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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 113955
April 4, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Reconfiguration of Parcels of Real Property
Thank you for your letter of April 16, 2009, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a reconfiguration of legal parcels of real property made by a university.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand as follows:
1. A university, as that term is defined in subsection 123(1), is the owner of 3 contiguous parcels of real property, which we will refer to as parcels A, B and C. The provincial land registry lists each parcel as a separate, legally titled parcel of real property.
2. [...] [Building A] is situated on parcel A. There are no other buildings or structures situated on parcel A. The university makes supplies of [Building A] to the public for consideration. The university also uses [Building A] in intramural activities, and the university [...] uses [Building A]. Based on time of usage, you have stated that [Building A] is used primarily (greater than 50%) in making supplies to the public for consideration. The university has not filed an election under section 211 in respect of parcel A. [Building A] was constructed prior to the introduction of the GST/HST. The university has claimed public service body rebates with respect to improvements made to parcel A.
3. [...] [Building B] is situated on parcel B. There are no other buildings or structures situated on parcel B. The university uses [Building B] in making supplies of memberships to the public and to staff of the university. The memberships allow for usage of [Building B]. Members of the public and university staff pay an additional amount for participating in certain [...] classes held at [Building B]. [Building B] is also used by students of the university and although student membership fees are included in tuition fees, students are also required to pay an amount for certain [...] classes held at [Building B]. Based on the number of memberships sold, you have stated that [Building B] is used less than primarily in commercial activities of the university. An election has been filed under section 211 with respect to parcel B.
4. [...] [Area C] [is] situated on parcel C. There are no other buildings or structures on parcel C, nor have any other improvements been made to the parcel. The university charges consideration to members of the public who use [Area C]. The university also uses [Area C] for other purposes, including student [...]. Based on usage records, you have stated that [Area C] is used less than primarily in commercial activities of the university. An election has been filed under section 211 with respect to parcel C.
5. The university plans to reconfigure parcels A, B and C such that only two parcels will exist after the reconfiguration. We will refer to the two newly created parcels as parcels AB and C1. We understand that the titles to parcels A, B and C will cease to exist simultaneous with the creation of titles to parcels AB and C1. Parcel AB will be composed of what was, prior to the reconfiguration, all of parcels A and B and a portion (approximately [...] square feet) of parcel C. Parcel C1 will consist of all that portion of what was, prior to the reconfiguration, parcel C, excepting the area that, after the reconfiguration, forms part of parcel AB. The existing [Area C] will be unaffected by the reconfiguration and will remain fully situated within parcel C1.
6. The university intends to file elections under section 211 with respect to the newly created parcels AB and C1 upon registration of the new parcels with the provincial land registry.
7. The university is registered for GST/HST purposes.
INTERPRETATIONS REQUESTED
You would like confirmation of the following:
1. At the time of registration of parcels AB and C1 with the provincial land registry, parcels A, B and C will cease to exist.
2. At the time of registering parcels AB and C1 with the provincial land registry, the existing elections filed under section 211 with respect to parcels B and C will cease to be valid. As a result of elections ceasing to be valid, the university will have to repay previously claimed ITCs with respect to parcels B and C.
3. The basic tax content (BTC) of parcel AB will consist of the BTC of parcels A, B and that portion of the BTC of parcel C that can reasonably be attributed to the area that formed part of parcel C and, after the reconfiguration, forms part of parcel AB.
4. The university will be eligible to file an election under section 211 with respect to parcels AB and C1. Any claims for input tax credits (ITCs) with respect to the deemed tax paid under paragraph 211(2)(b) will be based on the BTC of each of parcel AB and C1.
INTERPRETATIONS GIVEN
Based on the information provided, our interpretations are as follows:
1. For purposes of the ETA, we would consider parcels A, B and C to cease to exist upon creation of parcels AB and C1. Nonetheless, for purposes of administration of the ETA, it may be necessary to recognize the previously described parcels subsequent to the registration of parcels AB and C1.
