Dear XXXXX:
This is in response to your telephone conversations with Mr. Don Dawson and your facsimile message of January 17, 1996, concerning the application of GST to supplies made in connection with the finishing of houses by the XXXXX[.]
Facts
1. Most individuals who contract to have a builder construct a residential complex for them choose a lot owned by the builder. The title to the lot is usually transferred to the purchasers, so that a new mortgage can be put on the land to fund the construction of the house. The amount of the purchaser's equity in the project can vary from a low of XXXXX to a considerably higher percentage.
There are other situations where the builder retains ownership of the property until construction is completed, and other situations where the purchaser already owns the land and is merely contracting for the construction of a house on his or her own land. However, in every case where a purchaser contracts to have a residential complex built to his or her specifications, some money will have been paid to the builder by the purchaser prior to the completion of the residential complex or the insolvency of the builder.
2. Usually, the new housing rebate has already been assigned to the builder, in order to reduce the net purchase price of the house. Therefore, the amount that the purchaser has agreed to pay allows for the fact that the builder is to receive the rebate that would otherwise have been payable to the purchaser.
3. Any payments made by the purchaser to the builder for a new residential complex will include applicable GST, which the builder is liable to remit to the Department. However, a builder who has become insolvent will often fail to remit GST paid by the purchaser. Also, the insolvent builder usually has unpaid debts with sub-trades and suppliers who were involved in the construction of the residential complex, and who could therefore place liens on the property.
4. When a builder of residential complexes in XXXXX becomes insolvent, the XXXXX completes the builder's unfinished residential complexes if the builder is a member of the Program. The Program is a non-profit XXXXX corporation which has over XXXXX residential home builders as members. It provides consumer protection warranties to cover individuals purchasing new residential complexes from builder members, in order to ensure that the individuals receive completed homes for the price already contracted with the insolvent builder.
5. If a builder becomes insolvent during the construction of a residential complex which the intended occupant has paid for in whole or in part, the Program takes over the builder's role in completing the construction of the residential complex. The Program also pays the builder's outstanding debts to sub-trades and suppliers, in order to clear builders' liens.
6. In return, the Program requires the purchaser to pay to the Program the amount that he or she contracted to pay for the house, less any amounts already paid by the purchaser to the insolvent builder. The Program is a registrant, and remits any GST that it has itself collected from the purchaser as part of the purchase price of the residential complex. However, the Program does not remit to the Department any GST that the builder collected but failed to remit.
7. The Program requires the purchaser to assign the new housing rebate to the Program if the amount that the purchaser was liable to pay for the residential complex was adjusted to allow for the rebate being assigned to the builder. The purchaser is asked to fill out GST form 190E, listing the Program as the builder of the residential complex, even though the purchaser will have previously filled out GST form 190E, listing the insolvent builder as the builder of the residential complex.
Questions
1. Is the Program entitled to claim the new housing rebate that the purchaser had originally assigned to the builder, before the builder became bankrupt?
2. Could the Program and the insolvent builder be held to be jointly and severally liable for GST in respect of the supply of the residential complex to the purchaser?
Response
1. Whether it is possible for the Program to be considered the builder of a residential complex or to receive a rebate that were previously assigned to an insolvent builder would depend on the circumstances of each case. It would depend on what activities were carried out by the Program, the builder and the purchaser, and what contracts were made between the different parties. However, if an individual's right to a new housing rebate has already been assigned to a builder who has since become insolvent, it might be difficult to re-assign the rebate to a different person without the consent of the insolvent builder and its creditors.
2. Whether or not the Program and the insolvent builder would be jointly and severally liable for GST in respect of the supply of a residential unit to a purchaser would depend on the circumstances of the particular case. If the Program has assumed the contractual rights and obligations of the insolvent builder, pursuant to an agreement with the insolvent builder or its receiver in bankruptcy, the Program may well be liable for any GST collected by the builder and not remitted.
If you were to supply the details of a specific case, we would be happy to provide you with our input. However, given the different scenarios that are possible, with different details that could alter the tax liabilities of the different parties, we regret that no general guidelines can be provided for dealing with such cases.
If you require any further information concerning this matter, please contact Mr. Don Dawson at (613) 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11870-4-2
Ref. s. 254
(DD)Document #1610
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