16 April 2004 GST/HST Ruling 44912 - XXXXX

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:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase of Cabin XXXXX. We apologize for the delay in our response.

In your letter, you ask for an independent review of the ruling issued to the former owners, XXXXX, which stated that the sale of Cabin XXXXX was subject to GST/HST. You indicate that you are not fully satisfied that the tax has been applied correctly and question whether or not the vendors XXXXX were using the cabin in the course of a business.

In a letter dated XXXXX, XXXXX authorized the release of information regarding the history of the GST/HST rulings provided with respect to the sale of the cabins XXXXX. Since your request pertains to Cabin XXXXX, we will address those facts as they relate to Cabin XXXXX only.

All legislative references are to the Excise Tax Act (the "Act") unless otherwise stated.

Statement of Facts

Our understanding of the facts from your letter, my telephone conversation XXXXX with XXXXX, and the facts established in the previous GST/HST rulings XXXXX is as follows:

•   The initial ruling issued XXXXX to the former owners XXXXX provided that the sale of Cabin XXXXX was subject to GST since there was no exempting provision available under Part I of Schedule V to the Act, which applied to the sale of the cabin in question. Cabin XXXXX was excluded from the definition of a residential complex since it was viewed as a building that was a lodging house where substantially all of the lease arrangements in respect of Cabin XXXXX were supplied for periods of continuous possession or use for less than sixty days. The facts of the case indicated that Cabin XXXXX had been last rented out on a weekly basis. Therefore, the exempting provision applicable to the sale of a residential complex under section 2 of Part I of Schedule V to the Act did not apply to the sale of the cabin in question. Since no other exempting provision was available, the sale of Cabin XXXXX was determined to be taxable.

•   XXXXX requested a review of the ruling issued XXXXX. It was their view that Cabin XXXXX met the definition of residential complex.

•   New information provided after the issuance of the ruling XXXXX indicated that the cabin in question had been used as a seasonal rental (more than 60 days) for the summers of XXXXX.

•   XXXXX a ruling was issued XXXXX which determined, based on new information provided, that Cabin XXXXX was a residential complex as defined in subsection 123(1) of the Act. The facts indicated that Cabin XXXXX was converted to a residential complex when it ceased to be used for weekly rentals and began to be used for long-term rentals (more than 60 days).

•   XXXXX you purchased Cabin XXXXX from XXXXX, and paid 7% GST on the purchase price. The cabin is not your primary place of residence. It is used as a cottage and is occupied periodically on a seasonal basis.

•   You question whether GST should have applied to the sale of the cabin. You have requested that the case be reviewed and an independent ruling issued.

Ruling Requested

Whether the purchase of Cabin XXXXX by XXXXX from XXXXX is subject to GST.

Ruling Given

Based on the facts set out above, we rule that the purchase of Cabin XXXXX by XXXXX from XXXXX is subject to GST at the rate of 7% on the value of the consideration for the supply.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

In general, a supply of real property situated in Canada, including residential property, is taxable unless it is specifically exempted. In most cases, the supply of a newly constructed or substantially renovated residential complex is a taxable supply.

The facts indicate that Cabin XXXXX was converted to a residential complex when it ceased to be used for weekly rentals and began to be used for long-term rentals. Where a person converts non-residential real property that was used or held as capital property in a business or commercial activity of the person (i.e. short-term rental of cabin - less than 60 days) and begins to hold or use the real property as a residential complex (i.e. long-term rental of cabin - greater than 60 days), without constructing or substantially renovating the complex, subsection 190(1) of the Act deems the person to be a builder of the complex and to have substantially renovated it.

Section 2 of Part I of Schedule V to the Act exempts the supply by way of sale of a residential complex by a person who is not a builder of the complex, where no input tax credits have been claimed with respect to the last acquisition or improvements to the complex. However, in the instant case, the vendors are deemed under section 190 of the Act to be builders. Consequently, the exemption under section 2 of Part I of Schedule V, which would typically be applicable to the sale of used housing by a person other than a builder, does not apply to the facts in this case. Since no other exemption applies, the sale of Cabin XXXXX was subject to GST under section 165 of the Act.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9212.

Yours truly,

Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/04/14 — RITS 47935 — GST Treatment of Supplies Made by Condominium Corporation