21 March 2007 GST/HST Interpretation 81870 - 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 fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the acquisition of farmland held in joint tenancy.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

We understand the scenario that you presented as follows:

1. Mr. X, a sole proprietor, has farmed a particular parcel of land (the "original parcel") all his life and is registered for GST purposes. Mr. X has sole ownership of the original parcel.

2. Mr. X wishes to buy additional land (the "new parcel") for use in his farming business. The purchase of the new parcel is subject to GST/HST.

3. Both Mr. X and his spouse will sign the agreement of purchase and sale for the new parcel. Mr. X will hold the land as a joint tenant with his spouse.

4. For estate planning purposes, Mr. X will transfer title to the original parcel to his spouse and himself as joint tenants for no consideration.

5. Mr. X's spouse is not directly involved in the farming operation. His spouse earns no business income from either parcel of land and is not otherwise engaged in commercial activities. Mr. X's spouse is not registered for GST/HST purposes.

6. The farming business will remain a sole proprietorship of Mr. X that will be carried out on both parcels following the acquisition of the new parcel and the transfer of the original parcel.

Interpretation Requested

You would like to know whether the Canada Revenue Agency (CRA) continues to support the position delineated in former policy statements P-109, Transfer of Farmland by a Farmer, Holding Sole Title, to One or More Related Persons and Themselves as Joint Tenants and P-183, Acquisition of Farmland in Joint Tenancy. Specifically, you wish to know:

1. whether Mr. X in the above scenario may alone account for the GST/HST payable on the acquisition of the new parcel in his regular GST/HST return and claim a full input tax credit ("ITC") in respect of this GST/HST payable, and

2. whether, as a result of section 155, Mr. X must charge and collect GST/HST from his spouse when the spouse becomes a joint tenant of the original parcel.

Interpretation Given

The CRA continues to support the policy decisions made in former policy statements P-109 and P-183. Although these policy statements are obsolete, the decisions taken in these statements are now contained in paragraphs 76 to 97 of GST/HST Memorandum 19.5, Land and Associated Real Property (enclosed).

1. Acquisition of Farmland in Joint Tenancy

It is the CRA's continued position that where the four conditions that are included in paragraph 88 of GST/HST Memorandum 19.5 are met, a registered farming joint tenant may account for the GST/HST payable on the acquisition of farmland in his/her regular GST/HST return and claim a full ITC in respect of this GST/HST payable as if the farmland had been acquired in the farming joint tenant's name alone provided the farmland is used exclusively in the farming joint tenant's commercial activities.

The four conditions that must be satisfied are summarized as follows. Reference should be made to paragraph 88 of GST/HST Memorandum 19.5 for more information.

•   The farming joint tenant is a party to the agreement of purchase and sale.

•   The non-farming joint tenant is neither currently registered nor eligible to register and the only reason the non-farming joint tenant would otherwise wish to register is to ensure that any available ITC is claimed.

•   The non-farming joint tenant does not receive any proceeds from the farming business that are business income earned on the individual's own account for income tax purposes.

•   There must be an acquisition of farmland as joint tenants by the individual who operates the farm and who is registered for GST/HST purposes, and by one or more "related individuals", as defined in subsection 126(2), which would include the individual's spouse, who are not eligible to register in respect of the farming business.

2. Transfer of Farmland from Sole Ownership to Joint Tenancy

Although the transfer of farmland from sole ownership to joint tenancy for estate planning purposes constitutes a taxable supply, it is the CRA's continued position that where the conditions that are included in paragraph 78 of GST/HST Memorandum 19.5 are met, the CRA will not apply section 155. As a result, a farming joint tenant will not be required to charge and collect GST/HST in respect of the transfer to the non-farming joint tenant.

The conditions that must be satisfied are summarized as follows. Reference should be made to paragraph 78 of GST/HST Memorandum 19.5 for more information.

•   The transfer of the farmland does not result in any change of use of the farmland from business use to personal use. The land continues to be used solely in the farming operation as it was prior to the transfer into joint tenancy.

•   The consideration paid by the non-farming joint tenant to effect the transfer is nil or a nominal amount.

•   The non-farming joint tenant is not currently registered and the only reason the non-farming joint tenant would otherwise register would be to avoid the effect of section 155.

•   The non-farming joint tenant does not receive any proceeds from the farming business that are business income earned on the individual's own account for income tax purposes.

•   The individual who operates the farm must transfer the farmland into joint tenancy with himself/herself and one or more "related person", as defined in subsection 126(2), which would include the individual's spouse.

•   The non-farming joint tenant is not involved in the farming business independently of the individual's own account and the farming operation is not a partnership.

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 CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call Marcel Boivin, Manager of the Real Property Unit at 613-954-3772.

Yours truly,

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

2007/02/21 — RITS 82036 — [83% Public Service Body (PSB) Rebate]