Thank you for your memo dated March 9, 1993, concerning the tax liability in respect of a condominium complex and the lease of residential condominium units in the complex. We apologize for the delay in responding to your enquiry.
Our understanding of the facts is as follows:
1. XXXXX entered into a Partnership Agreement dated December 31, 1988, which formed a partnership called XXXXX[.]
2. XXXXX was formed to acquire land and to directly or indirectly construct condominium complexes.
3. The land was acquired from XXXXX and was held in 3 trust by a XXXXX with XXXXX as the beneficiary.
4. XXXXX entered into an Agreement of Purchase and Sale, dated April 14, 1989, with XXXXX. Under the terms of this Agreement, the beneficial interest that XXXXX had in a portion of the land was transferred to XXXXX, while legal title remained with the XXXXX.
5. XXXXX also entered into a Construction and Service Agreement, dated XXXXX, with XXXXX. Under the terms of this Agreement, XXXXX was to act as a general contractor and was to develop and construct a condominium complex for a fixed price of $ XXXXX, which was allocated as follows:
$ XXXXX for building the complex;
$ XXXXX for fixtures and appliances;
$ XXXXX for paving;
$ XXXXX for fencing; and
$ XXXXX for landscaping.
6. Under the terms of the Construction and Service Agreement, XXXXX also agreed to undertake the initial leasing of the project prior to the turnover date and to manage the project during this time for XXXXX for a fee of $ XXXXX.
7. XXXXX defaulted under the Partnership Agreement and XXXXX acquired its partnership interest in June 1990, which terminated the partnership. As a result of acquiring XXXXX partnership interest, XXXXX replaced XXXXX as the general contractor.
8. According to the accounting records, substantially all of the construction activities took place in 1991. As a result, the project did not qualify for a FST New Housing Rebate.
9. The condominium was registered XXXXX.
10. Since the land the condominium complex was built on had to be severed from another piece of land, legal title to the land was not transferred from the XXXXX to XXXXX until XXXXX[.]
11. The condominium units in the complex were rented out by XXXXX to tenants.
12. XXXXX was a "builder" pursuant to the definition in subsection 123(1).
13. XXXXX claimed ITCs on the construction of the building.
Interpretations Requested
1. Whether subsection 336(4) of the Excise Tax Act (the "Act") would apply to the supply of the condominium complex to XXXXX?
2. Whether XXXXX should be assessed for the tax under section 191 of the Act instead of XXXXX, since XXXXX is registered and XXXXX is not?
Interpretations Given
Subsection 336(4)
Subsection 336(4) of the Act applies to written agreements entered into before October 14, 1989, in respect of a taxable sale of a condominium complex in Canada where ownership and possession of the complex are not transferred to the purchaser under the agreement before 1991, and at any time after 1990, ownership of the complex is transferred to the purchaser under the agreement or the complex is registered as a condominium. This provision does not, however, apply in this situation since XXXXX did not enter into an agreement to buy a condominium complex. XXXXX entered into an agreement to buy land, and received beneficial ownership of the land in 1989, and another agreement to have the condominium complex built on the land.
Since the supply of the land occurred before 1991, it is not subject to the GST. GST would, however, be collectible on any services provided before 1991 where the consideration for the service became due and was paid after May 1991. GST would also be collectible on any services supplied after 1990.
Section 191
Subsection 191(1) applies where a residential condominium unit is substantially completed, and the builder of the complex gives possession of the unit to a particular person under a lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. In such cases, the builder is deemed to have made and received a taxable supply by way of sale of the unit at the later of the time the construction or substantial renovation of the unit is substantially completed and the time possession of the unit is given to the particular person. Further, the builder is deemed to have paid as a recipient and to have collected as a supplier tax in respect of the supply, calculated on the fair market value of the unit at the later of those times.
There is no requirement in this provision that the builder of the complex be a registrant before the person is required to self-assess. Furthermore, the provision clearly states that the person who is a builder and entered into the leases that gave possession of the units to the individuals is required to self-assess. Therefore, based on the information provided, XXXXX would be required to self-assess pursuant to this provision since it was a builder and gave possession of the condominium units to the individuals who occupied them as a place of residence.
We trust that our comments are of assistance to you. If you have any questions in respect of the above, please do not hesitate to contact me at (613) 954-3772.
Stanley Farber
Manager - Real Property
Tax Policy - Special Sectors
Policy and Legislation
c.c.: S. Farber
XXXXX
All Regional I & S Managers
Revenu Quebec
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