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.
TO:
XXXXX
XXXXX
XXXXX
XXXXX
FROM:
Marcel Boivin
Manager
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
CASE NUMBER:
109904
DATE:
November 17, 2008
SUBJECT:
_GST/HST Interpretation
Assignment of Rights under a Purchase and Sale Agreement
The following is in response to your XXXXX to XXXXX, regarding the application of the GST/HST to an amount paid to acquire the rights under a purchase and sale agreement.
Legislative background
Pursuant to section 165 of the Excise Tax Act (the "ETA"), every recipient of a taxable (other than a zero-rated) supply is liable to pay GST/HST calculated on the value of the consideration for the supply.
"Consideration", as defined in subsection 123(1) of the ETA, includes any amount that is payable by operation of law. "Amount" is also defined in subsection 123(1) to mean money, property or a service, expressed in terms of the amount of money or the value in terms of money of the property or service. Under paragraph 153(1)(a) of the ETA, where the consideration or that part is expressed in money, the value of the consideration is the amount of money.
With respect to deposits, subsection 168(9) of the ETA stipulates that GST/HST will only become payable at the time a supplier applies the deposit as consideration for the supply in respect of which the deposit was made. Since tax is calculated on the value of the consideration, subsection 168(9), where applicable, will affect the timing of when tax is both payable and collectible. However, there is no definition of the term "deposit" in the ETA. It is the CRA's position that a deposit is an amount given by a recipient as security for the performance of an obligation by the recipient. The fact that a particular payment is called a deposit does not necessarily mean that it would be regarded as a deposit. It is a question of fact and substance whether an amount is a deposit.
Assignment of rights under a purchase and sale agreement
Where a person (referred to as the "original purchaser") enters into an agreement to assign their rights under a purchase and sale agreement for a residential complex, the value of the consideration for that supply (i.e., the interest in the residential complex) is the total of the amounts payable by the recipient under the assignment agreement to acquire those rights. This would include any portion of the consideration payable that is intended to cover the original purchaser's outlays or expenses, such as any deposit paid by the original purchaser to the builder. A portion of the amount paid by the second purchaser to the original purchaser is not considered to be a "deposit" in its own right. In addition, the deposit paid by the original purchaser is not considered to be an amount paid by the original purchaser as agent of the second purchaser and as such, the payment by the second purchaser is not a reimbursement.
If the supply made by the original purchaser of the interest in the residential complex is a taxable supply (i.e., the original purchaser meets the definition of "builder" under subsection 123(1) of the ETA), the original purchaser is required to collect tax on the total amount payable by the second purchaser to the original purchaser in respect of the assignment agreement, including any amount charged to recover the deposit, even where the amount is separately identified.
XXXXX.
Should you require additional information, please do not hesitate to contact me at 613-954-3772 XXXXX.
UNCLASSIFIED
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