|
Subject:
|
Leasehold Strata Lots in XXXXX
|
This is in response to correspondence received from XXXXX, and further to his conversations with John Bain of the Real Property Unit, regarding supplies of leasehold strata lots in XXXXX We apologize for the delay in responding.
Issues
1. Is the supply of a newly constructed leasehold strata lot in XXXXX a "sale" for GST purposes as defined in subsection 123(1) of the Excise Tax Act (the "Act"), or is it a supply by way of lease, licence or similar arrangement?
2. Is a leasehold strata lot considered a "residential condominium unit" for GST purposes as defined in subsection 123(1) of the Act?
3. Is GST new housing rebate available to an individual purchaser of a newly constructed leasehold strata lot?
Responses
1. The Department views the supply of a newly constructed leasehold strata lot in XXXXX as a "sale" for purposes of the Act. The supply shall be considered taxable for GST purposes provided none of the exempting provisions outlined under Part I of Schedule V to the Act are applicable.
2. A leasehold strata lot considered a "residential condominium unit" for GST purposes as defined in subsection 123(1) of the Act.
3. Where all of the conditions outlined under section 254 of the Act are satisfied, a GST new housing rebate equal to a percentage of the GST paid by an individual purchaser will be available.
Background
1. Part III of XXXXX allows a developer to develop a condominium project on land acquired under a long-term ground lease from governments, municipalities or other "public authorities" (e.g. the endowment lands of XXXXX).(Please see detailed discussion in Appendix 1.)
2. The land is vacant when leased, and accordingly the rent does not reflect the value of any building. The ground lease does, however, contain covenants that permit the developer to build a condominium project, arguably according to specified terms. Presumably the landowner would be concerned about the quality and value of the construction, etc., which will materially impact on the value of the landowner's reversionary interest.
3. When the project is completed, the developer deposits a "leasehold strata plan" and section 96 of the XXXXX converts the long-term ground lease into individual leases with respect to each strata lot.
4. The developer then makes an assignment of the individual strata lot to its customer that conveys to the customer all the developer's rights in the individual unit.
5. Often, the developer prepays all rent due to the landowner with respect to the individual unit leases, which it built into the price it charged for the unit.
6. Although the unitholder only holds the unit during the term of the ground lease, the XXXXX protects the unitholder from losing at least the full value of the strata lot interest when the unit reverts to the landowner on the expiry of the ground lease. Specifically, section 97 of XXXXX requires the lessor to "purchase the strata lot lessee's interest in the strata lot". The purchase price is either:
• as stipulated in advance in a schedule in the strata lot plan; or
• if not so stipulated, based on the fair market value of the leaseholder's interest "evaluated as if the lease did not expire". XXXXX
Tax Positions Taken
Project developers in XXXXX appear to have treated their supplies as being taxable "sales" and have charged GST on those sales. The developers have priced their units on the basis of this expected tax result and have claimed ITCs accordingly. Where applicable, the purchaser has received a GST new housing rebate under section 254 of the Act.
In position papers submitted by XXXXX to John Bain, he agrees with the condominium developers' conclusion that a condominium developer supplies units by way of "sale", not by way of "lease, licence or similar arrangement", and that the supply is taxable according to the general rules under the GST. In his view, the developer is not liable to self-supply under section 191 of the Act and the purchaser must pay tax on the sale.
Interpretation Given
1. Sale v. Lease
It is the Department's view that the supplies of leasehold strata lots from developers to purchasers are taxable according to the general rules under the GST.
The unitholders end up with only a leasehold interest. If the developers' supplies by way of assignment are in fact supplies "by way of lease, licence or similar arrangement", and not "supplies by way of sale", they are exempt under paragraph 6(a) of Part I of Schedule V to the Act which applies to:
"[a] supply of a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where it is occupied by the same individual for a period of at least one month."
The GST regime draws a fundamental distinction between supplies of property "by way of sale" versus "by way of lease, licence or similar arrangement". (In Appendix 2, some of the provisions that refer to this distinction are set out.)
