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: 86356
February 23, 2010
Dear XXXXX:
Subject:
GST/HST RULING
New Residential Rental Property Rebate Eligibility
This is in response to your letter addressed to the XXXXX GST/HST Rulings Centre, regarding your eligibility to receive the GST/HST new residential rental property (the "NRRP") rebate in respect of the purchase of the newly constructed condominium unit at XXXXX. Your request was transferred to the Excise and GST/HST Rulings Directorate in Ottawa for response. We apologize for the delay in providing you with this response.
A GST/HST interpretation letter dated XXXXX was provided to you in response to your initial ruling request of XXXXX. In accordance with GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a copy of which is enclosed, in those circumstances where all of the pertinent facts and circumstances required for a ruling are not provided, a general interpretation of the relevant provisions of the legislation may be provided in place of a ruling. The interpretation letter provided you with general information that may apply in your situation. In your subsequent letter of XXXXX, you provide additional facts and information with respect to the sequence of events that occurred leading to the purchase and subsequent sale of the above-noted property. You also provided us with additional information, as requested, in XXXXX.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
Based on the information provided in your letters of XXXXX, our telephone conversations and the additional documentation forwarded in XXXXX, our understanding of the facts is as follows:
1. In XXXXX, you purchased the first condominium unit at XXXXX, for use as your principal residence. A GST/HST new housing rebate in respect of this purchase was credited to you by the builder of the complex at the time of purchase.
2. On XXXXX, you entered into a Contract of Purchase and Sale (the "Purchase Agreement") with XXXXX, the builder/vendor, in respect of the purchase of a second condominium unit for a purchase price of $XXXXX plus GST located at XXXXX (the "Unit"), bearing the legal description, XXXXX. You state in your letter that you purchased the Unit with the intent of keeping it for purposes of long-term residential rental.
3. The Purchase Agreement sets out the completion date for the purchase as XXXXX.
4. The copy of the registered Freehold Transfer, XXXXX shows that fee simple title to the Unit was executed and transferred to you on XXXXX. The Statement of Adjustment for the adjustment date of XXXXX, shows GST of $XXXXX on the purchase price of $XXXXX.
5. A mortgage in the amount of $XXXXX, in favour of XXXXX, was registered on title. The mortgage terms provide for a five-year closed mortgage, amortized for 25 years, with monthly payments of principal and interest in the amount of $XXXXX.
6. In XXXXX, at the founding meeting of the XXXXX corporation, a XXXXX council was elected and proposed bylaws were adopted. Section XXXXX of the Bylaws provides that except as otherwise set out in the Bylaws, none of the XXXXX lots may be rented out by monthly rental agreement, lease or by way of any other procedure, agreement or undertaking.
7. However, the Bylaws make special provision for the rental of the Unit. Specifically, section XXXXX.
8. You state that there were provisions in place by the builder of the complex to permit up to a maximum of XXXXX rental units in the complex, and that the Bylaws were amended due to the fact that you had purchased the Unit with the intent of using it as a rental unit prior to the adoption of the Bylaws.
9. In XXXXX, you were informed by your employer, XXXXX, that the division in which you worked was to XXXXX. You subsequently received a severance package from your employer in XXXXX.
10. In XXXXX, the Unit sustained in excess of $XXXXX in XXXXX damage due to a faulty XXXXX. XXXXX. You indicate that this delayed the possibility of renting the Unit approximately XXXXX months during which time repairs to the Unit were being completed. Repairs to the Unit were completed in XXXXX.
11. You state that as a result of the intervening events that occurred from the time of the purchase of the property, you placed the Unit for sale in XXXXX.
12. A listing agreement for the sale of the Unit was entered into in XXXXX. The listing agreement shows that the Unit was sold XXXXX, for the asking price of $XXXXX.
13. Title and possession of the Unit were transferred to the purchasers, XXXXX, on XXXXX. The Unit was never rented, nor was it ever occupied prior to the sale of the Unit XXXXX.
