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.
Date:
November 12, 2010
To:
[Client]
From:
Lisa Papineau
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
RITS/No:
108293
Subject:
GST/HST new housing rebate availability for the purchase of a modular home
This memorandum is in response to our telephone conversation and your facsimile transmission of September 17, 2008, regarding the availability of a GST/HST new housing rebate (NHR) to [...] (herein referred to as the Claimants) relating to their purchase of housing located on land they acquired by way of lease. We apologize for the delay in our response.
All legislative references are to the Excise Tax Act (ETA), unless otherwise indicated.
The following documents were provided to us for our consideration:
Agreement of Purchase and Sale, dated [mm/dd/yyyy], for the sale by [...] (herein referred to as the Vendor), a GST/HST registrant [...], to the Claimants of one new [...] 2 bedroom, 2 bathroom, 1174 square foot house with a garage; and
Tenancy Agreement (herein referred to as the Agreement), dated [mm/dd/yyyy], for the supply by [...], identified in the Agreement as the landlord (herein referred to as the Landlord), to the Claimants, identified as the tenants, of land described as parcel [...] (herein referred to as the Lot) located at [...], Ontario, in the community of [...]. The Agreement uses the term "rental unit" to refer to the Lot.
Statement of Facts
1. The agreement of purchase and sale indicates that the total purchase price of the house is $[...], which is stated to include $[...] in GST. There is no indication in the agreement of purchase and sale that any amount was paid or credited to the Claimants in respect of an NHR for any tax they paid on their purchase of the new house. Given that we have not been provided with any information to the contrary, our response is based on the assumption that an NHR was not paid or credited to the Claimants.
2. In accordance with the Landlord's Web site, [...] is a manufactured home community in Ontario consisting of a mix of [...] homes.
3. The Claimants have indicated to you that the new house is installed on a foundation, but does not have a full basement.
4. We make specific note of the following content of the Agreement:
a) Section [...] provides that the Landlord leases the Lot to the Claimants, subject to the terms of the Agreement. There is no indication that the lease of the Lot includes anything other than the land.
b) Under section [...], the Claimants agree to use and occupy the Lot as a site for one mobile home or land lease home for residential use only.
c) Section [...] sets out the term of the agreement as one year, beginning on [mm/dd/yyyy], and ending on [mm/dd/yyyy].
d) Section [...] stipulates that the Claimants agree to pay the Landlord monthly rent in the amount of $[...] for the rental of the Lot.
e) Section [...] stipulates that the Claimants must reimburse the Landlord for property taxes levied with respect to the Lot and that the Claimants must pay any additional taxes, user fees or any other charge levied in respect of the Claimants' house or the Lot, including any buildings, structures or any improvements which may be made to the house or Lot.
f) Section [...] stipulates that the Claimants are responsible for lawn maintenance, landscaping, and any tree trimming or removal with respect to the Lot. However, it further stipulates that the Claimants may not change the landscaping of the Lot without the written consent from the Landlord.
g) In accordance with section [...], the Claimants must:
(i) apply for all utilities and pay for all utility charges in connection with the Lot or any building or structure located on the Lot;
(ii) keep the house and all buildings and structures on the Lot in an ordinary state of cleanliness and a good state of repair, fit for habitation;
(iii) provide the Landlord with the right to enter upon the Lot and to enter any and all buildings and structures located on the Lot to inspect the state of repair and to make any necessary repairs or alterations. Further, the Claimants must agree to reimburse the Landlord for any expenses reasonably incurred by the Landlord in making any such repairs or alterations;
(iv) not permit the house located on the Lot to be occupied by any person other than the Claimants, an occupant listed under the Agreement, or casual visitors;
(v) acknowledge that if, during the term, the house is damaged or destroyed by fire or the elements, rent shall not abate and the Claimants must, within [...] days from the day the house was damaged or destroyed, either repair the damage or replace the house. Further, if the damage or destruction is not repaired or the house replaced within the [...] day period, the Lot will be deemed to be abandoned and the Landlord may terminate the Agreement and may sell, retain for the Landlord's own use, or dispose of the house after [...] days following the termination of the Agreement;
(vi) not locate any house on the Lot except in accordance with the approval of the Landlord and in such manner and place as the Landlord may designate;
(vii) covenant that the entry, installation, exit or removal of the house from the Lot will only take place at such time and in such manner as previously agreed to by the Landlord and the Claimants must reimburse the Landlord for the Landlord's reasonable out of pocket expenses incurred with respect to the entry, installation, exit or removal of the house from the Lot; and
(viii) obtain and maintain, at their full expense, adequate fire and property damage and public liability insurance.