There is no definition of "lease, licence or similar arrangement" in Part IX of the Act. "Sale", however, is defined in subsection 123(1) of the Act as:
"in respect of property, includ[ing] any transfer of the ownership of the property and transfer of the possession of the property under an agreement to transfer the ownership of the property."
"Property" is defined as:
"any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money."
Subsection 136(1) of the Act further provides that:
"for the purposes of this Part, a supply by way of lease, licence or similar arrangement, of the use or right to use real property or tangible personal property shall be deemed to be a supply of real property or tangible personal property, as the case may be."
From the definition of "property", it is clear that the developer's interest under the ground lease, is "property" for GST purposes. Furthermore, the assignment of those rights to the unitholder comes within the definition of "sale", to the extent that the developer is the "owner" of the leasehold interest. This does not settle, however, whether the assignment could also qualify as a "supply by way of lease, licence or similar arrangement."
It is the Department's view that, for GST purposes, the developer's assignment of the leasehold interest should be viewed as a sale, and that a "supply by way of lease, licence or similar arrangement" must contemplate something that only a lessor can make, not a lessee (other than as a sub-lessor). The nature of such a supply would appear to be the continued right, on a periodic basis, to possession and occupation of the premises. This contrasts with the developer's one-time disposition of its rights by assigning the lease. Recall that we are examining the supply that the developer makes to the unitholder of its rights, not the supply that the landowner makes to the unitholder under the lease. As noted in a submission by XXXXX, certain provisions of Part IX of the Act, notably section 7 of Part I of Schedule V, distinguish between "assignments" of leases, and supplies by way of lease.
Furthermore, the Income Tax Act recognizes a lessee's "leasehold interest" as being a property for purposes of capital cost allowance. By contrast, as noted in Befga Inc. v. The Queen, 72 DTC 6170 (FCTD), a landlord lessor cannot have a "leasehold interest" as only a lessee can hold that kind of property.
There are important distinctions between leases and assignments under the general law. Specifically, under real property law, when the landowner grants a lease, he creates a new tenancy which he carves out his own estate. Two important characteristics of that grant, are (a) the right of possession over a period, usually in exchange for the payment of rent, and (b) the reversion to the landowner at the expiry of the term. Although the landlord makes only one grant of the leasehold interest, the relationship between the landlord and the tenant is necessarily of a continuing nature. By contrast, a lessee does not create a new tenancy when he assigns the leasehold interest, he only disposes of the leasehold estate he received. There is nothing between the first lessee and his assignee comparable to the continuing relationship of the landlord and his tenant; no right to continuing rent, and no right of reversion. A lessee can grant a sublease, which itself is comparable to a lease. The property law, however, has clearly distinguished between a sublease and an assignment of a lease. (See Oosterhoff and Rainer, Anger and Honsberger Real Property (2d ed. 1985), Vol. 1, para. 806 (pages 259-264).)
In addition, the general meaning of "sale" and "property" appears broad enough to include a disposition of a leasehold interest by way of assignment. Black's Law Dictionary (Revised 4th ed.) refers to a "sale", among other things, as:
"A contract between two parties called, respectively, the "seller" (or vendor) and the "buyer" (or purchaser), by which the former, in consideration of payment or promise of payment of a certain price in money, transfers to the latter the title and the possession of property."
"A contract whereby property is transferred from one person to another for a consideration of value, implying the passing of the general and absolute title, as distinguished from a special interest falling short of complete ownership."
"Ownership", on the other hand, is defined in Blacks in a fashion that includes partial ownership interests, as well as full ownership interests:
"Collection of rights to use and enjoy property, including right to transmit it to others ... The complete dominion, title, or proprietary right in a thing or claim ... The entirety of the powers of use and disposal allowed by law.
Ownership is divided into perfect and imperfect. Ownership is perfect when it is perpetual, and when the thing is unencumbered with any real rights toward any other person than the owner. On the contrary, ownership is imperfect when it is to terminate at a certain time or on a condition, or if the thing which is the object of it, being an immovable, is charged with any real rights towards a third person; as a usufruct, use or servitude."