14. On XXXXX, you made a request for a written ruling on your eligibility for a GST/HST rebate in respect of the Unit. However, given the limited facts and information provided in your initial letter of XXXXX, a GST/HST interpretation letter was provided to you on XXXXX, setting out the general eligibility requirements for the NRRP rebate.
15. On XXXXX, you submitted an NRRP rebate application in respect of the Unit to the Summerside Tax Centre, together with a copy of the GST/HST interpretation letter XXXXX.
16. Our records indicate that an NRRP rebate cheque in respect of the Unit was issued to you XXXXX, in the amount of $XXXXX.
17. In our telephone conversation in XXXXX, when asked what specific action was undertaken by you to try to rent the Unit, XXXXX.
Ruling Requested
You would like to know whether you are eligible for the NRRP rebate in respect of the purchase of the residential condominium unit situated at XXXXX.
Ruling Given
Based on the facts set out above, we rule that you have not met the eligibility requirements for the NRRP rebate as set out under subsection 256.2(3) in respect of the purchase of the residential condominium unit situated at XXXXX.
Under subsection 264(1), as the recipient of an overpayment of a rebate to which you are not eligible, you are required to repay the overpayment to the Receiver General, with interest, as of the day the amount was paid to you.
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
Subsection 256.2(3) sets out the criteria that must be met to qualify for an NRRP rebate in respect of a portion of the GST/HST paid by a person on a taxable purchase of a newly constructed residential complex (e.g., residential condominium unit) for supply as long-term residential rental accommodation. In particular, paragraph 256.2(3)(c) requires that at the particular time tax first becomes payable by the person in respect of the purchase of the complex from the vendor, the complex is a "qualifying residential unit" of the person.
In the case of a taxable sale of real property, tax is generally payable on the earlier of the day ownership of the property is transferred to the recipient and the day possession of the property is transferred to the recipient under the agreement. As such, it is necessary to determine whether the Unit meets the definition of "qualifying residential unit" at the time tax became payable by you on the purchase the Unit from the vendor. Based on the facts set out above, ownership and possession of the Unit were transferred to you from the vendor on XXXXX.
The term "qualifying residential unit" is defined under subsection 256.2(1). A residential unit (e.g., residential condominium unit) must meet the definition of a "qualifying residential unit" in order for a person to qualify for an NRRP rebate in respect of the unit. The definition sets out various criteria to be met. In part, the definition of "qualifying residential unit", at the time in question, required that:
"(ii) the person holds the unit...for the purpose of making exempt supplies of the unit that are included in section ... 6 ... of Part I of Schedule V ...
(iii) it is the case, or can reasonably be expected by the person at the particular time to be the case, that the first use of the unit is or will be...as the primary place of residence of...a lessor of the complex or relation of that lessor, for a period of at least one year ..."
With respect to the present case, it is necessary to establish that at the time tax became payable by you on the acquisition of the Unit in XXXXX, you acquired the Unit for purpose of long-term residential rental of the Unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence by an individual, or a relation. In addition, at the time tax became payable on the purchase of the Unit, you must have reasonably expected that the first use of the Unit would be as a place of residence of individuals for a period of at least one year, or under certain circumstances, for a shorter period.
In essence, while it is necessary to establish that the person's intention at the time of acquisition of the unit was for purpose of long-term residential rental, there must be an intent to rent the unit to the same individual for at least one year. This one-year test does not mean that the first lease of the unit must be a one-year lease; twelve consecutive monthly leases would also satisfy this requirement. However, unless one of the exceptions to the one-year requirement applies, the one-year test must be applied with respect to the first tenant of the unit.
The fact that the Unit in question was sold before it was leased does not in itself preclude the Unit from being a "qualifying residential unit" provided that at the time the Unit was acquired it was acquired for purposes of supplying the Unit to a lessor, or a relation of the lessor, for use as a place of residence for a period of least one year. This "intention" test must be satisfied by way of supporting facts and evidence.