2. At the time of registering parcels AB and C1 with the provincial land registry, the existing elections filed under section 211 with respect to parcels B and C would generally cease to be effective. Whether the rules of subsection 211(4) would apply must be determined on a case by case basis where the complete facts and the history of the public service body's involvement with the real property are known.
3. The BTC of parcel AB, at the time that parcel comes into existence, would generally consist of the BTC of parcels A, B and that portion of the BTC of parcel C that can reasonably be attributed to the area that formed part of parcel C and, after the reconfiguration, forms part of parcel AB. For purposes of this calculation, the BTC of the former parcels would be determined at the time immediately before the parcels ceased to exist.
4. The university will be able to file an election under section 211 in respect of parcels AB and C1 if the parcels are real property described in paragraphs 211(1)(a) - (c). The elections must be filed within the time frame set out in subsection 211(5). For purposes of calculating an ITC with respect to each parcel, the deemed tax paid under paragraph 211(2)(b) will be equal to the BTC of each parcel as determined under paragraph 211(2)(a).
EXPLANATIONS
Interpretation 1
Land registration issues fall within the purview of provincial government responsibility. However, for purposes of the ETA, we would consider parcels A, B and C to cease to exist upon creation of parcels AB and C1. For purposes of administering the ETA (e.g., see the explanation to Interpretation 3, below), it may be necessary to recognize the previously described parcels subsequent to the registration of parcels AB and C1.
Interpretation 2
The elections filed under section 211 with respect to parcels B and C would generally cease to have effect upon the registration of parcels AB and C1.
Subsection 211(4) provides certain rules when an election in respect of real property described under paragraph 211(1)(a) or (b) is revoked and ceases to have effect. Generally, we agree with the position that subsection 211(4) would apply in the circumstances described and that the university would be required to account for tax based on the BTC of parcels B and C as calculated at the time immediately before the parcels ceased to exist.
Interpretation 3
Generally, the BTC of parcel AB, at the time immediately following its coming into existence, will consist of the total of the following amounts:
• the BTC of parcel A as calculated immediately before the parcel ceased to exist for purposes of the ETA, plus
• the BTC of parcel B as calculated immediately before the parcel ceased to exist for purposes of the ETA, plus
• that portion of the BTC of parcel C, as calculated immediately before the parcel ceased to exist for purposes of the ETA, that can be fairly and reasonably attributed to the area that formed part of parcel C and, after the reconfiguration, forms part of parcel AB.
The BTC of parcel C1 will consist of the BTC of parcel C, as calculated immediately before the parcel ceased to exist for purposes of the ETA, less the amount that is fairly and reasonably allocated to that area of parcel AB that previously formed part of Parcel C and, after reconfiguration, forms part of parcel AB.
Interpretation 4
Subsection 211(1) provides that a public service body, which includes a university, may file an election in respect of:
(a) real property that is capital property of the body,
(b) real property of the body that is held by the body in inventory for the purpose of supply, or
(c) real property acquired by the body by way of lease, licence or similar arrangement for the purpose of making a supply of the property by way of lease, licence or similar arrangement or making a supply of the arrangement by way of assignment.
Subsection 211(5) provides that an election made under that section must:
(a) be made in prescribed form containing prescribed information;
(b) specify the real property in respect of which the election or notice applies and the day the election becomes effective or, in the case of a notice of revocation, ceases to be effective; and
(c) be filed with the Minister in prescribed manner within one month after the end of the reporting period of the person in which the election becomes effective or, in the case of a notice of revocation, ceases to be effective.
For purposes of calculating an ITC with respect to parcels AB and C1, the deemed tax paid under paragraph 211(2)(b) will be equal to the BTC of each parcel as determined under paragraph 211(2)(a). With respect to the BTC calculated under paragraph 211(2)(a), one has to take into account our comments in Interpretation 3.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4393. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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