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: 122272r
July 29, 2011
Dear [Client]:
Subject:
GST/HST RULING
GST/HST INTERPRETATION
Agreement of purchase and sale for new housing
Thank you for your letter of June 22, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of new housing made under a particular agreement of purchase and sale. This letter is further to our letter of May 12, 2011, case number 122272.
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. As the transactions described in your letter are carried out in Manitoba, we will discuss only the GST implications.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
Our understanding is as follows:
1. An individual (Purchaser) enters in an agreement of purchase and sale (Purchase and Sale Agreement) with another person (Builder) for the construction and sale of a new "single unit residential complex" or "residential condominium unit" (Dwelling) as those terms are defined in subsection 123(1). A sample Purchase and Sale Agreement was included in your submission. The Purchaser occupies the Dwelling as a place of residence.
2. The Purchase and Sale Agreement provides that in consideration of the contract price and the covenants of the Purchaser, the Builder will supply the Purchaser with a Dwelling in accordance with plans and specifications set out in Schedule [...], and on a parcel of real property described in Schedule [...], to the agreement. The Purchase and Sale Agreement further provides that the contract price includes the items set out in the list of [...] as listed in Schedule [...] to the agreement. None of Schedules [...], [...] or [...] to the agreement were included in your submission. Section [...] of the Purchase and Sale Agreement provides that the Purchaser is responsible to pay for work done and materials supplied that are not shown in Schedules [...] or [...] to the agreement. That is, such amounts do not form part of the contract price.
3. The total contract price set out in the Purchase and Sale Agreement is $[...]. This amount includes the GST at 5% and a credit to the Purchaser for a GST new housing rebate. Section [...] of the Purchase and Sale Agreement provides that the Purchaser is to pay the contract price in the manner set out in that section.
4. The Purchaser obtains financing for the purchase of the Dwelling from [...] ([FinanceCo]). [FinanceCo] offers a type of financing that complies with the Islamic principal of declining (or diminishing) Musharaka.
5. The Purchaser contributes a certain percentage of the contract price of the Dwelling and [FinanceCo] contributes the remaining percentage of the contract price. The Purchaser alone obtains legal title to the Dwelling. [FinanceCo] obtains an equitable interest in the Dwelling, in the form of partial beneficial ownership, as set out in the Declining Partnership Agreement (the Loan Agreement), detailed below. Upon entering into the Loan Agreement, [FinanceCo] effectively agrees to sell its equitable interest in the Dwelling to the Purchaser over a certain period of time. During this period of time, [FinanceCo] maintains an equitable ownership interest in the Dwelling albeit on a declining basis.
6. The Loan Agreement contains the following provisions:
(a) Section [...] sets out the percentage of the contract price of the Dwelling that is paid by the Purchaser while section [...] sets out the remaining percentage of the contract price that is paid by [FinanceCo]. The amount paid by [FinanceCo] is its contribution towards the purchase of its ownership interest in the Dwelling.
(b) Paragraph [...] requires the Purchaser to purchase [FinanceCo's] ownership interest in the Dwelling over a certain period of time and for a certain sum of money. Paragraph [...] provides that during the course of purchasing [FinanceCo's] ownership interest in the Dwelling, the Purchaser is entitled to exclusive possession or occupation of the Dwelling. In consideration of the Purchaser's right to possession of the Dwelling and of [FinanceCo's] contribution to the purchase of the Dwelling, [FinanceCo] is entitled to a payment of a certain amount (the Profit) from the Purchaser. Under paragraph [...], the Purchaser's requirement under paragraph [...] can be carried out through a series of renewable payment arrangements each for a specified term. In each such term, the amount to be paid by the Purchaser to [FinanceCo] will include the portion of [FinanceCo's] contribution to the contract price to be repaid in that term plus the Profit established for that term. The amount may be paid weekly, bi-weekly, semi-monthly or monthly, as set out in the payment arrangement for that term. Section [...] provides that the Purchaser may make additional payments to those set out in the payment arrangement.
(c) Under section [...], during the term of any such payment arrangement, [FinanceCo] retains its equitable interest in the Dwelling. Upon the Purchaser completing payment of [FinanceCo's] contribution to the purchase of the Dwelling plus the Profit for all such terms and renewals, [FinanceCo] will transfer its ownership in the Dwelling to the Purchaser.
