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This is in response to your E-mail of October 26, 1994, in which you present two issues dealing with the Goods and Services Tax (GST) new housing rebate for our consideration. We apologize for the delay in responding.
Issue #1
Statement of Facts
1. A "builder", as defined in subsection 123(1) of the Act, constructs and supplies by way of sale a substantially completed single unit residential complex to an individual who intends to occupy it as his/her primary place of residence.
2. Upon taking possession of the complex, the individual undertakes further improvements such as installing a roof over the patio, an underground irrigation system, a fence along the perimeter of the property and finishing the basement.
3. The builder of the complex is not the supplier of these additional improvements. Nor are the improvements accounted for under the agreement of purchase and sale entered into with the builder.
4. The individual wishes to file for the GST new housing rebate in respect of the GST paid on both the acquisition of the complex from the builder and the additional improvements performed by independent contractors.
Interpretation Requested
Where the individual wishes to file the GST new housing rebate directly with the Department (as opposed to having the builder pay or credit the rebate under subsection 254(4) of the Act), is the individual permitted to make application for the rebate under section 256 of the Act rather than section 254 so that the GST expenditures relating to the additional improvements may be claimed?
Interpretation Given
The individual will be entitled to claim a rebate under section 256 of the Act in respect of the GST paid to the builder and in respect of the GST paid on the additional improvements where the individual can be considered to have engaged the builder to construct the single unit residential complex, the builder has not agreed to pay or credit the rebate to the purchaser and provided all other conditions under that section have been satisfied. Where it cannot be said that the individual engaged the builder to construct the complex (for example, where construction of the complex has already been substantially completed at the time of entering into the agreement of purchase and sale), a rebate will only be available under section 254 of the Act.
Analysis
Section 256 of the Act is commonly referred to as the owner built housing rebate. However, subsection 256(2) of the Act provides for a GST new housing rebate to be paid to an individual where that individual constructs or substantially renovates, or engages another person to construct or substantially renovate for the individual, a single unit residential complex for use as the primary place of residence of the individual or a qualifying relative.
If the residential building had not yet been constructed and the agreement between the builder and the individual is for the supply of land and the construction of a single unit residential complex (and does not call for the GST new housing rebate to be paid or credited by the builder), the individual may be considered to have engaged the builder as well as the independent contractors to construct the building as provided for by paragraph 256(2)(a) of the Act. Where all of the criteria of subsection 256(2) of the Act are satisfied, the individual will be entitled to a GST new housing rebate in respect of a portion of the GST paid to the builder and to the independent contractors in respect of the construction of the residential complex.
It should be noted that section 256 of the Act does not require that the individual have ownership of the land, or an interest in the land, in order to be eligible for a GST new housing rebate in respect of a qualifying home. The Act provides that, before a GST new housing rebate will be paid, the individual must have constructed or engaged someone to construct a residential complex.
If upon review of the facts it is determined that the individual entered into an agreement of purchase and sale with a builder for the purchase of a single unit residential complex at a time when the house is substantially complete and is being marketed for sale, it is clear that the provisions of section 254 of the Act will apply (where all of the criteria of that section are satisfied), and section 256 will not apply for it cannot be said the individual engaged the builder to construct the complex. Similarly, where an individual owns or leases land prior to engaging a person to construct a house for the individual, the provisions of section 256 of the Act will normally apply (provided all the criteria of that section are met), and section 254 of the Act will not apply.
In certain cases, an individual may qualify for a GST new housing rebate under either section 254 or section 256 of the Act. In these cases, the individual may choose the type of rebate claim under either section 254 or section 256 provided the application is filed within the appropriate time period set out in the applicable provision. Note, however, that if the residential complex is sold by a builder and the GST new housing rebate has been paid or credited by the builder of the complex, the GST new housing rebate may only be claimed under section 254 of the Act and no rebate would be available in respect of the additional GST paid to the independent contractors.
It should also be noted that, by virtue of paragraph 254(2)(e) of the Act, the timing of the transfer of legal ownership of the complex to the individual is relevant in determining whether a rebate is available under section 254. Where legal ownership is transferred to the purchaser prior to substantial completion, the GST new housing rebate would not be available under section 254 (and the builder would not be able to pay or credit the rebate to the purchaser). The rebate may, however, be paid directly to the purchaser under section 256 of the Act provided the requirements set out above are satisfied.
Issue #2
Statement of Facts
1. An individual constructs a single unit residential complex for use as their primary place of residence.
2. The individual is not a "builder" for GST purposes as defined under subsection 123(1) of the Act.
3. At some point after the construction has commenced, and prior to the complex being substantially completed, and prior to the complex being occupied, circumstances arise (e.g. relocated for work, financing, etc.) causing the individual to dispose of the house.
4. The complex is purchased by an individual who intends to complete the construction and occupy it as their primary place of residence.
Interpretations Requested
The above points of fact give rise to the following questions:
1. What is the GST status of the supply by way of sale of the property? Is the property in question a "residential complex" for GST purposes as defined under subsection 123(1) of the Act?
2. Would either of the individuals qualify for the GST new housing rebate pursuant to section 256 of the Act?
Interpretations Given
1. The supply by way of sale of the property would be exempt of GST. However, it is question of fact whether the property in question is a "residential complex" for GST purposes. If the property is a residential complex, the sale by the vendor will be exempt from the GST pursuant to section 2 of Part I of Schedule V to the Act since the individual is not a "builder" of the complex as defined in subsection 123 (1) the Act. If the property is not a residential complex, the sale of the property will be exempt under section 9 of Part I of Schedule V to the Act provided the property was not capital property used primarily in a business of the individual immediately prior to the sale or sold in the course of a business or an adventure or concern in the nature of trade where an election has been filed of the individual.
The issue as to at what point a "residential complex" comes into existence for purposes of subsection 123(1) of the Act is one that is currently the subject of a policy paper that will be forthcoming in the near future. However, the following are some of the factors that may be considered when making such a determination: the degree of completion of the construction, the understanding of the parties involved in the supply (i.e. what is being supplied, an uncompleted house or improved land?), the structure and wording of the agreement of purchase and sale, the nature of the building permit obtained from the municipality (or equivalent government body) and applicability of a new home warranty where the vendor is a "builder". The aforementioned factors are not individually conclusive in their own right and must be considered as a whole. As well, the factors listed are by no means the only ones that may be considered. Any suggestions in this regard would be welcome.
2. The entitlement to the GST new housing rebate under section 256 of the Act depends on which party can be considered to have constructed, or engaged someone to have constructed, a single unit residential complex. Without further information as discussed above, we are unable to provide our views as to the status of the supply in order to determine which party would be able to claim the GST new housing rebate. However, we would add that subsection 262(2) of the Act allows only one application for the GST new housing rebate in respect of any given matter.
If you have further questions on any of the above, please do not hesitate to contact John Bain at (613) 954-8852.
Stan Farber
Manager - Tax Policy
Real Property
GST policy and Legislation
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Stan Farber
John Bain
All Regional I&S Chiefs
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