This is in response to your memorandum of November 25, 1994, in which you question the eligibility of XXXXX to claim a Goods and Services Tax ("GST") new housing rebate in respect of their purchase of a residential condominium unit. We apologize for the delay in responding, however, understand that you have already discussed the issue extensively with John Bain of the Real Property Unit.
Statement of Facts
Our understanding of the facts is as follows:
1. XXXXX entered into an Agreement of Purchase and Sale with XXXXX for the purchase of a previously unoccupied residential condominium unit (the "Unit") on June 26, 1991.
2. The purchase price for the Unit was set at XXXXX including GST. A deposit in the amount of XXXXX was paid at the time of offer. Further deposits of XXXXX were due, and paid, on October 15, 1991, January 15, 1992, and March 19, 1992.
3. The Agreement makes no reference to the GST new housing rebate.
4. The closing date for the transaction was set at November 13, 1992.
5. Pursuant to paragraph 23 of the Agreement of Purchase and Sale, "This offer, when accepted, shall constitute a binding agreement of purchase and sale"
6. Paragraph 26 of the Agreement of Purchase and Sale states, "The Purchaser further covenants and agrees that he will in no way directly or indirectly assign, convey, sell or transfer his rights under this Agreement prior to the Closing Date to any other person without the consent of the Vendor in writing ...".
7. An information sheet prepared by XXXXX dated November 27, 1992, indicated that XXXXX solicitor for XXXXX instructed the solicitors representing XXXXX that both XXXXX XXXXX should be engrossed on title to the Unit as joint tenants.
8. An "occupancy closing" Statement of Adjustments in respect of the Vendor sale to the Purchasers was prepared and adjusted as of December 14, 1992. In that Statement, December 14 is referred to as the "occupancy date".
9. "Occupancy closing" arose due to a contingency clause outlined in paragraph 22 of the Agreement of Purchase and Sale which applied where title to the Unit could not be conveyed to the purchaser. The clause stated that, "... the Purchaser shall, nevertheless, take possession of the Unit ...".
10. The Statement indicates a consideration value of XXXXX with the GST payable amounting to XXXXX. The Statement indicates that the deposits received equal XXXXX, the first mortgage will be equal to XXXXX and the sum of XXXXX shall be considered the balance due upon closing. The closing date is not indicated on the Statement.
11. The Statement also calls for XXXXX post-dated cheques payable to XXXXX in the amount of XXXXX commencing on the first day of the month following the occupancy date. This sum is to be considered the monthly occupancy fee and takes into account mortgage interest, estimated monthly taxes and monthly common expenses. Also required is a cheque in the amount of XXXXX on account of the monthly occupancy fee from the occupancy date to and including the last day of the month in which the occupancy date occurred.
12. Schedule C of the initial Agreement of Purchase and Sale is an unsigned Interim Occupancy Agreement. Some key points of this Agreement are as follows:
• "It is understood and agreed that all amounts paid by the Purchaser by way of occupancy fees are not to be credited to the Purchaser as payments on account of the purchase price, but shall be payable as occupancy fees only."
• "The Purchaser shall use the Unit only as a single family dwelling and he will not take in borders and/or roomers nor grant occupation to the Unit to any other parties whatsoever."
• "The parties hereto agree that the acceptance of possession of the Unit hereunder by the Purchaser or any member of his or her family shall not be deemed or considered in any way as a release or abandonment of any of the Purchaser's or the Vendor's rights under the Purchase Agreement."
13. In a letter addressed to XXXXX solicitors dated October 18, 1993, XXXXX, confirms an earlier telephone conversation he had with them regarding certain items that remain incomplete with respect to the Unit. The letter closes with the following: "My client has spoken to the site crew about these items on numerous occasions since the interim closing and little or no action has been taken to complete the work."
14. On October 20, 1993, the XXXXX signed a document entitled "Assignment" in which they agree to sell, assign and transfer unto XXXXX their total right, title and interest in the Unit.
15. On October 19, 1993, the XXXXX signed a document entitled "Purchasers Understanding" in which they agree to be responsible for any readjustment to the October 20, 1993, Statement of Adjustments if necessary and comply with the covenants, warranties and obligations contained in the Agreement of Purchase and Sale between XXXXX[.]
16. A second Statement of Adjustments between XXXXX and the XXXXX was prepared and adjusted as of October 20, 1993. This Statement is in respect of final closing. This is evidenced by the numerous adjustments (e.g. water, hydro, property tax, etc.) which are accounted for on this Statement.
