following position:

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.

The above comments are at least somewhat at odds with the income tax jurisprudence on what is a real estate adventure in the nature of trade, including the findings under the Racine line of cases that the prospect of resale at a gain if Plan A falls through must be "an operating motivation" in the acquisition in order for the secondary intention doctrine to apply, and did not refer to any of this jurisprudence or even the IT Bulletin on the subject.

Neal Armstrong. Summary of 1 June 2021 GST/HST Ruling 192033r2 under ETA s. 123(1) – builder – (f).