Finally, the economic reality of what occurs in the leasehold condominium projects, strongly suggests that what the leasehold rights that the developer passes to the unitholder, are qualitatively different from what the landlord supplies under the lease. The unitholders pay a lump sum to the developer because the developer built the complex. As noted earlier, the building in which the unit is located did not exist when landlord granted the lease, and the rent attributable to the unit is based on the value of the land, not on the value of the unit and the land.
The increase in economic value when the developer disposes of the leasehold interest to the unitholders seems therefore to reflect the reality that the bundle of rights that the developer passes to the unitholder is something fundamentally different from what the landlord supplies under the lease. Again, it should be noted that we are concerned about the supply that the developer makes, not the supply that the landowner makes.
Even under XXXXX as already noted, the unitholders' rights in the residual value of the unit are protected on expiry of the term of the lease. Instead of the unitholder's interest extinguishing, section 97 of the XXXXX requires the landowner effectively to buy out the unitholder, the language of the section referring to "purchase". (Section 98 similarly refers to an "order for sale" of a unitholder's interest where the unitholder defaults under the strata lot lease.)
In conclusion, it is the Department's view that for GST purposes the developer should be viewed as making a supply by way of sale, and not by way of lease.
2. Application of section 191 and section 5.1 of Part I of Schedule V
In their submission, XXXXX argue, on behalf of certain unit purchasers, that the supplies of the units are exempt under section 5.1 of Part I of Schedule V and that the developers are liable to self-supply under section 191 of the Act. XXXXX argues, on behalf of a developer, that the supplies are taxable, and that section 191 does not apply to the developer.
Section 191 requires that a builder of a single unit residential complex or residential condominium unit self-supply for GST under certain circumstances where new residential housing passes into use which becomes exempt under Part I of Schedule V. The mechanism of section 191 is that, on the occurrence of the specified events, the builder is deemed to have made and received a taxable supply of the property, at the fair market value of the property at that time, and to have paid and collected GST on that amount. The builder is required under subsection 225([1]) of the Act to include the amount deemed collected in calculating "net tax" for the period, and to remit accordingly. This mechanism both assures that the builder does not retain ITCs claimed throughout the construction phase, and that the Crown receives GST on the fair market value of the property which passes out of commercial activity.
In Bill C-112, subsection 191(1) of the Act was amended (by substantial amendment to para. 191([1])(b)) to apply to builders who constructed residences on leased land, for sale to their customers on or after March 28, 1991. This amendment recognized that under the original GST legislation, the sale of the residence would be taxable, but the value of the underlying land interest would escape tax, the underlying lease being an exempt supply under section 7 of Part I of Schedule V. Because the builder was required by subsection 191([1]) of the Act to self-assess on the fair market value of the property, section 5.1 was added to Part I of Schedule V to exempt the sale to the unit purchaser. (The treatment of homes built on leased land for "sale" under section 191 of the Act and section 5.1 of Part I of Schedule V is based on the assumption that the structure was actually kept legally separated from the land, i.e. did not become legally attached to the land.)
On first reading, it would seem that section 191 of the Act and section 5.1 of Part I of Schedule V may apply to the supplies of leasehold strata lots. Nevertheless, on closer examination this is not clearly the result.
(a) Application of section 5.1 of Part I of Schedule V to the unit purchasers.
Section 5.1 of Part I of Schedule V reads as follows:
A supply by way of sale of a building, or that part of a building, in which one or more residential units are located, or an interest in such a building or part, where:
(a) both immediately before and immediately after the earlier of the time ownership of the building, part or interest is transferred to the recipient of the supply (in this section referred to as the "purchaser") and the time possession thereof is transferred to the purchaser under the agreement for the supply, the building or part forms part of a residential complex; and
(b) immediately after the earlier of the time ownership of the building, part or interest is transferred to the purchaser and the time possession thereof is transferred to the purchaser under the agreement for the supply, the purchaser is a recipient described in subparagraph 7(a)(i) of an exempt supply, described by paragraph 7(a), of the land included in the complex.
