24 October 2005 GST/HST Ruling 58545 - Sale of Vacant Land

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 by the Corporation XXXXX of the former location of the XXXXX. Your letter was transferred to the Real Property Unit for response by the XXXXX GST/HST Rulings Centre. We apologize for the delay in providing you with this ruling.

All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. The land and building (the "Property") sold by the Corporation XXXXX (the "Municipality") is the former location of XXXXX (the "Lodge") XXXXX, which was built by the Municipality in XXXXX.

2. In XXXXX, the Municipality entered into a Purchase and Sale Agreement for the sale of the Property. The closing of the transaction was to take place on or before 60 days following the opening of the new facility.

3. In XXXXX, the Lodge was relocated to a newly constructed facility at XXXXX.

4. The Lodge, a non-profit, XXXXX long-term care facility, is owned and operated by the Municipality, and has provided care for the elderly since XXXXX. The Lodge provides residents with furnished rooms that include a fully electric bed. Residents may bring in personal items (e.g., pictures, ornaments).

5. The Lodge operates under the XXXXX Act, the XXXXX. It operates under the direction of the Ministry of XXXXX and is subject to its regulations and standards.

6. An individual wishing to apply for admission must apply through the XXXXX and be deemed eligible in accordance with provincially established criteria. The Placement Co-ordinator determines eligibility for and authorizes admission to long-term care facilities.

7. The Lodge provides 24-hour nursing and personal care, meals and snacks, activation and recreation, rehabilitation, palliative and pastoral care, housekeeping, laundry and administrative support. The Lodge also provides assistance with transportation arrangements for medical appointments.

8. The Lodge is not a facility operated for the purpose of providing medical or hospital care, including acute, rehabilitative or chronic care, and is not a hospital or institution primarily for individuals with a mental health disability.

9. The Property has been vacant since the Lodge moved to its new location, except for XXXXX square feet, of a total building area of XXXXX square feet, on the roof of the building which is being rented for a couple of XXXXX.

10. The Property has not been substantially renovated, and the Municipality has not claimed any input tax credits (ITCs) in respect of the Property.

Ruling Requested

You would like to know whether the sale of the Property by the Municipality is subject to GST.

Ruling Given

Based on the facts set out above, we rule that the supply by way of sale by the Municipality of that part of the Property that is a residential complex is an exempt supply of real property under section 5 of Part I of Schedule V. The supply by way of sale by the Municipality of that part of the Property that is not part of the residential complex is a taxable supply of real property.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. 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

Generally, a supply of real property made in Canada is taxable unless there is a specific exempting provision. Part I of Schedule V sets out certain exempting provisions in respect to the supply of real property.

Section 5 of Part I of Schedule V exempts the sale of a multiple unit residential complex by the builder of the complex where the complex was previously received as an exempt supply by way of sale, provided that certain conditions are met. This section may also apply where the builder was required to self-supply under subsection 191(3) with respect to the complex and the resulting deemed taxable supply was the last supply of the complex made to the builder by way of sale.

By virtue of section 14 of Part I of Schedule V, the self-supply rules in section 191 are deemed to have been in effect at all times before 1991 for the purposes of determining whether a sale of a residential complex constitutes an exempt sale under section 5 of Part I of Schedule V. As a result, the sale by a builder of a multiple unit residential complex constructed and occupied prior to 1991 will generally be exempt under section 5 of Part I of Schedule V, provided the conditions set out therein are met.

Section 5 of Part I of Schedule V generally provides that the subsequent sale of the multiple unit residential complex is an exempt supply provided that:

•   ITCs were not claimed with respect to the last acquisition of or improvements made to the complex after the complex was last acquired by the builder; and

•   after the complex was last received by the builder, there was not a substantial renovation of the complex.

Residential Complex / Residential Unit

A "residential complex" is defined under paragraph 123(1) to include a building or that part of a building in which one or more residential units are located, together with certain other elements such as common areas of the building, appurtenances to, and land subjacent and immediately contiguous to the building.

A "residential unit" is defined in subsection 123(1) to include:

"(b) a suite or room ... in a residence for ... seniors, individuals with disability or other individuals, or

(c) any other similar premises,

or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals ..."

A room or suite in a long-term residential care facility for seniors falls within the definition of "residential unit" in paragraph 123(1)(b). Once admitted to a long-term care facility, the room or suite assigned to the individual is normally the only place where the individual will reside for an indefinite period. As such, the facility would ordinarily be a place of residence for individuals.

Until the Lodge was relocated to its newly constructed facility at XXXXX a part of the Property was "occupied or supplied as a place of residence or lodging for individuals". Therefore, paragraph (f) of the definition of "residential unit" is met.

As a result, that part of the building in which the residential units are located, together with common areas and other appurtenances to the building, land on which the building is situated that is attributable to the residential units, and the land that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, is a "residential complex" within the definition under subsection 123(1).

Separate supplies of real property

Where a supply of real property includes a residential complex and other real property that is not part of the residential complex, subsection 136(2) will apply to deem the supply of the residential complex and that other part of the real property to be separate supplies and neither supply is incidental to the other.

Based on the foregoing, the supply by way of sale by the Municipality of that part of the Property that is a residential complex is an exempt supply of real property under section 5 of Part I of Schedule V. The supply by way of sale by the Municipality of that part of the Property that is not a residential complex (e.g., space provided to the operator of the hair salon) is a taxable supply of real property since no other exempting provision applies.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9212.

Yours truly,

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

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