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
FROM:
Francine Ménard
Technical Policy Advisor
Financial Institutions and Real Property
Division, Excise and GST/HST
Rulings Directorate
320 Queen Street Ottawa ON
CASE NUMBER:
112841
DATE:
February 15, 2010
SUBJECT:
GST/HST
ITCs on increase in use of real property in commercial activities
This is further to your XXXXX to XXXXX dated XXXXX, requesting a written confirmation of our views on this matter.
All legislative references are to the Excise Tax Act (ETA) or the regulations thereunder unless otherwise specified.
You stated the following:
1. XXXXX.
2. The partnership has a rental chalet located in XXXXX which is run by a management firm.
3. XXXXX personal usage of the chalet in XXXXX was 14.84%.
4. ITCs were XXXXX 85.16% use in commercial activities for the year XXXXX.
5. XXXXX, the partnership declared a change in use (use in commercial activities is now 92.88% and personal use is 7.12%). Since the chalet was used all or substantially all in commercial activities (90% or more), the partnership claimed ITCs based on 100% use in commercial activities per subsection 141(1).
6. XXXXX.
XXXXX, we understand this to be a partnership. It is important to note that there must be evidence to support the existence of a partnership and that particular care should be taken in husband and wife situations. We do not "assume" that a partnership is the "owner" of real property solely because the individuals describe it that way. The starting point is that the real property is owned by the individuals and not the partnership, since legal title would be in their names. We need strong, preferably documentary, support to establish that a particular real property belongs to a partnership and not to the individuals on title. Reference may be made to the recent court cases on this issue, e.g., Bains et al v The Queen [2005] TCC 156.
With respect to vacation properties, we trust that you are aware of Info Sheet GI-025, The GST/HST and the Purchase, Use and Sale of Vacation Properties by Individuals, and that XXXXX in fact there has been a change in use and that a fair and reasonable method was used to establish that the use in commercial activities is now 92.88%.
XXXXX, our view is that subsection 141(1) would apply to deem all of the property to be used in commercial activities once a person begins to use it all or substantially all (i.e., 90% or more) in commercial activities. Therefore, where a person uses real property 85% in commercial activities and increases the use to 92%, the change in use would be based on the change from 85% to 100% which results in an increase of 15% in commercial activities.
Should you require additional information, you may contact me at (613) 957-8222.
Francine Ménard
Technical Advisor
Real Property
Financial Institutions & Real Property
UNCLASSIFIED
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