For section 5.1 of Part I of Schedule V to apply, the developer must supply (i) by way of sale, (ii) a building or part of a building, or an interest therein, (iii) in which is located a "residential unit". It would appear that all of these requirements are met.
Section 5.1 of Part I of Schedule V does not apply in this case, however, because paragraph (b) is not met: the purchaser is not a recipient of a supply of land by way of lease under paragraph 7(a) of Part I of Schedule V. Instead, the unitholder receives the supply of the lease from the developer "by way of assignment" as described in paragraph 7(c) of that same Part. It is not reasonable for the unitholders to argue that the landowner made any supply to them by way of lease at the time of the closing. Even if this position were arguable in another context, paragraph 7(c) is so clearly applicable to the situation that arguably this specific provision ousts the application of the more general provisions of paragraph 7(a).
Accordingly, on this technical basis, section 5.1 of Part I of Schedule V does not apply to the assignments of the leasehold strata units. Furthermore, it can be viewed that this is the intended result. The explanatory notes to section 5.1 of Part I of Schedule V state that it applies "where a builder sells a new house".
No mention is made of sales of other types of residences, in particular condominium units, which is in contrast to the notes to subsection 191([1]) of the Act which refer more generally to sales of "residential units".
Accordingly, it is the Department's view that the supplies of the units are not exempt under section 5.1 of Part I of Schedule V to the Act. This is the basis for denying the general rebate claims filed in respect of "tax paid-in-error".
(b) Application of section 191 of the Act to the developer.
Subsection 191(1) of the Act provides as follows:
"For the purposes of this Part, where
(a) the construction or substantial renovation of a residential complex that is a single unit residential complex or a residential condominium unit is substantially completed,
(b) the builder of the complex
(i) gives possession of the complex to a particular person under a lease, license or similar arrangement (other than an arrangement, under or arising as a consequence of an agreement of purchase and sale of the complex, for the possession or occupancy of the complex until ownership of the complex is transferred to the purchaser under the agreement) entered into for the purpose of its occupancy by an individual as a place of residence,
(ii) gives possession of the complex to a particular person under an agreement for
(A) the supply by way of sale of the building or part thereof in which the residential unit forming part of the complex is located, and
(B) the supply by way of lease of the land forming part of the complex or the supply of such a lease by way of assignment, other than an agreement for the supply of a mobile home and a site for the home in a residential trailer park, or
(iii) where the builder is an individual, occupies the complex as a place of residence, and
(c) the builder, the particular person or an individual who is a tenant or licensee of the particular person is the first individual to occupy the complex as a place of residence after substantial completion of the construction or renovation,the builder shall be deemed
(d) to have made and received, at the later of the time the construction or substantial renovation is substantially completed and the time possession of the complex is so given to the particular person or the complex is so occupied by the builder, a taxable supply by way of sale of the complex, and
(e) to have paid as a recipient and to have collected as a supplier, at the later of those times, tax in respect of the supply calculated on the fair market value of the complex at the later of those times.
It is the Departments view, that subparagraph 191(1)(b)(i) of the Act does not apply, because for the reasons already set out, the developer does not make a supply by way of lease, license or similar arrangement. More precisely, this subparagraph (i) requires that the supplier "give possession (...) under a lease". The language of this subparagraph must be taken to describe the situation where an owner grants the lease to the recipient of the supply.
At first glance, subparagraph 191(b)(ii) of the Act seems more aptly to describe the supplies of the leasehold strata lots. (A) of the subparagraph refers to "a supply by way of sale" of a building or part of a building which contains a residential unit. Furthermore, (B) of the subparagraph refers to supply of the land by way of lease or by way of an assignment of a lease. However, it is the Department's view that (B), when it refers to "the land forming part of the complex", contemplates plots of land on which one builds a single dwelling, rather than the land that underlies a condominium project.
