5 May 1994 GST/HST Interpretation 11635-10 - Joint Tenancies Relating to Farmland

                                                                        File: 11635-10(go)

This is further to your memorandum of July 8, 1993, in which you provided us with your comments on the Department's policy on the above-noted subject. We have reviewed your comments and make the following observations.

You state that a transferee of the legal title of farmland could register for GST purposes, and thus tax would be calculated on the actual consideration, which would result in a nominal amount of tax. You referred to our letter of September 30, 1991 to XXXXX.

The XXXXX letter was written prior to the development of a formal policy on the issue. The policy eventually arrived at was necessitated by our view that where a non farming transferee was placed on title as a joint tenant, the transferee still did not have a commercial activity, since he/she was not involved in the farming business, and the use of the entire farmland by the farming joint tenant could not be said to constitute a supply by the non-farming joint tenant back to the farming joint tenant.

Accordingly, notwithstanding the XXXXX letter, registration by the non-farming joint tenant was not really an option.

The suggestion you made to condition number 3 has been adopted.

You also stated that at a Quality Assurance presentation given by Andre LaPierre of Headquarters, he stated that rulings could not be provided based on administrative policy. Please be advised that we do not distinguish, at least in any formal sense, between "administrative" policies and other policies. Rulings may be issued on the joint tenancy policy.

You inquired as to whether the policy in fact is final and, if so, when the policy will be available on the database. Please note that the policy has recently been published on the EARL and EEIS policy databases.

You also inquired about situations involving the transfer of legal title whereby the equitable interest remains unchanged. The policy was not meant to address such situations. Where farmland is transferred from a sole owner into joint tenancy and the entire fee simple is transferred (except for that portion of the fee simple that is transferred to the other joint tenant(s)), the transferee(s) would receive both the legal and equitable title, notwithstanding that the original sole owner continued to make exclusive use of the farmland. Unless there was some type of express or implied trust imposed on the interest of one or more of the joint tenants, the equitable title would follow the legal title. It is this type of situation that is addressed by the policy. You also expressed concern that the policy does not apply where the farmland is not farmed by the joint tenants, but rather is rented out either for cash or on a crop sharing basis. This was confirmed in our memorandum of May 13, 1993 to XXXXX. The rationale for this is that each joint tenant is making a supply of their interest in the farmland, by way of lease, to the lessee. Since a supply of real property is a commercial activity pursuant to paragraph (c) of the definition of "commercial activity" and, where the property is supplied by way of lease, licence or similar arrangement, it would also be caught by the definition of "business", there is no need to apply the policy. As noted above, the policy was directed at situations meeting the criteria in the policy because of our view that where a non-farming transferee was placed on title as a joint tenant, the transferee still did not have a commercial activity, since he/she was not involved in the farming business, and the use of the entire farmland by the farming joint tenant could not be said to constitute a supply by the non-farming joint tenant to the farming joint tenant. However, the question of the rental of property where there is more than one owner is not unique to farmland. It is especially troublesome where the various owners have a different registration status. This is anissue which we hope to review in the future, but we are not ready to address it at the immediate time.

Finally, you inquired about a situation where a husband and wife enter into a joint tenancy with respect to farmland in 1990 (therefore no GST). The husband dies in 1991 and the land passes to the wife on survivorship (no "supply" for GST purposes). The wife registers for GST purposes in 1991 and then subsequently deregisters in 1993. Your view is that, using paragraph 171(3)(b), section 198.1 and subsection 206(4), the wife may be required to remit tax upon deregistration. However, subparagraph 198.1(b)(iv) refers to property that was originally "supplied" to the registrant before 1991. In addition, subsection 206(4) applies where a registrant "last acquired" real property for use as capital property. Accordingly, you wish to know, legally, when did the wife "acquire" the farmland; when placed in joint tenancy, when the husband dies or a portion in both cases? Also, does the wife receive a "supply" before or after 1991 or a portion of a supply in each case? These issues are relevant in determining whether self-assessment is required and you would like a clarification.

Our view of the above situation is as follows. First, since subsection 206(4) does not apply to individuals, the reference should be to subsection 207(1). Second, it is not necessary to answer the above questions to determine whether self- assessment is required. Paragraph 198.1(b) limits the amount of recapture of input tax credits to the amount of input tax credits claimed. Since, in the above case, no input tax credits were claimed either on the creation of the joint tenancy or on the death of the husband because no tax was paid, there is no self-assessment required by the wife when she deregisters.

If you have any further questions, please contact Gunar Ozols at (613) 952-9589.

H.L. Jones
Director
General Tax Policy
Policy and Legislation

GTP: XXXXX