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: 129630
Business Number: [...]
April 18, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Application of GST to transfer of farmland in respect of divorce settlement
We refer to your letter of September 23, 2010, to the Income Tax Rulings Directorate. One of the questions raised in that letter concerned the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a contemplated transfer of farmland as part of a divorce settlement. A copy of your letter was forwarded to us for our reply to you on the GST issued raised in your letter.
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 that you are a GST/HST registrant and that you are contemplating selling quarter-sections of farmland (each quarter-section, "the Farmland") to your spouse from whom you have been living separate and apart since [mm/yyyy]. The consideration for the sale would be less than the fair market value of the Farmland at the time of the sale. Your spouse would acquire the Farmland for the purpose of selling it back to you at its fair market value. Presumably your spouse would register for the GST/HST before your sale of the Farmland to your spouse.
Interpretation Requested
Your understanding is that the GST does not need to be collected or paid on the sale of farmland if the buyer and seller are both GST/HST registrants. You are enquiring as to whether your spouse, if registered for the GST/HST, can report the tax payable on the purchase of the Farmland on line 205 of form GST 34, GST/HST Return for Registrants, and claim an input tax credit (ITC) on line 108 of the same return, such that no GST needs to be remitted with the return, at least with respect to the acquisition of the Farmland.
Interpretation Given
Before addressing your specific question, we would like to provide additional information that is relevant to the situation you described.
In the circumstances you described, the GST/HST would apply to your sale of the Farmland to your spouse if, immediately before the time ownership or possession of the Farmland transfers to your spouse, the Farmland was capital property used primarily in a business you carried on with a reasonable expectation of profit.
The GST/HST generally applies to the sale of real property by an individual where the sale is made in the course of an adventure or concern in the nature of trade of the individual and the individual files an election (form GST22, Real Property - Election to Make Certain Sales Taxable) under subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA. Accordingly, if your spouse qualifies for and files this election, the sale of the Farmland to you would be a taxable supply and your spouse would be entitled to register for the GST/HST.
To answer your specific question, if a taxable sale of the Farmland is made to a recipient who is registered for the GST/HST, the supplier is not required to collect the GST/HST payable on the sale. Instead, the recipient must account for the GST/HST. The recipient would report the amount of tax payable on line 205 of form GST34. If the recipient is using the Farmland exclusively in commercial activities, the tax payable on the acquisition of the Farmland may be fully offset by an ITC, which may be claimed on line 106 of the GST/HST return.
Accordingly, if your spouse is registered at the time you were to sell the Farmland and is acquiring the Farmland for use exclusively in commercial activities (i.e., making a taxable sale of the Farmland to you), your spouse would report the tax payable on acquisition of the Farmland and claim a corresponding ITC for the same amount in the GST/HST return for the reporting period in which the sale occurs. Similarly, if you were to purchase the Farmland back from your spouse, as a person that is registered for the GST/HST yourself, you would report the tax payable on your acquisition of the Farmland from your spouse. If you are acquiring the Farmland for use exclusively in your commercial activities, you could claim an ITC for the same amount. The effect is that no GST would need to be remitted with the return with respect to the acquisition of the Farmland.
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
UNCLASSIFIED
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