Dear XXXXX
This concerns your memo of May 3, 1995, to Mr. Don Gagnon, concerning the application of GST to the supply by way of sale of a vacant lot. Our response is as follows.
Facts
XXXXX supplied a vacant building lot by way of sale to XXXXX. XXXXX has advised you that clause 23 of the agreement of purchase and sale states that, if the transaction is subject to GST, such GST will be in addition to, and not included in, the purchase price of the property. Clause 23 also indicated that if the transaction is not subject to GST, the vendor would provide to the purchaser or to the purchaser's solicitor a certification that the transaction is not subject to GST.
XXXXX subsequently supplied the purchasers with a document labelled XXXXX which stated that XXXXX was not a "builder" of the property, and that the sale of the subject property was an 'exempt supply" within the meaning of section 123(1) of the Excise Tax Act (ETA). The XXXXX does not refer to any specific sections or subsections of the ETA, other than subsection 123(1).
XXXXX subsequently had their solicitor send a writ to the XXXXX stating that the XXXXX knew or should have known that GST was payable on the consideration for the supply, and requesting payment on a tax extra basis. The XXXXX paid the amount demanded in the writ, but questioned whether they were legally obliged to pay it.
Questions
1. Was XXXXX correct in asserting that GST was owing in the amount of seven percent of the consideration originally charged, or would section 194 of the ETA apply, so that the amount of tax owing would be 7/107 of the consideration for the supply?
2. Does Policy P-118 conflict with section 194 in stating that tax-extra assessments may be made instances where the supplier indicated on the existing invoice or sales documentation that prices shown or the goods supplied are GST exempt?
Response
1. The vendor is liable to remit 7/107 of the total of the combined amount of consideration and GST paid or payable by the vendor. The total of the combined amount of consideration and GST payable by the purchasers to the vendor by is a matter to be resolved by the purchasers and the vendor.
Unless there was evidence that the purchasers knew or ought to have known that GST was payable on the supply, the vendor originally would have been liable, pursuant to section 194 of the ETA, to remit GST in the amount of 7/107 of the total amount paid or payable as consideration for the supply of real property that the vendor indicated was exempt of tax at the time of sale. However, if the total amount payable was subsequently increased, more GST would have to be remitted by the vendor. Subsection 165(1) of the ETA indicates that every recipient of a taxable supply shall remit seven percent of the value of the consideration for the supply. Therefore, the vendor is liable to remit 7/107 of the combined amount of consideration and GST.
2. Policy P-118 does not mention section 194 in its discussion of whether assessments should be GST extra or GST exempt. The policy in P-118 seems to conflict with section 194 in stating that assessments can be GST extra in cases where the supplier indicated that the supply is GST exempt. This policy would obviously not apply in cases where real property is supplied by way of sale.
Section 194 states that, where a supplier makes a taxable supply by way of sale of real property and incorrectly states or certifies in writing that the supply is an exempt supply pursuant to sections 2 to 5.3, 8 and 9 of Part I of Schedule V to the ETA, assessments should be on a tax included basis unless the recipient knows or ought to have known that the supply is taxable. We will recommend that Policy P-118 be amended in order to bring it into line with section 194. 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/VI/V
Doc. #1425
September 21, 1995
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