Dear XXXXX
Reference is made to your letter of January 24, 1992 and also our subsequent telephone conversation (XXXXX) concerning the sale of an interest in real property.
As you have described it, a company is a member of a joint venture. Legal title to the real estate held by the joint venture is held by a bare trustee. The company has disposed of its interest in the joint venture, and thus the beneficial ownership of the real property, to a GST registrant. The real property is commercial property. It is your understanding that the supply of an equitable interest in real property is considered a sale within the meaning of the Excise Tax Act (the "Act") and therefore qualifies for the self-assessment provision in subsection 221(2) of the Act.
As was discussed over the telephone, the question touches on a number of other issues. These include whether the disposition of the company's joint venture interest is synonymous with the disposition of its beneficial ownership in the real property, and the fact that an interest in a trust is included in the definition of "financial instrument" in subsection 123(1) of the Act. However, you informed us that you had spoken to other officials here in the Department on these other issues, and the concern in your letter is simply whether the supply of an equitable interest in real property can be a sale for purposes of subsection 221(2) of the Act. Our answer, therefore, will address only this question, but could be affected by the answers to the other related issues.
Subsection 221(2) of the Act applies when there is a "taxable supply of real property by way of sale". The definition of "real property" in subsection 123(1) of the Act includes an "interest in real property whether legal or equitable" and therefore a beneficial interest in real property, where the legal interest (title) is held by a bare trust, would qualify as real property under the Act. The definition of "sale" in subsection 123(1) of the Act includes "a transfer of the ownership of the property". Since the ownership of real property can include legal and equitable (beneficial) ownership, the reference to "ownership" in the definition of sale is not limited to the legal ownership. Thus, where the supply is in fact a transfer of the beneficial ownership of the real property, subsection 221(2) will apply, provided the other conditions set out in the subsection are met. On the other hand, a supply of an interest in a trust, depending on the circumstances, could be a financial service as defined in the Act, and therefore an exempt, and not a taxable, supply.
This interpretation is based upon our current understanding of the Excise Tax Act and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
Should you require further information on any matter covered by this letter, please do not hesitate to contact Gunar Ozols at (613) 952-9589. If you require clarification on any other matter, your local Excise office can assist you.
Yours truly,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
Goods and Services Tax
XXXXX
XXXXX
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