24 April 2007 GST/HST Interpretation 86718 - XXXXX GST/HST Visitor Rebate on Short-term Accommodation

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 sale of a parcel of vacant land by the Estate.

All legislative references are to the Excise Tax Act (ETA).

Facts

The following facts were provided in your submission, our telephone conversation XXXXX and your telephone conversation XXXXX with XXXXX of our XXXXX Tax Services Office.

1. XXXXX acquired XXXXX large parcels of land from XXXXX father and motherXXXXX. These parcels are located XXXXX.

2. XXXXX subdivided XXXXX lots from one of the parcels ("Parcel A") and conveyed them as follows:

•   XXXXX.

XXXXX conveyed these lots for consideration equal to the pertinent legal expenses and survey costs. None of the lots had been improved prior to the conveyances. XXXXX retained ownership of the remainder of Parcel A.

3. XXXXX did not use any of Parcel A in a business, did not sell real property in the course of a business, did not file an election under subparagraph 9(2)(b)(ii) of Part I of Schedule V, and was not a GST/HST registrant.

4. XXXXX died on XXXXX, at which time Parcel A passed to the Estate for disposal. At the time of XXXXX death, XXXXX was not a resident of Canada, having resided in XXXXX U.S.A for most of XXXXX life. The executor and beneficiaries of the Estate are not residents of Canada.

5. The Estate is not selling real property in the course of a business, and has not filed an election under subparagraph 9(2)(b)(ii) of Part I of Schedule V.

6. To make the Parcel more attractive to potential purchasers, the Estate subdivided the remainder of Parcel A to create three lots, namely XXXXX provided in your submission.

7. By deed XXXXX the Estate conveyed XXXXX.

8. XXXXX the Estate entered into an agreement of purchase and sale of XXXXX with XXXXX (the "Association"), a non-registrant, for consideration equal to $XXXXX. XXXXX consists of XXXXX unimproved woodland.

9. The proceeds of the sale will be divided between the beneficiaries of the Estate.

10. It is the intention of the Estate to sell XXXXX.

Ruling Requested

You would like to know whether the sale of XXXXX to the Association is subject to HST.

Ruling Given

The sale of XXXXX is subject to HST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues is 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

Sales of real property made in Canada are generally taxable pursuant to section 165 unless a specific provision applies to exempt them. As you are aware, section 9 of Part I of Schedule V exempts the sale of real property made by an individual or personal trust with certain exceptions.

The exception contained in paragraph 9(2)(c) of Part I of Schedule V is relevant in the present case. It provides, in part, that the supply of a part of a parcel of land by a personal trust (including the Estate) ^[xv]footnote 1 will not be exempt if the parcel was severed or subdivided by the trust or the settler ^[xvi]footnote 2 of the trust. There are exceptions to this rule. For example, where a parcel of land is subdivided or severed into only two parts and the trust or settlor did not previously subdivide or sever it from another parcel of land, paragraph 9(2)(c) does not apply.

Subject to certain exceptions, section 267 provides that Part IX of the ETA applies as though the estate of a deceased individual were the individual and the individual had not died. While the ETA recognizes an individual, the estate of a deceased individual and the personal representative of the estate to be separate persons, section 267 provides that the estate of a deceased individual has the same attributes that the individual had possessed.

Parcel A constitutes the "parcel" for purposes of paragraph 9(2)(c), while XXXXX represents a "part of a parcel" for purposes of the same provision. Since XXXXX had subdivided Parcel A more than once, paragraph 9(2)(c) applies to exclude from exemption the sale of XXXXX by the Estate ^[xvii]footnote 3. Accordingly, it is subject to HST.

ADDITIONAL COMMENTS

The facts indicate that the Estate has sold XXXXX and intends to sell XXXXX. Please note that sales of these properties by the Estate would also be subject to the HST unless, pursuant to subparagraph 9(2)(c)(ii) of Part I of Schedule V, the recipient of the property is a related individual, former spouse or former common-law partner of XXXXX, and the related individual, former spouse or former common-law partner is acquiring the property for his or her personal use and enjoyment. In that case, the sale of the property would be exempt under subsection 9(2).

We note that subsection 221(1) requires every person who makes a taxable supply to collect the tax payable by the recipient of the supply. However, given that XXXXX was not a resident of Canada, the Estate would not be required to collect the tax payable on the sale of the subject properties. In that case, the Association, as a non-registrant recipient of the supply, would be required to pay the tax payable directly to the Receiver General pursuant to paragraph 228(4)(b). Under the latter provision, the Association would be required to pay the tax on or before the last day of the month following the calendar month in which the tax became payable, using form RC-06-945, GST/HST Return for Acquisition of Real Property (copy enclosed).

Lastly, the Association's lawyer, XXXXX, expressed concern during our conversation XXXXX, that the exclusionary provisions of paragraph 9(2)(c) should not apply in the above manner because the relevant severances took place prior to the implementation of the GST/HST. We note that paragraph 9(2)(c) became effective for supplies of real property made after April 23, 1996. In his opinion, the application of the HST to the sale of XXXXX amounts to retroactive taxation.

Please note the difference between retroactive and retrospective legislation as summarized by Mr. Justice Lambert of the British Columbia Court of Appeal in Hornby Island Trust Committee et al. v. Stormwell et al., (1989) 53 D.L.R. (4th) 435:

"A retroactive statute operates forward in time, starting from a point further back in time than the date of its enactment; so it changes the legal consequences of past events as if the law had been different than it really was at the time those events occurred. A retrospective statute operates forward in time, starting only from the date of its enactment; but from that time forward, it changes the legal consequences of past events."

As previously mentioned, paragraph 9(2)(c) applies to sales of real property made after April 23, 1996. It is retrospective in that a supply of a part of a parcel of land made after that date may be excluded from the general exemption provided by subsection 9(2) depending on whether and to what extent XXXXX had subdivided or severed the parcel in the past. Whether the parcel was subdivided before or after the announcement date is not relevant.

Should you have any further questions or require clarification on the above or any other GST or HST matter, please do not hesitate to contact me at (613) 952-8816.

Yours truly,

Paul Hawtin
Rulings Officer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/05/30 — RITS 87138 — Option Agreement