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Dear XXXXX
This is in response to your letters of November 5, 1994, and January 18, 1995, and further to your telephone conversation of March 21, 1995, with John Bain. At issue are the eligibility requirements for the Goods and Services Tax (GST) new housing rebate. I apologize for the delay in responding.
In replacing the Federal Sales Tax (FST) with the GST, a key priority was to ensure that sales tax reform would not pose a barrier to affordability of housing. The GST new housing rebate was accordingly designed to ensure that, on a national average, the tax component of owner-occupied homes for the vast majority of Canadians would remain the same under GST as it was under the FST.
The GST new housing rebate is administered in accordance with the provisions set out in the Excise Tax Act. Further, these provisions have been applied uniformly across the country since the inception of GST. This program is intended to relieve the burden of taxation on new owner-occupied housing. Under this program, 36 percent of the GST paid (to a maximum of $8,750) in respect of a new house may be rebated to eligible claimants. The maximum amount of the rebate will be available for new homes valued at $350,000 or less. The rebate is gradually phased out for homes valued in the range of $350,000 to $450,000, after which no housing rebate is available.
Where an individual constructs, or engages another person to construct, a residential complex on land owned or leased by the individual, the amount of the rebate is based on the GST paid for the purchase of the land (where applicable), materials and services acquired during the course of construction. The actual amount of the rebate will depend on the fair market value of the "residential complex" (defined under the legislation to include both the house and the land reasonably necessary for the use and enjoyment of the house as a place of residence) when the construction is substantially completed. The approach of taking into account the value of the land in determining the threshold for rebate eligibility ensures that individuals who construct their own homes, or engage another person to do so, are treated the same under the new housing rebate program compared to those who purchase their home in a completed state from a builder and pay tax on the total purchase price of the building and land.
I understand that you have some concerns that certain statements found in the Completion Guide and Form For: New Housing Rebate are ambiguous. Specifically, your concerns involve two of the conditions outlined under Application Type 4: Owner-Built Homes and Homes Substantially Renovated by the Owner found on page 11 of the Guide:
(i) "the fair market value of your substantially completed home (including both the building and land) is less than $450,000", and
(ii) "you pay GST on the land and/or construction materials and services related to the home".
The above two legislative requirements form part of the conditions that must be satisfied in order to establish whether a particular individual is eligible to receive a GST new housing rebate for owner-built homes. The first condition precludes owner-built homes with a "fair market value" in excess of $450,000 from being eligible for the housing rebate. ("Fair market value" is defined on page 4 of the Guide.) Secondly, only where GST is actually paid, either on the land or construction of the home, or both, is a rebate available. Accordingly, if an individual acquires land exempt of GST, no rebate is available in respect of the land as no GST was paid. This does not, however, mean that the land would be excluded from the calculation of "fair market value". I regret that you may have misunderstood these specific requirements or found the wording ambiguous in this particular version of the Guide.
Finally, I note that you feel that verbal information provided by XXXXX tax services offices was incorrect. You state that you were told that as you had not paid GST on your initial acquisition of the land, it was not to be considered for housing rebate purposes. This would concur with the second statement outlined above which requires GST to have been paid on the land in order for an amount to be rebated with respect to the land. It is unfortunate that you understood this to mean that the value of the land should be excluded from the fair market value calculation of your newly constructed residential complex.
I hope this clarifies the Department's position on this matter. If you have further questions, please contact XXXXX, whom I am advised is aware of your concerns.
Yours truly,
S. Farber
Manager - Real Property
Tax Policy - Special Sectors
GST Rulings and Interpretations
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File: 11740-1; 11755-1(lhk)
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