22 March 1996 GST/HST Interpretation 11650-1[3] - Real Property

                                                                        File #: 11650-1(glr)

                                                                        s. 165, 169, 171, 221, 228, 232, 268

                                                                        Fax #: (613) 990-1233

I refer to Ms. XXXXX letter of May 12, 1995 XXXXX concerning a possible situation involving the supply of real property XXXXX XXXXX[.] Please accept my apologies for the delay in this response.

XXXXX provided the following facts:

Real property was acquired by an unregistered partnership XXXXX on September 29, 1992. The vendor charged the GST on the supply of the property.

•   On September 30, 1992, the partnership entered into a trust agreement with an incorporated body (i.e., personal corporation). The Declaration of Trust states that the title holders hold an undivided 100% interest in the property for the use, benefit and advantage of the corporation. XXXXX XXXXX states that at the time of the trust, the personal corporation was not a registrant.

•   In January, 1995, the personal corporation claimed as an input tax credit (ITC) the amount of the GST paid by partnership on the acquisition of the property. As proof of payment of tax, the personal corporation provided a copy of the purchaser's statement of adjustments. This statement indicates XXXXX as purchasers. No mention is made of the existence of the trust agreement.

•   The property has been disclosed as a corporate asset and all interest and property taxes incurred in respect thereof have been paid by the personal corporation and reflected as such in the financial statements.

•   The original intent for the use of the property was to construct a building to house the operations of the business; however, it was later decided to build a house for resale.

•   The taxpayer's accountant has stated that the partnership XXXXX is prepared to provide your office with a notarized declaration stating that the partnership will not register for the GST and will not file a claim for the tax paid on this property. In addition, the partnership will state that the property is held in trust for the sole benefit of the personal corporation.

The following comments are provided regarding the above facts:

•   The supply of the real property by the vendor to the partnership was subject to the Goods and Services Tax (GST) at 7% under the provisions of subsection 165(1) of the Excise Tax Act (Act). Subsection 221(1) of the Act required the vendor to collect the tax and subsection 228(2) of the Act required the vendor to remit the tax.

•   Section 268 of the Act deems the partnership to have made and the trust to have received a supply by way of sale and purchase of the real property. The supply is deemed to have been made for consideration equal to the amount determined under the Income Tax Act to be the proceeds of the disposition of the property.

•   Subsection 221(1) requires the partnership to collect the tax and subsections 238(2) and 228(2) of the Act require the partnership to file a return and remit the tax.

•   Section 257 of the Act provides that the partnership may apply for a rebate of the tax that was paid when it acquired the property (on September 29, 1992).

•   Subsection 171(1) of the Act provides that when a small supplier becomes a registrant, the small supplier is deemed to have paid tax on all property the supplier was holding at that time for consumption, use or supply in the course of commercial activities. If the trust is a bare trust, the personal corporation, as beneficiary, would be eligible to claim an ITC under the provisions of subsection 169(1) of the Act. If the trust is not a bare trust, it is the trust that would be eligible to claim an ITC provided, of course, that the trust became a registrant. The ITC to be claimed would be based on the value of the consideration determined under section 268.

If you require further information, please contact Ms. Anny Roy at (613) 954-2560, Mr. Serge Bernier at (613) 952-9580, Mr. Gerry O'Reilley at (613) 952-9589, Mr. Lalith Kottachchi at (613) 952-9588 or Mr. François Paris at (613) 952-8812.

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch