29 July 2005 GST/HST Ruling 59279 - AND INTERPRETATION 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:

XXXXX your Member of Parliament's office brought to our attention your concerns regarding the Ruling and Interpretation letters that you received from the XXXXX GST/HST Rulings Centre. I refer to your letter XXXXX and facsimile XXXXX (with attachments) both addressed to the XXXXX GST/HST Rulings Centre, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to construction of your new home. It is our understanding that you wish our office to review the facts surrounding your request and respond directly to you.

We have reviewed the letter XXXXX issued by the XXXXX GST/HST Rulings Centre on this matter and given careful consideration to your correspondence. Based on our review, we have concluded that the contractor is making a taxable supply of construction services to you. The total agreed upon price for this supply as stated in the contract is $XXXXX, subject to changes or adjustments to the selling price as referred to in the agreement. The method or manner the contractor uses to arrive at this price is strictly a matter of contract between the parties. Once the total price is agreed upon, and in your situation where the price was subject to changes for additional work and adjustments as referred to in the agreement, the GST applies to the total price. It does not matter how that price was determined.

Our review of the documentation indicates that the GST paid by the Contractor on goods acquired from various suppliers to construct your new home was GST incurred by the Contractor. As stated in the agreement between yourselves and the Contractor, the total agreed price to be paid by the Purchasers to the Contractor is the sum of XXXXX PLUS the GST, subject to changes or adjustments to the selling price as referred to in the agreement. Included in this price were the Contractor's inputs, that is, materials and services obtained from various suppliers used in the construction of your home. In brief, the agreement states that included in the said sum (agreed price) are allowances (including all taxes) for the various items at the respective costs indicated. The agreement further states that should the costs of any of the items that are billed to the Contractor exceed those set out, the Purchasers then shall pay to the Contractor the excess amount. If the cost shown for any item should be less, the Contractor then shall rebate to the Purchasers the amount of the difference, the said adjustment to occur on the final payment.

We also reviewed the quotation letter XXXXX given to the Purchasers by the Contractor establishing the price for the house at $XXXXX plus GST, subject to changes or adjustments to the selling price as referred to in the agreement. It also included the following statement: "Price includes all materials, sub-contractors, labour, allowances & PST." In respect of the allowances, a separate listing was provided with the quotation itemizing the allowances to be provided. It states in the preamble to the Allowances listing that "All allowances include PST & GST". This indicates that the Contractor's cost of acquiring inputs, that is, materials and services obtained from various suppliers used in construction of your new home plus any applicable taxes that were payable by the Contractor, were incorporated into the selling price of $XXXXX subject to changes or adjustments to the selling price as referred to in the agreement, this amount being the total price subject to GST.

A registered contractor would be entitled to input tax credits (ITCs) for the GST/HST paid on inputs used in providing you the construction services. However, whether or not an ITC is available or even claimed by the contractor does not impact on the tax that is payable by you on the construction services provided to you by the contractor.

In conclusion, based on our review of the documentation, the GST paid by the Contractor, on the materials and services obtained from various suppliers used in construction of your new home, was GST incurred by the Contractor and not by yourselves. Consequently, GST is applicable to the agreed selling price of $XXXXX subject to changes or adjustments to the selling price as referred to in the agreement.

Please note that the Canada Revenue Agency (CRA) is unable to comment on any concerns with respect to the terms or the wording of an agreement as it applies to matters that are not subject to the application or administration of the legislation for which the CRA is responsible.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Owen Newell, Manager, General Operations Unit at (613) 952-0301.

Yours truly,

John Sitka
Director
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/08/26 — RITS 62207 — Application of GST/HST to Employee Gifts