Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
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Case Number: 101464
Business Number: XXXXX
Attention: XXXXX
September 5, 2008
Subject:
GST/HST RULING
Review of Case Number XXXXX - Supply of real property
Dear XXXXX
Thank you for your facsimile of XXXXX, requesting that we reconsider our ruling (Case Number XXXXX) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a sale of real property by the City of XXXXX (the City). This prior ruling was issued by the XXXXX.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
On XXXXX, the City entered into a XXXXX year lease agreement (the Lease Agreement) with the XXXXX (the Association) for the supply by way of lease of real property owned by the City.
The legal description for the real property supplied under the Lease Agreement is: XXXXX (the Property). The Property, which includes a building, has the street address of XXXXX.
Article X of the Lease Agreement provides for an option to purchase the Property (the Option).
Under section 10.01 of the Lease Agreement, in consideration for the sum of $XXXXX and other good and valuable consideration paid by the Association to the City, the City granted the
Association the Option to purchase the Property under the following terms:
• the Association could exercise the Option at any time during the XXXXX-year term, and
• the Association had to provide written notice to the City of its intention to exercise the Option.
At any time during the term of the lease, the Association could pay any sums of money it so determined to the City on account of the "Purchase Price" of the Property, provided such sums were at least $XXXXX for each payment. These payments could be made even if the Association did not give notice in the foregoing manner of its intention to accept the Option. All such payments would be received and credited by the City on account of the Purchase Price of the Property. The Purchase Price means the price payable by the Association to purchase the Property as determined by section 10.02 of the Lease Agreement. Should the Option lapse or expire, the City was required to repay these amounts to the Association in full without interest or deduction unless the amount paid by the Association was given to the Association as a capital grant as described in section 10.02 of the Lease Agreement.
Section 10.03 of the Lease Agreement provides that if the Option is exercised, there is a binding agreement for the City to sell and the Association to purchase the Property at the Purchase Price. The purchase and sale of the Property shall close on the 30th day following acceptance of the Option.
On XXXXX, the Lease Agreement was amended, however, for purposes of the Option, the Lease Agreement was unchanged.
On XXXXX, the Association provided written notification that it was exercising the Option.
Ruling Requested
You would like confirmation of your view that the sale of the Property is exempt under section 25 of Part VI of Schedule V XXXXX as the sale was made under a written agreement entered into before March 10, 2004.
Ruling Given
Based on the facts set out above, we confirm our previous ruling that the City's supply by way of sale of the Property to the Association was a taxable supply and was subject to the GST at the rate of 6%, pursuant to subsection 165(1).
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The coming into force provisions for the relevant legislative changes to section 25 of Part VI of Schedule V XXXXX provide, relative to this case, that the amendments to section 25 apply to any supply for which consideration becomes due after March 9, 2004, or is paid after that date without becoming due, but do not apply to a sale made under an agreement entered into before March 10, 2004.
When examining the facts, it is important to distinguish between the entering into a lease agreement that includes a right to purchase (i.e., the Option) and the actual execution of a purchase and sale agreement for the Property.
Pursuant to subsection 123(1), a sale of property includes "any transfer of the property and a transfer of possession of the property under an agreement to transfer ownership of the property". For GST/HST purposes, a transfer of real property generally refers to the legal ownership (that is "titled" ownership) of the real property.
As explained in policy statement P-164, Rent-To-Own Agreements, an agreement to transfer ownership of property may arise only where there is a binding purchase and sale agreement with the transfer of the ownership at or before the end of a specified period. A lease agreement with an option to purchase property is not a binding purchase and sale agreement.
There was no agreement to transfer ownership of the Property, and therefore no purchase and sale agreement for the Property, until XXXXX, when the Association exercised the Option to purchase the Property. Before XXXXX, the Association enjoyed only an option to purchase the Property and there was no agreement to purchase the property until the Association exercised the Option.
Accordingly, the sale of the Property was not made under an agreement in writing entered into before March 10, 2004. As such, section 25 of Part VI of Schedule V XXXXX does not exempt the sale of the Property and the sale was subject to tax.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9248.
Yours truly,
Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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