11650-7 (pl)
Section 175 & Sch. V
Dear XXXXX
Thank you for your letter dated December 19, 1995, in which XXXXX of your office requests a GST interpretation of section 175 and Schedule V to the Excise Tax Act (the "ETA") concerning a registrant's input tax credit ("ITC") entitlement on removal expenses incurred when relocating employees to a new work location.
Statement of Facts:
Our understanding of the relevant facts presented by XXXXX are as follows:
• for purposes of relocating an employee to a new work location, XXXXX (the "registrant") will on occasion purchase at fair market value the employee's home (the "property") located near the previous work location;
• the registrant will then sell the property and incur selling expenses (e.g., legal fees and real estate commissions) for which GST is charged and paid for by the registrant. These expenses are considered to be removal (relocation) expenses incurred by the registrant to relocate the employee;
• in their letter dated XXXXX, the registrant requested a GST interpretation as to whether they would be entitled to claim an ITC with respect to the GST paid on the removal expenses;
• in your letter dated XXXXX, it is stated (based on the answer to Q10747 in the Q. & A. database) that the registrant would not be entitled to an ITC on the said expenses since the purchase and subsequent sale of the property by the registrant is considered to be an exempt activity. However, it is also stated in your letter that if the registrant would have reimbursed the employee for these costs rather than incur the removal expenses themselves, section 175 of the ETA may apply and allow an ITC to the registrant by virtue of section 169 of the ETA.
You have asked that we provide the Department's rationale that was used to determine the application of the GST in the circumstances described above.
The Department's Position
Generally, the sale of a used residential complex (other than those "substantially renovated") will be exempt. In particular, section 2 of Part I of Schedule V to the ETA exempts the sale of:
(i) a residential complex by a person who is not a builder; or
[(]ii) in the case of an addition to a multiple unit residential complex, by a person who is not the builder of the addition.
Therefore, it is important to establish whether the registrant is a builder for purposes of determining whether the sale of a residential complex is taxable or exempt (and, accordingly, whether ITCs will be allowed on the GST paid on the selling expenses). A person will be considered to be a builder of a residential complex or an addition to a multiple unit residential complex if, pursuant to its definition in subsection 123(1) of the ETA:
1. the person has an interest in the real property on which a residential complex or addition is being constructed or substantially renovated;
2. the person supplies a mobile home or floating home before it has been used or occupied as a place of residence (includes manufacturers and dealers);
3. the person acquires an interest in the residential complex for the primary purpose of selling the complex or interest in the complex at the time when:
a) in the case of a condominium complex or residential condominium unit, it is not yet registered as a condominium, or
b) in the case of any residential complex, it has not yet been occupied by an individual as a place of residence or lodging under any arrangement for that purpose;
4. the person is deemed under subsection 190(1) of the ETA (conversion to residential use) to be a builder.
With this in mind and based on the facts of this case, we agree with your interpretation that the registrant is not considered to be a builder pursuant to its definition thereby making the supply of the property to be an exempt supply. Moreover, since the definition of commercial activity under subsection 123(1) of the ETA excepts a business which involves the making of exempt supplies, the registrant does not satisfy the general provision for claiming an ITC [e.g., paragraph 169(1)(c) of the ETA says "... the extent to which the person acquired or imported the property or service for consumption, use or supply in the course of commercial activities of the person."
XXXXX
With respect to the rationale for allowing an ITC where the registrant reimburses the employee for the GST paid on the removal expenses incurred by the employee on the property, as long as the employee is involved in the commercial activities of the registrant and the employee's relocation is necessary for the registrant's commercial activities, the reimbursement will be considered to have been made in the course of the registrant's commercial activities. Accordingly, if the amount reimbursed includes GST, section 175 of the ETA will deem the tax to have been paid by the registrant which will allow the registrant to claim an ITC equal to the GST included on the amount reimbursed by virtue of section 169 of the ETA.
If you require further information, please contact Paul Lafond, Policy Officer, ITC and Co-ordination Unit at (613) 954-9700.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD #: 1568 (REG)
| c.c.: |
M. Matthews
P. Lafond |
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