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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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XXXXX
XXXXX
XXXXX
XXXXX
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XXXXX
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Case Number: 58133
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January 31, 2008
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Subject:
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GST/HST RULING
Transfers of farmland
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Dear XXXXX:
Thank you for your facsimiles XXXXX, concerning the application of the Goods and Services Tax (GST) to the transfer of ownership of farmland. We apologize for the delay in providing you with this response.
Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the CRA Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.
You originally requested an interpretation on behalf of XXXXX (the XXXXX Partnership) concerning various transfers of ownership of farmland. You subsequently requested a ruling and submitted additional information on XXXXX.
After reviewing the information you have provided, we are able to issue a ruling only with respect to those transactions of farmland for which land transfer documents were submitted. We acknowledge that you have submitted additional information on similar transactions involving other parts of the farmland, however we do not have sufficient information to provide a ruling on those transactions at this time. Should you provide the additional land transfer documents with respect to those transactions of farmland at a later time, we would be pleased to provide you with a ruling at that time.
Since all transactions occurred in the province of XXXXX, reference is only made to the GST and not to the Harmonized Sales Tax (HST). All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
Statement of Facts
We understand the pertinent facts of your request for a ruling to be as follows.
1) XXXXX (the Partners) entered into a written Partnership Agreement dated XXXXX. The Partnership Agreement states that the Partners entered XXXXX.
2) Other relevant provisions of the Partnership Agreement are as follows:
(a) The partnership was formed XXXXX, under the name and style of XXXXX.
(b) The Partners are required to contribute equally to the business of the XXXXX Partnership their time, labour, and attention as from time to time may be required and it is their intention to each contribute equally to the management of the affairs of the XXXXX Partnership.
(c) All profits and losses of the XXXXX Partnership shall be divided equally. All expenses incurred in the course of the business and losses arising there from, shall be born out of the earnings of the business, or in the case of a deficiency, the losses shall be paid by the Partners in equal shares.
(d) Upon termination of the XXXXX Partnership, the assets of the business shall be realized and applied first in payment of the debts and liabilities of the business and any surplus shall be divided equally between the Partners.
(e) The Partners acknowledge that the total initial capitalization of the XXXXX Partnership shall be $XXXXX; and each Partner shall be deemed to have contributed the sum of $XXXXX to the XXXXX Partnership.
(f) Also, pursuant to the Partnership Agreement, the subject land and premises were to be purchased from XXXXX.
3) The XXXXX Partnership is a partnership in accordance with the XXXXX.
4) XXXXX
5) The XXXXX Partnership registered as a partnership for GST purposes on XXXXX, and has remained registered up to the date of this ruling. None of the XXXXX Partners are GST registrants outside of the XXXXX Partnership.
6) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland. At the time of its purchase this farmland consisted of XXXXX legally divided parcels described as:
XXXXX
7) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland XXXXX. At the time of its purchase this farmland consisted of XXXXX legally divided parcels described as:
XXXXX
8) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland XXXXX. At the time of its purchase this farmland consisted of one legally divided parcel described as:
XXXXX.
9) For purposes of this ruling, the parcels of farmland described in paragraphs 6, 7 and 8 of this Statement of Facts are referred to collectively as the "Original Property".
10) The Original Property was purchased by the Partners as members of the XXXXX Partnership in the course of the activities of the XXXXX Partnership.
11) On or before XXXXX, the Original Property was subdivided into several legally divided parts. In some cases, parts of the Original Property were considered for GST purposes to have been consolidated into one parcel immediately prior to being subdivided into legally divided parts.
12) From the time of its acquisition by the Partners, as partnership property, until the time of the transactions described below under the heading Transaction of Farmland, the Original Property (or its subdivided parts) was capital property used exclusively by the XXXXX Partnership in the business of farming.
13) Pursuant to Transfer/Deed of Land documents, ownership of certain legally divided parts of the Original Property were transferred from the Partners to a particular Partner and that Partner's spouse, as joint tenants.
14) Following the transfer of those legally divided parts of the Original Property to the Partners and their spouses, the XXXXX Partnership continued to use those parts in the business of farming.
15) Ownership of one legally divided part was transferred from the Partners to a third party. The proceeds from the sale of this part were used to pay for the subdivision of the Original Property and related costs.
16) The subdivision of the Original Property into legally divided parts and the transfers of ownership were carried out for estate planning purposes.
TRANSACTIONS OF FARMLAND
Pursuant to Transfer/Deed of Land documents XXXXX, the Partners transferred ownership of the following legally divided parts of the Original Property. Ownership of these parts of the Original Property was transferred by the Partners in the course of the XXXXX Partnership's activities. At the time of these transactions, the legally divided parts did not include a "residential complex" as defined in subsection 123(1), or an interest therein.
1. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. These legally divided parts are also described on the documents as XXXXX.
2. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.
3. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.
4. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.
5. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.
Ruling Requested
Are the transfers of ownership described above subject to GST?
Ruling Given
Based on the facts set out above, we rule that:
1. The transfers of ownership of the legally divided parts of the Original Property, as described under the heading Transactions of Farmland, are supplies of real property by way of sale deemed to be made by the XXXXX Partnership.
2. The supplies of real property, as described under the heading Transactions of Farmland, made by the XXXXX Partnership are subject to GST at the rate of 7%.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings 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. For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
Explanation
For GST purposes, sales of real property include any transfer of ownership of the property or of its legally divided parts. All sales of real property are subject to GST unless an exemption in Schedule V to the ETA applies.
Special Rules for Partnerships
For GST purposes, a partnership is defined as a "person" in subsection 123(1). Subsection 272.1(1) deems anything done by a member of a partnership (i.e., a partner) in the course of the partnership's activities to have been done by the partnership and not to have been done by the partner.
Supplies of Real Property to the XXXXX Partnership
The transfers of ownership of the Original Property as described in paragraphs 6, 7 and 8 of the Statement of Facts are sales of real property for GST purposes. Since the Partners acquired ownership of the Original Property as members of the XXXXX Partnership in course of the activities of the XXXXX Partnership, under subsection 272.1(1) the XXXXX Partnership is considered to have acquired ownership of the Original Property. No GST is payable in respect of these sales, since ownership of the real property was transferred to the XXXXX Partnership before 1991.
Supplies of Real Property by the XXXXX Partnership
Transfers of ownership of the legally divided parts of the Original Property as described in paragraphs 1 to 5 under the heading Transactions of Farmland are sales of real property for GST purposes. These sales of real property made by the XXXXX Partnership are subject to GST, as no exemption applies.
In fact, all sales of legally divided parts of the Original Property made by the XXXXX Partnership are subject to GST unless section 12 of Part I of Schedule V to the ETA applies to exempt a sale from GST. In this case, section 12 may apply if the sale of a legally divided part is made to a Partner and that Partner's spouse where, immediately after the time of the sale, the legally divided part is for their personal use and enjoyment.
Therefore, the sale of any legally divided part of the Original Property made by the XXXXX Partnership to any particular Partner and to that Partner's spouse, as joint tenants, are supplies of real property that are subject to GST where, immediately after the time ownership of that part is transferred, that part continues to be used in the business of farming. Also, the sale of a legally divided part of the Original Property made by the XXXXX Partnership to an unrelated third party XXXXX, is a supply of real property that is subject to GST.
For all taxable sales of real property where either the transfer of ownership or the transfer of possession under an agreement to transfer ownership occurs before July 1, 2006, the GST is calculated at the rate of 7% on the consideration paid or payable for the supply.
Fair Market Value (FMV)
In this case, the sales of real property by the XXXXX Partnership to a partner are considered to be made for consideration equal to the FMV of the real property. As such, the XXXXX Partnership is required to collect tax calculated on the FMV of the real property it has supplied to a partner. In accordance with subsection 126(1), related persons are deemed not to deal with each other at arm's length and it is a question of fact whether persons not related to each other were, at any particular time, dealing with each other at arm's length. As a result, it is a question of fact whether a spouse of a partner and the partnership are, at any particular time, dealing with each other at arm's length. Where in fact the spouse of a partner is not dealing at arm's length with the partnership and the spouse is not a registrant who acquires the real property for consumption, use or supply exclusively in its commercial activities, subsection 155(1) will apply to a sale made by the partnership to the spouse and deem the consideration for the supply of the real property to be equal to the FMV of the real property if the actual consideration paid is less than the FMV. In this case, if subsection 155(1) applies, the XXXXX Partnership would be required to collect tax calculated on the FMV of the real property it has supplied to a non-arm's length Partner and to the Partner's spouse, as joint tenants.
With respect to the transfers of the Original Property or its legally divided parts as described above under the heading Transactions of Farmland, the XXXXX Partnership ceased to own those parts of the Original Property once the transfers were made. Therefore, to enable the XXXXX Partnership to continue to use, in the business of farming, those parts that were transferred to the Partners and their spouses, each of the Partners and their spouses are considered for GST purposes to be supplying the right to use those parts to the XXXXX Partnership by way of lease, licence or similar arrangement. Additional information is required to determine whether GST may apply in respect of these supplies.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 954-8852. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Daryl J.A. Hooley
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2008/03/03 — RITS 76810 — Exempt Financial Services
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