Were the Department to apply this subparagraph, we would be treating the property as if it could be severed into two parts; the interest in the unit and the interest in the common property. This is not in nature of what constitutes a strata lot and is further compounded by the fact that even though the property in a strata lot can be conceptually divided into the interest in the unit and the interest in the common property, the interest in the common property does not consist merely in the land attributable to the condominium complex, but also includes common areas of building and other facilities shared by owners of strata lots. This further subdivision of a strata lots' interest in common property poses further conceptual difficultie.
In conclusion, the Department is of the view that section 5.1 of Part I of Schedule V does not apply to exempt the sale of a leasehold strata lot; but that at the same time subparagraph 191(1)(b)(ii) of the Act does not apply to require the builder to self-supply.
Based on the above, the supplies of newly constructed leasehold strata lots by developers are taxable, not exempt, as no exempting provision applies. Correspondingly, the developers are not subject to the self-supply rules under section 191 of the Act. This position is supported by legislation as well as by the equities of the situation and reflects the conduct between the developers and the purchasers.
3. Definition of Residential Condominium Unit
The next question that must be addressed is whether or not a leasehold strata lot, created as a result of the registering of a leasehold strata plan, constitutes a "residential condominium unit" as defined for GST purposes under subsection 123(1) of the Act?
For GST purposes, a "residential condominium unit" is defined in subsection 123(1) of the Act to mean:
"[a] residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit."
A leasehold strata lot is a "residential complex" as defined for GST purposes under subsection 123(1) of the Act thereby satisfying that requirement of the "residential condominium unit" definition. Furthermore, in the case of a leasehold strata lot resultant from the registration of a leasehold strata plan under XXXXX, the legal character of what is "designated or described as a separate unit" in the "registered condominium or strata lot plan or description" is a leasehold. Hence, the "residential condominium unit", being what is so "designated or described", is the leasehold strata lot interest which comes into existence when the strata plan in which it is "designated or described" is registered under the land title registry system.
As the greatest interest in a leasehold strata lot that can be acquired and owned by a purchaser is a leasehold interest due to the workings of XXXXX, the supply of that unit shall be considered a supply by way of sale of a "residential condominium unit" for GST purposes. The supply by way of sale of such "residential condominium units" will be taxable for GST purposes unless an exempting provision outlined under Part I of Schedule V to the Act applies.
4. The GST new housing rebate.
Section 254 of the Act provides for a partial rebate of the GST paid by an individual acquiring a newly constructed residential condominium unit. All of the paragraphs of that section must be satisfied in order for the rebate to be available to an individual purchaser. When looking at the supply by way of sale of a residential condominium unit resultant from a leasehold strata plan, one paragraph of section 254 is of particular concern. (Section 254.1 of the Act which deals with buildings that are residential units situated on leased land is not applicable to the scenario being discussed as this section does not apply to residential condominium units.)
Paragraph 254(2)(e) of the Act requires that, "... ownership of the ... unit is transferred to the particular individual after the construction or substantial renovation thereof is substantially completed ...". The Department normally considers ownership under this provision to mean legal title. The Act does not specifically provide for a rebate upon a transfer of ownership of an interest in a residential condominium unit. (Where it is necessary to include the term "interest", the Act so indicates as, for example, in the definition of "real property" in subsection 123(1) of the Act and section 2 of Part I of Schedule V to the Act.)
Although a purchaser is unable to acquire legal title in respect of these leasehold strata lots, the Department will consider paragraph 254(2)(e) of the Act to be satisfied as the greatest interest a purchaser can acquire and hold in respect of these units is a leasehold interest. As a result, provided the other requirements of section 254 of the Act are satisfied, a GST new housing rebate will be available to an individual who purchases a newly constructed leasehold strata lot in XXXXX from a developer.