Intentions can only be judged by outward indicators, i.e., the presence or absence of physical actions and/or evidence. Evidence of such an intention may include marketing of the property for long-term rental in newspapers, rental property guides or listing the property for rent through specialized rental agencies; a sample rental application or lease agreement used for purposes of renting the property; list of prospective tenants and scheduled viewings of the property to prospective tenants; the history of a person's rental activities (i.e., whether the person has operated as a landlord or been involved in property rentals).
Where a person does not carry through with their intention or stated course of action, absent an intervening frustrating event, it is questionable whether the stated intention actually existed. In this case, the facts indicate that you entered into the Purchase Agreement on XXXXX, and that title to the Unit was transferred to you on XXXXX. According to the facts as provided, in XXXXX, the Unit sustained a significant amount of XXXXX damage which required repairs to be carried out. These repairs were completed in XXXXX, at which time the Unit was listed for sale and sold.
While you state that you acquired the Unit with the intent of renting the property, there is insufficient evidence to support such an intention; nor is there evidence of any actions (e.g., rental activities) undertaken by you to try to rent the unit to accomplish your stated intention. Given that the Purchase Agreement was entered into on XXXXX, corroborating evidence of intention, including details of rental activity undertaken, should be present from this date forward.
With respect to the existence of an intervening event or extenuating circumstance which may be used to show that your intention to rent the Unit was frustrated or thwarted, thereby preventing you from accomplishing your stated intention, the facts indicate that the events in question (i.e., Unit sustained XXXXX damage which required repairs, and notice of XXXXX received from your employer) did not occur until XXXXX. Without any evidence of rental activity, and given that these events occurred approximately XXXXX months after the date upon which you entered into the Purchase Agreement for the Unit, these events cannot be relied upon as evidence of an intervening and extraordinary event which frustrated the accomplishment of the stated intention.
In summary, based on the facts and circumstances of this case, there is not sufficient evidence to support a determination that at the time tax became payable by you on the acquisition of the Unit, you acquired the Unit for purposes of long-term residential rental of the Unit for use as a place of residence by an individual or a relation for a period of at least one year. As such, you were not entitled to claim an NRRP rebate in respect of the Unit.
Under subsection 264(1), where a person is the recipient of an overpayment of a rebate, the person is required to repay the overpayment to the Receiver General on the day the amount is paid to the person. Under subsection 280(1), where a person fails to remit or pay an amount to the Receiver General when required, the person shall be subject to pay interest on the amount not remitted or paid.
Additional Information - Sale of residential complex by builder
In general, the sale of a newly constructed residential complex by a builder is a taxable supply. The term "builder" is defined in subsection 123(1) to include a person who:
"(d) 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...by way of sale ..."
As such, a person will be considered a "builder" of the complex if the person acquires an interest in a residential complex, before it is occupied as a place of residence or lodging, for the primary purpose of selling the complex, or an interest in the complex.
It is a question of fact whether a particular person acquired a residential complex for the "primary purpose" of resale. A person's intention with respect to the purchase will be determined based upon the corroborating facts and evidence to either support or refute a stated intention. Where a person is determined to be a builder of a residential complex, the person is required to collect and remit GST/HST on the sale of the complex to the individual purchaser.
Under the present circumstances, the facts do not provide corroboration or support that you purchased the Unit for purposes of long-term residential rental as explained above. However, nor are the facts sufficient to establish that you purchased the Unit for the "primary purpose" of making a supply by way of sale under paragraph (d) of the definition of "builder". While you are required to repay the overpayment of the rebate as referred to above, you are not considered to be a "builder" of the complex and as such are not required to remit GST/HST on the sale of the Unit.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9212. 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,
Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
Enc. GST/HST Memorandum 1.4
UNCLASSIFIED
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