(d) Section [...] reiterates that while the Loan Agreement is in place, the Purchaser has the right to exclusive possession and occupation of the Dwelling and is responsible for obligations arising from occupation thereof, e.g., paying property taxes, maintaining property insurance, avoiding periods of extended vacancy of the Dwelling, performing repairs and maintenance, paying utilities, and paying condominium fees if applicable.
7. There is no indication that [FinanceCo] is liable to pay consideration for the supply of the Dwelling made under the sample Purchase and Sale Agreement.
RULINGS REQUESTED
You are requesting confirmation that:
• the Purchaser is obligated to pay the GST payable under the Purchase and Sale Agreement;
• if any of the GST payable under the Purchase and Sale Agreement is not paid by the Purchaser, the Canada Revenue Agency would not pursue [FinanceCo] for such GST payable; and
• the Purchaser is eligible for a GST/HST new housing rebate with respect to the purchase of the Dwelling.
Rulings Given
As set out in our letter of May 12, 2011, and discussed in our telephone conversation subsequent to that letter, we do not provide rulings on hypothetical situations (see paragraph 15 of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service). As the Purchase and Sale Agreement does not address what would happen if the Purchaser fails to pay the tax payable under the Purchase and Sale Agreement, we cannot address what the GST implications of such a situation would be. Further, we are not in a position to provide a ruling on a particular Purchaser's eligibility for a GST/HST new housing rebate with respect to a hypothetical situation.
Based on the facts set out above, we rule that:
The Purchaser is required to pay the GST payable under the Purchase and Sale Agreement based on the value of consideration for the supply.
[FinanceCo] is not a recipient of a supply made by the Builder under the Purchase and Sale Agreement that we reviewed.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings 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 165(1) provides that every recipient of a taxable supply made in Canada must pay tax in respect of the supply equal to 5% of the value of consideration for the supply. "Recipient" in respect of a supply of property or a service is defined in subsection 123(1) to mean, where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration. As the Purchaser is liable to pay consideration under the Purchase and Sale Agreement, they are a recipient of the supply of the Dwelling and are required to pay the tax.
As [FinanceCo] is not liable, under the Purchase and Sale Agreement that we reviewed, to pay consideration for the supply of the Dwelling by the Builder to the Purchaser, [FinanceCo] is not a recipient of that supply.
INTERPRETATIONS GIVEN
If the Purchaser were to default under the Purchase and Sale Agreement while the Dwelling was under construction and the Purchaser were to transfer the real property described in that agreement to [FinanceCo] for the purpose of satisfying the Purchaser's debt with [FinanceCo] in circumstances where subsection 183(1) applies, (iFootnote 1) the transfer of the real property by the Purchaser to [FinanceCo] is deemed to be a supply by way of sale of the property from the Purchaser to [FinanceCo]. For purposes of subsection 165(1), that supply is deemed to be made for no consideration. If subsection 183(1) does not apply, it is a question of fact whether there would be a supply of the property from the Purchaser to [FinanceCo], whether there is consideration payable for the supply, and the GST status of the supply.
If, under a default by the Purchaser, [FinanceCo] acquired the Dwelling and then engaged the Builder to complete construction of the Dwelling such that [FinanceCo] was the recipient of a supply made by the Builder, [FinanceCo] would be required to pay the GST on the taxable supply made by the Builder.
With respect to a Purchaser's eligibility to a GST/HST new housing rebate, the Purchaser must meet all the conditions for claiming a GST/HST new housing rebate as discussed in our letter of May 12, 2011.
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 613-954-8852. 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
i 1 Subsection 183(1) provides that where property of a person is, for the purpose of satisfying a debt owing by the person to another person (the creditor), seized or repossessed by the creditor under a right or power exercisable by the creditor (other than a right or power that the creditor has under, or because of being a party to, a lease, licence or similar arrangement by which the person acquired the property), the person is deemed to have made a sale of the property.
---------------
------------------------------------------------------------
---------------
------------------------------------------------------------
UNCLASSIFIED
Email this Content