Conclusion
In conclusion, the Department views the supply of a leasehold strata lot in XXXXX as a "sale" of a "residential condominium unit" for purposes of the Act. The supply shall be considered taxable for GST purposes provided none of the exempting provisions are applicable and a GST new housing rebate will be available where all of the conditions outlined under section 254 of the Act are satisfied. This view is supported by the GST legislation as well as by the equities of the situation and economic reality of the transactions. This view also reflects the conduct between the developers and the purchasers.
Should you have any question or require clarification of any of the above, please do not hesitate to contact John Bain, Senior Policy Officer, Real Property at (613) 954-8852.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
Appendix 1
Commentary on Provisions of XXXXX
In 1974, XXXXX was amended to allow for the creation of leasehold strata plans. A leasehold strata lot is brought into existence under Part III (i.e. sections 92-109) of the XXXXX by registering a strata plan on property which is a leasehold interest (e.g. a ground lease) rather than a freehold interest. Essentially, this Part allows for such land to be developed and subdivided.
Section 94 of XXXXX contains five paragraphs that must be satisfied in order for a leasehold strata plan to be deposited. Firstly, under this scheme strata lots can only be created on land where the fee-simple title is vested with either the Provincial or Federal Crown, a municipality, regional district or public authority. (As well, the Lieutenant-Governor in Council may make regulations affecting the subdivision of the land as leasehold strata plans where that land has been surrendered under the Indian Act and is vested in the Federal Crown.) Secondly, the person filing the leasehold strata plan must be the registered lessee in a ground lease of the land included in the plan. Thirdly, the unexpired term of the ground lease must be at least XXXXX years after the date the plan is filed. Fourthly, the ground lease must not include land other than the land included in the plan. Finally, written consent of the lessor under the ground lease to allow registration of the leasehold strata plan is filed.
Subsection 96(1) of XXXXX effectively transforms the ground lease into individual strata lot leases in the name of the owner developer. Each of these leases includes a unit in the strata plan and that unit's share of common property. This subsection reads:
The deposit of the leasehold strata plan operates as a conversion of the registered ground lease into individual leases in the name of the owner developer of the interest of the Crown or other lessor in each strata lot, including its share in the common property, at a rent, premium or other consideration and subject to the applicable terms contained in the ground lease and in the model strata lot lease attached, and to the provisions of this Act and regulations.
When the conversion into leasehold strata leases occurs, subsection 96(2) of XXXXX requires the registrar of the land title office in which the leasehold strata plan is to be deposited to issue in the name of the owner developer, and to note in the register, a certificate of leasehold charge in respect of each strata lot lease created under subsection 96(1). Subsection 96(3) states that, "A certificate of leasehold charge for a strata lot and the strata lot lessee's interest in the strata lot are subject to the obligations of the Crown ... to purchase the strata lot lessee's interest under section 97."
An owner developer may assign its interest in a strata lot lease to a third party who in effect replaces the owner developer. As a result of the assignment by an owner developer, subsection 96(4) of XXXXX negates any interest in the property and any obligations that developer had under those leases. Subsection 96(4) provides as follows:
"Every assignee of an owner developer's interest as strata lot lessee in a strata lot shall be deemed to have covenanted and agreed in writing with the Crown or other lessor to observe and perform all of the terms and conditions contained in the model strata lot lease, but is not, notwithstanding an agreement to the contrary, bound by or required to observe and perform, the terms, covenants and agreements contained in the ground lease that are not also contained in the model strata lot lease."
Upon expiration of the ground lease (which very often has a term of 99 years), the strata lot lease ceases and full unencumbered title reverts to the lessor (e.g. the public authority). This does not happen, however, as separate leasehold strata lots. In essence, the leasehold strata plan ceases upon expiration of the ground lease. The lessor under the ground lease then holds in fee simple the land and improvements thereto.
Subsection 97(1) of XXXXX requires that, "The Crown or other lessor shall purchase the strata lot lessee's interest in the strata lot on the termination of the strata lot lease." Subsection 97(2) goes on to require that the purchase price be arrived at as of the date of expiration of the strata lot lease and shall be the price calculated on the basis set out in a schedule filed with the leasehold strata plan or, where such a schedule does not exist, the fair market value of the lessee's interest in the strata lot evaluated as if the lease did not expire.
