16 April 2004 GST/HST Ruling 49628 - 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:

This letter is in response to your letter XXXXX (with attachment), which was forwarded to us from the XXXXX GST/HST Rulings Centre, where you requested that we reconsider the position taken in the earlier interpretation issued by that office XXXXX.

All legislative references are to the Excise Tax Act and its Regulations unless otherwise indicated.

Facts

Our understanding of the facts is as follows:

1. Two Canadian corporations (the parties) registered for GST/HST acquired a parcel of land in a non-participating province. The parties have entered into a written joint venture agreement to develop the land. One of the corporations, as operator, will be the filer of the GST returns pursuant to section 273.

2. The parties constructed an XXXXX unit stacked townhouse complex, specifically designed as student residences.

3. The parties have entered into an agreement with a local university for the lease of the entire complex from the joint venture for a period of ten years, with options to renew for a further period of twenty years. The university will, in turn, sublease the townhouse units to students enrolled at their university.

4. The fair market value of each of the XXXXX units in the complex is less than $350,000.

5. The joint venture operator was required to self-assess tax on the complex pursuant to section 191.

6. At the time the joint venture operator is deemed to have paid GST pursuant to section 191, it was not known whether the sublease between the university and the individual students would be for a term of approximately 8-9 months (i.e. a typical academic year), or a term of 12 months (typically September-August) or a combination of both terms.

7. XXXXX the university issued a letter stating that upon the departure of the students currently living in the residences at the conclusion of the academic year, the building will not be occupied until fall XXXXX. It is our understanding that the subleases between the university and the individual students were for a term of approximately 8-9 months only (i.e. a typical academic year).

Interpretation Requested

You have requested that we revisit our prior interpretation XXXXX. You want to know whether the student townhouses would meet the definition of "qualifying residential unit" in subsection 256.2(1) when the units are leased on an academic year basis as opposed to a 12-month period and the units are not rented out for the remainder of the year.

Interpretation Given

The interpretation provided XXXXX on this issue was that the definition of "qualifying residential unit" requires that it must be the case or it must reasonably be expected to be the case that the first use of the unit will be the primary place of residence of the first lessee (i.e. the student) for a period of continuous occupancy of at least one year. However, subsection 256.2(8) provides that if substantially all of the residential units in a multiple unit residential complex containing ten or more residential units would satisfy the one-year occupancy requirement then all the residential units will be treated as meeting the duration of occupancy requirement.

In this case, at the time GST on the deemed supply became payable by the joint venture operator, it was not expected that the first use of the units will be as the primary place of residence of the first lessees (i.e. the students) for a period of continuous occupancy of at least one year. Further, it is the case that the first use of the units was as primary place of residence of the first lessees for a period of continuous occupancy of 8 to 9 months only.

We have given consideration to your comments that the fact that some universities have a policy to lease some or all of their student residence units on an academic year basis, as opposed to a 12-month period, should not prejudice the builders of these residences from obtaining the rebates payable under section 256.2. However, the current wording of the legislation clearly requires that the first use of the units should be (or reasonably expected to be) as a place of residence of the first occupants for a period of at least one year (i.e., 12 consecutive months). As a result, we are unable to revise our previous interpretation. Extending the definition of "qualifying residential unit" would entail a legislative amendment, which falls within the responsibilities of the Department of Finance. The Department of Finance is aware of the issue.

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,

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

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