Dear sir:
This is in response to your facsimile message of April 12, 1995, to Mr. Don Gagnon, concerning the application of GST to the supply of a building that was being used partially as a bed and breakfast business and partially as a place of residence. We regret the delay in responding.
Facts
A non-registered individual uses sixty percent of a building in the operation of a bed and breakfast business and uses the other forty percent of the building as his place of residence. The building was built before the implementation of GST, and no major renovations have been undertaken since. Being a non-registrant, the individual operating the bed and breakfast business has not claimed any input tax credits in respect of inputs pertaining to the property. He wishes to sell the building to an individual who is not a GST registrant and who intends to use the building solely as a place of residence.
During your discussion with Don Dawson on January 11, 1996, you indicated that, unlike most buildings used for bed and breakfast businesses, the building at issue did not have any common areas that were used partly for residential purposes and partly for business purposes. Instead, there was a definite segregation of the space, with forty percent of the building being used solely as a residential complex and sixty percent being used solely in a bed and breakfast business.
Question
What are the GST consequences of the original owner's sale of the building that he had used for both commercial and residential purposes, and the purchaser's decision to use the entire property exclusively as a residential complex?
Response
It is the circumstances of the sale of the building, and not the intended use by the purchaser, that determines the GST status of the transaction.
You indicated that, in your view, sixty percent of the consideration for the supply of property by way of sale would be taxable and forty percent exempt, because forty percent of the building is a "residential complex" as defined by subsection 123(1) of the Excise Tax Act. During your telephone conversation of September 14, 1995, you indicated that you believed subsection 136(2) would deem the transaction to consist of two separate supplies, and that the forty percent of the building that is used as a residential complex would be exempted by section 2 of Part I of Schedule V to the ETA.
Subsection 136(2) states, among other things, that if a supply of real property includes a part of a building that forms part of a residential complex and also includes other real property that is not part of, and is not reasonably expected to form part of a residential complex, the supply is deemed to be two separate supplies. In the case at issue, since the building is strictly segregated between the part that is used solely for a residential complex and the part that is used solely in a bed and breakfast business, it is possible to consider the portion used in business as a part of the building that could not reasonably be expected to form part of a residential complex.
The supply of that portion of the building that was used as a residential complex is exempted by section 2 of Part I of Schedule V to the ETA, as the sale of a residential complex by a person who is not a builder, and who has not claimed input tax credits in respect of the last acquisition of the building, or in respect of an improvement to it.
The supply of that portion of the building that was used in a bed and breakfast business is not exempted by any provision of the ETA. Therefore, it is taxable.
If you require any further information concerning this matter, please contact Mr. Don Dawson at 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11950-1
Ref. 25/III/V
Document #1464
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