Dear XXXXX
This is in response to your memo of June 13, 1995, to Mr. Don Gagnon, concerning the application of GST to property held by XXXXXOur response is as follows.
Facts
XXXXX (the City) acquired vacant land prior to 1991. Since the implementation of GST, the City has supplied some of the land by way of sale as serviced lots, and more than XXXXX percent of it has been supplied to individuals, rather than to developers. The City charged GST on serviced lots sold to individuals, but not on serviced lots sold to developers. The lots sold to individuals were priced on the basis of factors similar to those that would have been considered by a private developer in the same circumstances. These factors included recovery of all costs of the relevant infrastructures, and an applicable profit margin. There is no direct recovery through the use of GST-exempt lot levies, property taxes and/or special fees.
The City has been claiming rebates on the GST paid on inputs received in respect of the supplies, but it now wishes to claim input tax credits. The City has not filed a section 211 election to ensure that the supply is not exempted by section 25 of Part VI of Schedule V to the ETA.
Questions
1. Since not all the conditions of Policy Statement #168 have been met, is the City prevented from claiming input tax credits in respect of the supplies of serviced lots made to individuals?
2. As there may be some recapture of input tax credits where infrastructure ownership is retained by the City, would the City be better off not claiming input tax credits?
Responses
1. It is not necessarily correct to state that the City has failed to meet the requirements of Policy Statement #168.
When Policy Statement #168 states that a person cannot claim input tax credits if they have claimed rebates, the statement is not intended to permanently disqualify persons who have claimed rebates in error. The statement was merely meant as a reminder that no person can claim both rebates and input tax credits in respect of inputs pertaining to the same supply. If the City mistakenly claimed rebates in cases where it was not entitled to do so, it will have to file amended rebate claims to correct its error before it can claim input tax credits.
Policy Statement #168 states that a public service body that wishes to claim input tax credits in respect of the supply of serviced lots may be required to file an election pursuant to section 211 of the ETA in order to ensure that the supply of real property is not exempted by section 25 of Part VI. However, in the case at issue, the supplies of serviced lots would appear to be excluded from the exempting provisions of section 25 by reason of subsection 25(c). It would therefore not be necessary for the City to file an election pursuant to section 211 in order to be entitled to claim input tax credits in respect of the supply of serviced lots.
2. In cases where the City has an option as to tax treatment, such as when it makes supplies that would be exempted by section 25 if it did not make an election pursuant to section 211, the Department should not attempt to advise the City which approach would be most advantageous for it. We should simply provide rulings or interpretations on GST transactions, or advance rulings on appropriate future transactions, and let the City decide what approach is most advantageous.
Issue #2
Facts
The City expropriated several properties in order to commence the building of XXXXX in the city. A GST-26 form was filed on some of the properties, but not on others. Also, the City habitually does not file GST-26 forms but simply takes input tax credits on all properties, whether part of their commercial activities or not, for example in the case of the XXXXX that was acquired to turn into a municipal soccer field. The City has requested that section 211 elections be backdated to the date of acquisition of the properties in question.
Subsection 211(5) states that an election shall be filed with the Minister in the prescribed manner within one month after the end of the reporting period of the person in which the election becomes effective.
Question
Would we agree to allow the City to file backdated section 211 elections in respect of the properties? If so, in what circumstances would we do so?
Response
Subsection 211(5) indicates that registrants must file an election within a specified time, and we have enforced this requirement consistently in cases where a registrant has not filed a section 211 election and have treated supplies as if they were exempted by section 25 of Part VI of Schedule V to the ETA , and only subsequently wanted to treat the supplies as taxable. However, in some instances where a registrant has not filed a section 211 election but have treated supplies as if they were not exempted by section 25, we have permitted the registrant to file a back-dated election.
In the examples you provided, where land was acquired for use by the municipality as a public soccer field XXXXX it is unlikely that a section 211 election would affect the tax status of the supplies. The property would presumably become inputs in respect of supplies of services or supplies of a right to take part in an event, and the tax status of such supplies would not be affected by a section 211 election.
The City is only entitled to claim full input tax credits if it is using the property exclusively to make taxable supplies, or if it is using the property primarily to make taxable supplies and it had not made a section 211 election and would not be permitted to make a the application of GST to property held by the XXXXX election in respect of the property.
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
11870-4-1
c.n. 1436