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
XXXXX
Case Number: 95954
NCS Code: 11950-1
XXXXX
July 14, 2008
Subject:
GST/HST RULING
Sale of Vacant Land
XXXXX
Thank you for your letter XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of a XXXXX-acre parcel of vacant land.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
The following facts are based on the information provided in your letter XXXXX and facsimile transmissions XXXXX.
We understand the facts as follows:
1. XXXXX (the "Vendor") sold a XXXXX-acre parcel of vacant land ("the Land"), XXXXX to the Purchasers, XXXXX, in XXXXX, for the purchase price of $XXXXX.
2. The Purchasers acquired the Land for purposes of constructing a new home for their personal use and enjoyment. About half of the Land is wetlands and the remainder is woods.
3. The Land was severed by the Vendor from the original XXXXX-acre parcel of land (the "Original Parcel") which the vendor purchased XXXXX in XXXXX for $XXXXX.
4. The Original Parcel contained a farmhouse, which the Vendor rented out to XXXXX, the Purchaser, for use as a place of residence, while the Purchaser's new home was being constructed.
5. The Vendor leased the farmhouse for $XXXXX per month, to cover the mortgage payment and heating costs, which were paid by the Vendor.
6. The Vendor leased approximately XXXXX acres of Original Parcel to her brother for an amount approximately equal to the property taxes on the property.
7. Following the severance, of the remaining XXXXX acres, XXXXX acres are forest and XXXXX acres continue to be supplied by way of lease by the Vendor to XXXXX for consideration just to cover property taxes.
8. The Vendor is in the process of severing off a second lot of approximately XXXXX acres, on which the Vendor intends to construct a house for personal use.
9. The Vendor is not a GST/HST registrant and is not in the business of farming. Other than the activities referred to above, the Vendor has not undertaken any other activities with respect to the land. The Vendor is not engaged in any business in respect of real property.
Ruling Requested
You would like to know whether the sale by the Vendor of the XXXXX-acre parcel of vacant land severed by the Vendor from the original XXXXX-acre parcel is subject to the GST/HST.
Ruling Given
Based on the facts set out above, we rule that the supply by way of sale of the Land by the Vendor is not subject to GST/HST.
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
Supplies of real property made in Canada are generally taxable under section 165 of the ETA unless specifically exempted. Under subsection 9(2) of Part I of Schedule V to the ETA, a supply of real property made by way of sale by an individual or a personal trust is exempt from the GST/HST subject to the list of exclusions thereunder.
In particular, subparagraph 9(2)(a)(i) of Part I of Schedule V to the ETA excludes from the general exemption under subsection 9(2), the sale of real property made by an individual or personal trust where immediately before the property is transferred, the property is capital property used primarily (more than 50%) in a business carried on by the individual or personal trust with a reasonable expectation of profit.
Under subsection 123(1), "business" is defined in part to include any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement." As such, for GST/HST purposes, the supply by way of lease of the XXXXX acres is considered to be a business carried on by the Vendor.
The determination of whether or not land that is capital real property of an individual is used primarily in a business, rather than primarily in non-business uses immediately prior to its sale is generally not based upon a single factor, but rather upon weighing all of the factors in a particular case. Some factors may be more significant than others in making such a determination. Appendix A of GST/HST Memoranda Series 19.5, Land and Associated Real Property, provides guidelines for determining if capital real property is used primarily in a business. In view of the facts in this case, we consider the Vendor to be using the capital real property in question primarily in a business immediately prior to the sale of the Land to the Purchasers.
The supply by way of sale of capital real property by an individual or personal trust that is used immediately prior to the time ownership or possession of the property is transferred to the purchaser primarily in a business carried on by the vendor with a reasonable expectation of profit is a taxable supply by virtue of the exclusion under subparagraph 9(2)(a)(i). Appendix B of GST/HST Memoranda Series 19.5, Land and Associated Real Property, provides guidelines for determining whether or not an activity engaged in by an individual has a reasonable expectation of profit.
Based on the facts in this case, while we consider the Vendor to be using the capital real property in question primarily in the business of leasing the real property, we do not consider that the Vendor had a reasonable expectation of profit from leasing the property. The supply of real property by way of lease, licence or similar arrangement for consideration equal to the maintenance costs of the property would generally not be viewed as an activity undertaken by an individual with a reasonable expectation of profit.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9212.
Yours truly,
Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST rulings Directorate
UNCLASSIFIED
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