17. A "Trust Declaration" dated October 20, 1993, states that the XXXXX are acting as trustee with the XXXXX as beneficiary. Some key points of this "Trust Agreement" are as follows (all references to the Property should be equated with the Unit):
• "The Property was purchased and the Agreement entered into and held by XXXXX in trust as bare trustee for XXXXX as beneficiary, as hereafter set out, and XXXXX has no right, title or interest in or to the Property or to the Agreement except as bare trustee."
• "All money to be paid under the Agreement, including all costs, charges, disbursements and expenses in connection with the completion of the purchase of the Property were provided and continue to be provided by XXXXX - XXXXX hereby acknowledges and declares that they hold the Agreement and any interest in the Property as bare trustee for XXXXX and that they will hold all such interests in the Agreement and in the Property as bare trustee for such persons to whom XXXXX shall ... lawfully transfer, assign or otherwise convey their beneficial interests, in such manner as they see fit, provided written satisfaction thereof is provided to XXXXX[.]
18. The XXXXX acquired ownership (i.e. legal title) of the Unit from XXXXX on October 21, 1993.
19. On December 6, 1993, the Sales Administration Manager for XXXXX returned an unused post-dated cheque to XXXXX for occupancy fees for the month of December.
20. On January 18, 1994, the XXXXX signed a document in which they declared that they are the beneficial owners of the Unit and that they obtained title to the property on October 21, 1993, pursuant to an agreement of purchase and sale entered into on their behalf by the XXXXX[.] Further, they indicate that they were the first persons to occupy the Unit and did so on or about December 14, 1992.
21. On March 9, 1994, XXXXX solicitors for XXXXX XXXXX sent a letter to a receiver appointed for XXXXX went into receivership in December of 1993). In that letter it was stated that the XXXXX are the beneficial owners and the beneficial purchasers of the Unit. The solicitors requested that the receiver sign section C of the GST new housing rebate application form (GST 190E) which confirms builder information. This letter was followed up on July 25, 1994, by the solicitors due to inaction by the receiver.
22. On the GST new housing rebate application form completed by the XXXXX solicitors and provided for the receiver, the incorrect dollar amounts are used in the calculation of the GST new housing rebate. The first Statement of Adjustments for the "occupancy closing" of December 14, 1992, is submitted to the receiver as evidence of GST paid.
23. The Department received on June 8, 1994, an application for the GST new housing rebate in respect of the Unit from the XXXXX XXXXX.
Interpretations Requested
The foregoing gives rise to the following questions:
1. Is there a supply by way of sale of the Unit from XXXXX to the XXXXX or the XXXXX[.]
2. Is there a supply of the Unit between the XXXXX and the XXXXX and if so, what is the nature of that supply and when did it occur?
3. Are either the XXXXX or the XXXXX eligible for the GST new housing rebate?
Interpretations Given
1. There is a taxable supply by way of sale for GST purposes of the Unit from XXXXX to the XXXXX[.] The sale occurred on December 14, 1992, the date possession of the Unit was given by XXXXX to the XXXXX[.]
2. There is an exempt supply by way of an assignment of an interest in the Unit from the XXXXX to the XXXXX[.] Based on the submitted "Assignment" document, this occurred on October 20, 1993. The XXXXX were not acting as a bare trustee on behalf of the XXXXX in respect of the acquisition of the Unit from XXXXX at anytime prior to this date.
3. Neither the XXXXX nor the XXXXX are eligible for the GST new housing rebate as neither party satisfied all of the conditions for eligibility outlined under section 254 of the Excise Tax Act (the "Act").
Analysis
The following provides the basis for the conclusions drawn above.
1. For GST purposes, subsection 123(1) of the Act defines "sale" as including either a transfer of ownership or a transfer of possession under an agreement to transfer ownership. The meaning of "sale" with respect to real property is further expanded upon in Policy Statement P-111 entitled The Meaning of Sale with Respect to Real Property.
The XXXXX never acquired ownership (generally referred to as the legal or "titled" ownership in the case of the underlying real property) as the ownership of the unit was transferred from XXXXX directly to the XXXXX on October 21, 1993. However, it does appear based on the documentation submitted, that the XXXXX obtained possession of the unit in December of 1992.
