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
Case Number: 110977
Business Number: XXXXX
Attention: XXXXX
XXXXX
March 10, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Input tax credits relating to maintenance, upkeep and upgrades
Thank you for your letter of XXXXX, concerning the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the eligibility to claim input tax credits (ITCs). We apologize for the delay in providing this response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand the situation to be as follows:
1. XXXXX (the "Registrant") is a GST/HST registrant.
2. The Registrant is in the business of buying and selling residential condominium units, as defined in subsection 123(1), that have been previously occupied as a place of residence by individuals.
3. When purchasing these condominium units, which are located in XXXXX, the Registrant is not required to pay GST as the supplies of the condominium units are exempt for purposes of the ETA.
4. The condominium units are acquired as inventory for resale.
5. The Registrant pays GST on the maintenance, upkeep and upgrade costs incurred in respect of the condominium units.
6. You confirmed that the type of maintenance, upkeep and upgrade costs include the following:
• painting;
• appliance repairs; and
• hydro costs.
Ruling Requested
You would like to know if the Registrant is entitled to claim ITCs for the GST paid by the Registrant on the maintenance, upkeep, and upgrade costs incurred in respect of the condominium units.
Ruling Given
Based on the facts set out above, we rule that the Registrant is not entitled to claim ITCs for the GST paid or payable on the maintenance, upkeep and upgrade costs incurred in respect of the residential condominium units acquired by the Registrant for resale.
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
Based on the facts, the Registrant does not meet the definition of "builder" in subsection 123(1) and the sale of the residential condominium units by the Registrant are exempt under section 2 of Part I of Schedule V to the ETA.
Subsection 169(1) provides a general rule for claiming ITCs. In order to claim ITCs in respect of the GST paid or payable for goods and services acquired by a registrant, the registrant must have acquired the goods and services for consumption, use or supply in the course of the registrant's commercial activities. A commercial activity for purposes of the GST/HST does not include the extent to which a business involves the making of exempt supplies. Given that the GST paid on the maintenance, upkeep and upgrade costs incurred by the Registrant were incurred in the course of making exempt supplies of residential condominium units by way of sale, the Registrant is not entitled to claim ITCs in respect of the GST paid on these costs.
If a person (for example, a renovator) carries out a renovation or alteration of a residential complex that is not a "substantial renovation" as defined in subsection 123(1) and explained in GST/HST Memorandum 19.2, Residential Real Property, and if such a renovation or alteration is made in the course of a business of making supplies of real property, the person may be subject to the self-supply rule in section 192 which taxes some of the value added by the person.
Under this rule, the person is deemed to have made and received a taxable supply and is liable to account for the GST/HST deemed collected on the total of all amounts that relate to certain costs. The costs on which GST/HST applies must meet the following requirements:
• they are in respect of the renovation or alteration of the residential complex;
• they are amounts that would be included in the person's adjusted cost base for income tax purposes if the residential complex were capital property of the person and the person were a taxpayer for income tax purposes;
• they are not in respect of interest or other financial services; and
• they are not for property or services on which GST/HST was paid or payable by the person.
Such costs would include wages, salaries and employee benefits payable to employees of the person who are involved with on-site renovation work as well as on contracts entered into with non-registrants (i.e., small suppliers).
There is no deemed self-supply on ordinary repair and maintenance costs that would not have been included in the building's adjusted cost base for income tax purposes. Generally, an expenditure is to be added to the adjusted cost base of a residential complex if it enhances the building beyond what is usually considered a replacement or repair. Although repairs and maintenance are normally expenses, they are to be capitalized when incurred to make a building suitable for use or resale, as in the case of renovators. For more information on whether a particular expenditure is an expense or an addition to the adjusted cost base of a residential complex, please contact your local tax services office.
If section 192 applies, the Registrant is considered to have collected the GST at the earlier of the time the renovation is substantially completed and the time ownership of the residential condominium unit is transferred to the purchaser. Section 192 will not apply if the Registrant pays GST in respect of all of the maintenance and repairs incurred to prepare the condominium unit for resale, i.e., the Registrant does not acquire maintenance and repairs services from non-registrants and does not perform the maintenance and repairs services either directly or through employees.
Where section 192 does not apply and the Registrant is not engaged in any commercial activities, the Registrant may request that its registration for GST/HST purposes be cancelled by contacting the local tax services office. If section 192 does apply, the Registrant would account for the tax considered to be collected in its GST/HST return.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8222. 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,
Francine Ménard
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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