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: 211272
Dear [Client]:
Subject: GST/HST RULING
Assignment of a right to purchase a residential condominium unit
Thank you for your fax of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the assignment of a right to purchase a residential condominium unit. We apologize for the delay in the response.
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
We understand the following from the documents you provided:
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 (APS) with respect to a residential condominium unit legally described as: […](the Unit).
5. According to the APS:
a) the Assignor was required to pay, to the Vendor, a purchase price in the amount of $[…] for the Unit; […][GST/HST] was not included in the price.
b) the Assignor was required to pay, to the Vendor, a total deposit amount of $[…] in four installments:
(i) Initial: $[…] (that is, [#]% of the purchase price) due at the time the APS is accepted by the Vendor;
(ii) Second: $[…] (that is, [#]% of the purchase price) due on the later of [mm/dd/yyyy] and the [#] business day after the delivery of a document entitled Amendment to the Purchaser;
(iii) Third: $[…] (that is, [#]% of the purchase price) due on [mm/dd/yyyy]; and
(iv) Fourth: $[…] (that is, [#]% of the purchase price) due on [mm/dd/yyyy].
c) the Assignor was required to pay, to the Vendor, the balance of the purchase price (presumably, $[…], subject to closing adjustments including [GST/HST]) on the closing date.
6. The total deposit amount (that is, $[…]) was paid by the Assignor.
7. No information was provided with respect to financing.
8. The Assignor’s stated primary purpose for entering into the APS with the Vendor was to purchase the Unit to live in with his son while his son attended school in Canada.
9. The Assignor states that the plans changed and his son decided to study in […][another country] instead. Therefore, the Unit was no longer required.
10. On [mm/dd/yyyy], the Assignor entered into […](the Assignment Agreement) with […](the Assignees) with respect to the Unit.
11. […] (Footnote 1), […][a strong regional real estate market was reported by […] during the month that the sale took place].
12. According to the Assignment Agreement, the Assignor’s Statement of adjustments and the Assignor’s signed direction to […](the Assignor’s legal representative) entitled “Order to pay”:
a) the Assignee was required to pay, to the Assignor, an assignment amount of $[…] for the assignment of his rights in the APS. $[…] was payable as a deposit and the remaining balance of $[…] was payable to the assignee’s solicitor within [#] business days of receiving the fully executed assignment contract signed by the Vendor, and to the assignor’s solicitor within [#] business days of receiving the fully executed assignment contract signed by the Vendor;
b) the assignment amount included an amount to reimburse the Assignor for the Deposit of $[…] that was paid according to the APS, thus the Assignor’s profit before assignment fees and commissions was $[…];
c) the Assignor was required to pay, to the Vendor, an assignment and filing fee totalling $[…];
d) the Assignor was responsible for paying real estate commission to both the listing and selling agents in respect of the assignment of the Assignor’s rights in the APS, which was a total of $[…];
e) the Assignor’s accountancy fees, $[…], and legal fees and related disbursements, estimated to be $[…], totalled $[…];
f) the Assignor’s loss after fees and commissions was $[…]; and
g) the assignment amount (that is, $[…]) was inclusive of any [GST/HST] payable with respect to the assignment of the Assignor’s rights in the APS, and the Assignor must remit any [GST/HST] payable.
13. In a signed document […], the Assignor and Assignees agree and acknowledge that the Assignees are third parties to the Assignor.
14. At the time that the Assignor assigned their rights in the APS to the Assignees, 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 his rights pursuant to 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 not a builder of the Unit under paragraph (d) of the definition of “builder” in subsection 123(1) and that the assignment of rights under the Agreement by the Assignor is an exempt 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.
By definition, the Assignor did not sell their interest in the course of a business as they are not engaged in buying and selling real property on a regular or continuous basis. They are also not considered to have sold their interest in the course of an adventure or concern in the nature of trade as this would have required a profit-making scheme. As summarized in Fact #12, the interest in the Unit was sold at a loss when closing costs were factored into the sales figures. As stated in Fact #11, the Unit’s geographical location placed it in a strong housing market where the Assignor could likely have sold it at a higher price. The choice to sell at a loss shows the Assignor’s motivation to sell was not for profit. Therefore, the Assignor sold their interest in the Unit otherwise than in the course of a business or an adventure or concern in the nature of trade. Consequently, the Assignor is not a builder of the Unit under paragraph (d) of the definition of “builder” in subsection 123(1). The exemption in Section 2 of Part I of Schedule V applies to make the Assignor’s sale of the interest in the Unit an exempt supply, therefore GST/HST does not apply to the sale.
Recovering the [GST/HST] paid in error
Where the Assignor has paid the [GST/HST] in error on the exempt sale, they may be entitled to make an application under subsection 261(1) for a rebate of the tax paid in error by completing and submitting application form GST189, General Application for GST/HST Rebates. It should be noted that a rebate application made under section 261 cannot include amounts that were paid in error more than two years before the application is filed.
For further information on claiming a rebate of tax paid in error, including the documentation required to be included with your claim, please refer to Guide RC4033, General Application for GST/HST Rebates.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the 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. 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 2
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
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