10 December 2004 GST/HST Ruling 53926 - Textbooks with Accompanying CD Software

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.

Dear XXXXX:

This letter is in response to your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the acquisition and resale of real property. You have asked us to review an earlier interpretation issued to you by XXXXX.

Interpretation Requested

You want to know whether it is necessary that an individual who acquires real property with the primary intent of immediately re-supplying it needs to have a profit motive to be viewed as being engaged in an adventure or concern in the nature of trade. Where the supply by the individual is made in the course of an adventure or concern in the nature of trade, the individual may elect to treat this otherwise exempt sale of real property as a taxable sale under subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA. Where the individual makes the election, the individual would be entitled to register for GST/HST purposes and as a registrant would be entitled to claim an input tax credit for the GST/HST payable in respect of the acquisition of the property.

You have stated that there is no reference to a profit expectation in subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA and that therefore it is sufficient that the individual has acquired the real property with the express intent of reselling it for the supply to be made in the course of an adventure or concern in the nature of trade.

Interpretation Given

Subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA does not specifically mention that a reasonable expectation of profit must exist with respect to the sale of the real property; rather, it refers to a supply of real property made in the course of an adventure or concern in the nature of trade.

As stated in our previous interpretation to you, it is the Canada Revenue Agency (CRA)'s view that the profit motive is considered to be a characteristic of an adventure or concern in the nature of trade, specifically in the context of an individual who acquires real property for resale on an isolated basis. However, in determining whether a sale of real property takes place in the course of an adventure or concern in the nature of trade, CRA considers also such elements as the supplier's course of conduct in dealing with the property and the activities undertaken related to the sale in light of the particular facts of the transaction. Based on the review of XXXXX, the supply was not made in the course of an adventure or concern in the nature of trade as the individual had the intention to acquire and re-sell the property without profit and the transaction has been motivated in part by the individual's desire to make a gift.

We appreciate your reference to an application ruling we issued XXXXX to a different client with a reference to subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA. You wonder why we arrived at a different conclusion even though the commentary in the ruling does not refer to whether or not the individuals receiving the property and re-supplying it had a profit motive or a profit potential.

That ruling does not indicate that the individuals are entitled to make the election under subparagraph 9(2)(b)(ii) of Part I of Schedule V to the ETA. In our reply, we offered no conclusion as to whether or not the supply by the individuals was made in the course of an adventure or concern in the nature of trade. In any case, the facts of the transactions must be considered on their own merits. In the case you referred to, the individuals who sold the real property did not purchase the real property from a corporation for the purpose of immediately re-supplying it. When their partnership dissolved, as partners, they were deemed to have acquired real property that they already owned.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9587.

Yours truly,

B. Mulinda
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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