h) Under section [...], the Landlord agrees, in part, to permit the Claimants quiet enjoyment and possession of the premises for all usual purposes of a residential tenant and to maintain and repair, in a manner as required by law, the common areas and facilities that are for the general use of the Claimants and the community.
i) Under section [...], the Claimants agree to leave the Lot in a clean and tidy state upon termination, abandonment or cancellation of the Agreement and that if they are in default of this provision, the Landlord will have the right to remedy the default and to recover the related costs from the Claimants.
j) Under section [...], the Claimants acknowledge that they are prohibited from selling the house without first offering to sell it to the Landlord and that every agreement of purchase and sale for the house entered into between the Claimants and a prospective purchaser must contain clauses which stipulate that completion of the agreement is conditional upon the satisfaction of all of the requirements listed in section [...]. One of the requirements is that the prospective purchaser enters into a tenancy agreement with the Landlord and agrees to pay the rent for the Lot.
k) Under sections [...], the Claimants covenant not to assign or sublet the Lot without first requesting in writing, and receiving, written approval from the Landlord.
l) Section [...] provides that if the rent is unpaid after the due date and the Lot or any house on the Lot appears to be vacated or abandoned, the Landlord may enter the house to ensure the safety of the premises and to ensure the house and its contents are reasonably secure. It also provides that, in accordance with the [...], the Landlord may also sell, retain for its own use, or dispose of the house.
m) Section [...] provides that upon termination of the tenancy, the Claimants must give vacant possession of the Lot to the Landlord or must ensure that a prospective purchaser of the house has been approved by the Landlord as a lessee of the Lot.
ISSUE
The Claimants have submitted Form GST191, GST/HST New Housing Rebate Application for OwnerBuilt Houses, claiming a rebate under section 256 for their purchase of a new house located on land the Claimants acquired by way of lease. You would like to know the following:
1. Are the Claimants entitled to claim an NHR under section 254.1?
2. Are the Claimants entitled to claim an NHR under section 256?
RESPONSE
1. The Claimants are not entitled to claim an NHR under ETA 256.2.
2. The Claimants may be entitled to claim a rebate under section 256 in respect of the GST paid for the purchase of the new house from the Vendor if all of the conditions for claiming an NHR under that section are met. In any event, a rebate is likely not available in respect of the Claimants' acquisition of the Lot as the Landlord's supply of the Lot by way of lease may be an exempt supply under section 7 of Part I of Schedule V to the ETA. The supply may be exempt under paragraph 7(b) of Part I of Schedule V to the ETA if the Lot is situated in a residential trailer park and the house is considered to be a mobile home, otherwise the supply may be exempt under paragraph 7(a) of that Part.
ANALYSIS
Issue 1 - Are the Claimants entitled to claim an NHR under section 254.1 for the purchase of a new house and the acquisition of the land by way of lease?
Section 254.1 sets out conditions that must be met for a rebate to be available under that section. If any one of those conditions is not met, a rebate under section 254.1 is not available.
Paragraph 254.1(2)(a) sets out the first of these conditions, providing that for a rebate to be available under section 254.1 in respect of a single unit residential complex (SURC), a builder of the SURC must make the following supplies to an individual under a single agreement:
i) one or more exempt supplies under a longterm lease of the land attributable to the SURC; and
ii) an exempt supply by way of sale of the building part of that SURC that includes the residential unit that forms part of the SURC.
As the supply made by way of sale of the house was made under an agreement between the Vendor and the Claimants and the supply by way of lease of the Lot was made under a separate Agreement between the Landlord and the Claimants, the condition that the supplies of the house and the land be made under a single agreement is not met. As such, we can conclude that the Claimants are not entitled to claim a rebate under section 254.1.
Although we do not need to look for further support for this conclusion, we would like to add that even if the relevant supplies were made under a single agreement, a rebate under section 254.1 would still not be available in this case since the lease under which the land is supplied is not a "longterm lease," as defined in subsection 254.1(1), and as required by paragraph 254.1(2)(a).
Specifically, a longterm lease in respect of land, for purposes of determining the availability of an NHR under section 254.1, means a lease, licence or similar arrangement that provides for the continuous possession of the land for a period of at least twenty years or that contains an option to purchase the land. The lease in this case is not a long-term lease because the term of the lease, as set out in section [...] of the Agreement, is for a period of one year only, beginning on [mm/dd/yyyy], and ending on [mm/dd/yyyy], and there is no provision granting the Claimants an option to purchase the Lot.
