Doc. #1401
Dear sir:
This is in response to your E-mail message of August 15, 1995, to Don Gagnon concerning the application of paragraph 25(d) of Part VI of Schedule V to the Excise Tax Act (ETA), in a case where an election made pursuant to section 211 of the ETA would be revoked. We regret the delay in replying.
Facts
A municipality filed an election pursuant to section 211 of the ETA with respect to real property that is capital property of the municipality. The long term lease of this property for commercial use was therefore excluded from the exempting provisions of section 25 of Part VI, by reason of paragraph 25(g). Since the supply of real property by way of lease was not exempted by any other provision of the ETA, it was taxable.
The municipality now wishes to sell the property to a business that makes only exempt supplies. Consequently, the proposed recipient of the real property will not be able to claim any available input tax credits for GST paid or payable on the purchase of the real property. The municipality therefore wishes to revoke its election made pursuant to section 211, and treat the sale of the property as a supply of real property that is exempted by section 25 of Part VI.
Question #1
If the revocation of this election is made at the time the lease is terminated (i.e. August 31, 1995) and the property is sold by the municipality the following day (i. e. September 1, 1995), would the sale of the real property still be taxable under paragraph 25(d) of Part VI of Schedule V to the ETA?
Response
If a taxpayer requests an advance ruling, the request should be forwarded to Headquarters, as specified in GST Memorandum 1.4. The following is for informational purposes only.
Revocation of the section 211 election will not make the supply of the real property to a third party tax exempt, because the definition of "commercial activity" in subsection 123(1) of the ETA contains special rules regarding supplies of real property.
If the municipality revokes its section 211 election, subsection 211(4) will deem the municipality to have made a taxable supply of the real property to itself. This deemed supply will constitute commercial activity, because subsection 123(1) of the ETA defines commercial activity to include the making of any supply of real property, other than an exempt supply. The subsequent supply of the real property to the third party would therefore be excluded from section 25 of Part VI, by virtue of paragraph 25(d). Paragraph 25(d) excludes from the exempting provisions of section 25 any supply of real property where, immediately before the time tax would be payable if it were an exempt supply, the real property was used primarily in commercial activities. Since the supply does not appear to be exempted by any other provision of the ETA, it is taxable.
Question #2
What is meant by "immediately" in paragraph 25(d) of Part VI of Schedule V to the ETA? Would "immediately" include real property that was left idle for a couple of days? A couple of weeks?
Response
The word "immediately" refers to a transaction, not a period of time. If the last transaction that occurred before the transaction under consideration is a taxable transaction, subsection 25(d) excludes the transaction under consideration from the exempting provisions of section 25.
If you require any further information concerning this matter, please contact Don Dawson at (613) 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11950-1
Ref. s. 211
Domus #1585
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