Appendix 2
List of GST Provisions That Refer To Supplies "By Way of Sale" Versus "By Way of Lease, Licence or Similar Arrangement"
Subsections 136([1]) and (2.1) apply only to supplies of property "by way of lease, license or similar arrangement", whereas subsection 136(3) applies to supplies "by way of sale". Subsection 136([1]) is particularly significant in that it deems supplies of real or person property "by way of lease, license or similar arrangement" to be supplies of the property. This deeming rule is necessary, as the application of many other rules - timing, place of supply, etc. - depends on whether a supply is of real property, personal property or a service.
The rules in section 142 (which establishes the place of supply), section 150 (election for exempt supplies), section 156 (election for nil consideration); section 167 (which provides a rollover in major business reorganizations); and in section 168 (which determines when tax becomes payable) all apply differently depending whether a supply is "by way of sale" or "by way of lease, license or similar arrangement".
In Part I of Schedule V (supplies of real property), sections 2, 3, 4, 5, 5.1, 5.2, 5.3, 8 and 9 through 12 apply to "supplies by way of sale"; whereas sections 6, 6.1, 7, and 8.1 apply to "supplies by way of lease, license or similar arrangement.
In Part VI of Schedule V (relating to supplies by public sector bodies) sections 3(f), 4, 6(b), and 25(c) apply to supplies of property "by way of sale"; and subsections 2(f), 6(c), 25(f) apply to supplies "by way of lease, license or similar arrangement"
Section 16 of Part V of Schedule VI (zero-rated "Exports") applies to "a supply of tangible personal property made by way of sale" to the operator of a duty-free shop.
Appendix 3
General Comments
Based on the provisions of both XXXXX and the Excise Tax Act, the Department views the supply of a leasehold strata lot in XXXXX as a sale. We would, however, like to take this opportunity to make the following additional comments, which in our opinion, affirm the Department's view of the supply as one by way of a sale.
It is notable that the purchasers of leasehold strata lots are treated under XXXXX as if they were owners in fee simple. Section 92 of that Act defines a "strata lot lessee" (meaning a person who under a strata lot lease has right in respect of the lot) as being viewed similar to an "owner" or "purchaser" under Part I of XXXXX. Part I of that Act entitled "XXXXX generally views the owner as the person registered in the register of a land title office as owner in fee simple of a strata lot.
Also, section 69 of XXXXX (also found in Part I) states that where possession of a leasehold strata lot that is residential in nature is given to another (e.g. from a builder/developer to a purchaser) on the basis of a lease, sub-lease or assignment of a lease (generally the latter) for three years or more, that occupier is deemed to have been assigned all the owner's rights or duties and obligations under XXXXX and the by-laws, thereby categorizing this class of tenant as an owner for all intents and purposes. Section 69 states:
Where an owner developer or an owner gives possession of a residential strata lot to a person on the basis of a lease, sublease or assignment of lease for a term of 3 years of more, the owner developer, or the owner, shall be deemed to have assigned to the occupier all his rights, powers and obligations under this Act or bylaws.
XXXXX also views the supply of the leasehold strata lot similar to a fee simple strata lot. Paragraph 1(1)(d) of the Property Purchase Tax Act includes in the definition of "taxable transaction" a lease with a term greater than thirty years. The amount of transfer tax is due on the day the leasehold interest is registered at the land titles office much the same way the tax would be due when a fee simple strata lot supplied by way of sale is registered.
| c.c.: |
John Bain
Mr. R.J. Courneyea
Director
Small &Medium Enterprises Division
Audit Directorate
Verification, Enforcement and Compliance Research Branch
123 Slater St.
Ottawa, Ontario
XXXXX |
11870-5, 11950-6
c.n. 1362(JB)
Email this Content