Issue 2
Are the Claimants entitled to claim an ownerbuilt NHR under section 256?
Section 256 provides for a rebate to an individual where that individual:
1. constructs a SURC for use as the individual's primary place of residence or that of a relation;
2. has paid tax in respect of a supply to the individual of any improvement to the land that forms part of the SURC or, in the case of a mobile home, the mobile home; and
3. meets all of the other conditions for claiming a rebate under section 256.
A "mobile home" is defined by subsection 123(1) to mean a building, the manufacture and assembly of which is completed or substantially completed, that is equipped with complete plumbing, electrical and heating facilities and that is designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence, but does not include any travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use.
A modular home is a factory-built house or building intended for residential occupancy that consists of "modules" where each module has three walls and a roof or ceiling. For purposes of the GST/HST new housing rebate, a modular home is generally considered to be a mobile home. To be considered a mobile home for GST/HST purposes, the modular home has to be equipped with complete plumbing, electrical and heating facilities, and designed to be moved to a site for installation on a foundation and to be connected to service facilities, and used as a place of residence. In addition, the modules must be in as finished a condition as possible before leaving the manufacturer's premises. Reference can be made to policy statement P-223, The Meaning of "Manufacture and Assembly of Which is Completed or Substantially Completed" in the definition of "Mobile Home" for further information on modular homes.
If the Claimants have purchased a modular home that is considered to be a mobile home for GST/HST purposes, subsection 256(2.2) may apply to deem the Claimants to have constructed the mobile home if, in this case:
a) the Claimants purchased the mobile home for use as their primary place of residence, or that of a relation;
b) the mobile home has never been used or occupied by any individual as a place of residence or lodging;
c) the Claimants do not file any rebate application under section 254.1 or section 254, either directly with the CRA or through the supplier of the mobile home; and
d) either the Claimants or their relation are the first individuals to occupy the mobile home at any time.
Assuming that these conditions are in fact met, the Claimants are deemed to have constructed the mobile home that they purchased from the Vendor. However, we must further consider whether the mobile home meets the definition of a SURC. If so, then the deemed construction of the mobile home will mean that the Claimants constructed a SURC for purposes of section 256 and an NHR under that section may be available. If the mobile home is not a SURC, no NHR is available.
Subsection 123(1) defines a "single unit residential complex" as "...a residential complex that does not contain more than one residential unit, but does not include a residential condominium unit" and, for purposes of the NHR under section 256, a SURC includes a multiple unit residential complex that does not contain more than two units and certain other complexes.
A "residential complex" is defined in subsection 123(1) to mean, in part, a mobile home, together with any appurtenances to the home and, where the home is affixed to land (other than a site in a residential trailer park) for the purpose of its use and enjoyment as a place of residence for individuals, the land subjacent or immediately contiguous to the home that is attributable to the home and is reasonably necessary for that purpose."
A "residential unit" is defined by subsection 123(1) to include a mobile home that is occupied as a place of residence or lodging by an individual or that has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals. As the agreement of purchase and sale indicates that the house is a new house, at the time of its acquisition by the Claimants, the house (i.e., the mobile home) had never been used or occupied for any purpose but was intended to be used by the Claimants as their place of residence. Therefore, the mobile home qualifies as one residential unit.
As the mobile home is a residential complex that consists of one residential unit, the mobile home meets the definition of a SURC. This means that the Claimants constructed a SURC for purposes of determining the availability of an ownerbuilt NHR under section 256.
Therefore, if the Claimants paid the $[...] amount of GST that was indicated by the agreement of purchase and sale to be included in the total purchase price for the new mobile home, and all of the other conditions for claiming an ownerbuilt NHR under section 256 are met, the Claimants are entitled to claim an ownerbuilt NHR under that section.
We would also like to note that if the rebate application submitted by the Claimants for an ownerbuilt NHR included any GST they paid to acquire certain other supplies in respect of the mobile home (e.g., freight and set-up services and finishing services, such as onsite assembly of the mobile home or the construction of a porch, deck, or garage) they may also be entitled to an NHR in respect of that tax where all of the conditions for claiming the rebate under section 256 are met. However, if they paid the GST to acquire such other supplies but did not include the amount of that tax in the rebate application they submitted to us, they may not submit another rebate application to claim a rebate for that tax as, in accordance with subsection 262(2), only one NHR application may be made with respect to any matter.
If you require further clarification with respect to any of the issues addressed in this letter, please call me at 613-954-4393.
Lisa Papineau
UNCLASSIFIED
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