A person may be in possession of real property if that person is entitled to hold, control or occupy the property either with or without the right of ownership to the property. Occupation is not necessary for there to be possession; nor does occupation necessarily mean that one has possession. Determining if and when possession is transferred in the case of real property is a question of fact, dependent on several indicia. Factors such as the payment of property taxes, the right to alter the land, the planting of crops or trees, collection of rents, repairs to the property, maintaining of the lot, etc., by the recipient serve to indicate, but are not necessarily conclusive, that possession has been transferred.
The following points indicate that the XXXXX did in fact take possession of the Unit from XXXXX:
(a) Paragraph 22 of the Agreement of Purchase and Sale required that in event that title could not be conveyed to the XXXXX the XXXXX shall, nevertheless, take possession of the Unit under an occupancy agreement.
(b) A Statement of Adjustments was prepared in respect of December 14, 1992, the "occupancy closing date". The Interim Occupancy Agreement states that occupancy fees will be payable when occupancy closing occurs. On the Statement, the XXXXX agreed to provide XXXXX post-dated cheques in respect of mortgage interest, estimated property taxes and common expenses indicating their responsibilities for such matters. There is no indication that any other person at any other time made these payments directly to XXXXX instead of the XXXXX[.] This is evidenced by the post-dated cheque returned to the XXXXX by XXXXX[.]
(c) In a letter of October 18, 1993, the solicitor for the XXXXX, contacted the solicitors for XXXXX by way of mail and outlined the items which remained incomplete at the Unit indicating that the XXXXX had control over the property as they were responsible for maintenance and repairs to the Unit.
(d) On October 20, 1993, the XXXXX undertook to assign their interest in respect of the Unit to the XXXXX[.] Obviously, the XXXXX at that time, felt they had an interest in the Unit to assign.
(e) The XXXXX made application for the GST new housing rebate in respect of the Unit. In submitting the rebate form, they certify under part E of the form that they did assume liability under an agreement of purchase and sale.
The above points of fact serve to indicate that possession of the Unit was transferred from XXXXX to the XXXXX in December of 1992. However, possession alone is not sufficient under the Act to trigger a supply by way of sale since such possession must be made under an agreement to transfer ownership of the property.
The Agreement of Purchase and Sale entered into on June 26, 1991, by the XXXXX with XXXXX was binding on both the XXXXX and XXXXX pursuant to paragraph 23 of the Agreement which states, "This offer, when accepted, shall constitute a binding agreement of purchase and sale ...".
Therefore, as it has been established that XXXXX transferred possession of the Unit to the XXXXX under a binding agreement to transfer ownership, XXXXX can be said to have made a taxable supply by way of sale of the Unit to the XXXXX[.] The applicable GST would be due on the day ownership of the unit is transferred or, if earlier, sixty days following the date the condominium complex in which the Unit is situated is first registered as a condominium.
2. According to a document dated January 18, 1994, the XXXXX were the first persons to occupy the Unit. They did so on or about December 14, 1992, the same day occupancy closing for the XXXXX occurred. The Unit commenced at that time, and continues to be, their principal residence. The XXXXX acquired ownership (i.e. legal title or interest) to the Unit directly from XXXXX on October 21, 1993. At issue is at what time and from whom did the XXXXX acquire equitable interest in the Unit.
(It should be noted that the following is based on the assumption that the XXXXX are not considered to be "builders" for GST purposes as defined in subsection 123(1) of the Act. This assumption is formulated on the basis that there is no evidence to suggest that the XXXXX were acting in the course of a business or an adventure or concern in the nature of trade.)
As mentioned previously, the XXXXX first occupied the Unit in December of 1992. This, in spite of the fact, that the XXXXX were not entitled to allow persons other than themselves (or related persons) to occupy the Unit based on restrictions outlined in the occupancy agreement entered into with XXXXX The XXXXX were required to use the Unit as a single family dwelling.
As well, pursuant to paragraph 26 of the Agreement of Purchase and Sale entered into between XXXXX and the XXXXX the XXXXX were not able to assign, sell, convey or transfer their rights to any other party without the written permission of XXXXX prior to the closing date. There is no evidence that the XXXXX ever requested such permission in writing from XXXXX nor is there evidence of XXXXX providing such permission at any time prior to the closing date.
Other than the "Assignment" document signed on October 20, 1993, no other agreements between the XXXXX and the XXXXX have been submitted for our review. There is no evidence of an agreement granting the XXXXX the right to occupy the Unit either by way of lease, licence or similar arrangement. Nor is there any evidence of an agreement of purchase and sale between the parties under which early possession was granted. Regardless of this lack of evidence, the XXXXX did occupy the Unit and did so in all likelihood pursuant to a lease, licence or similar arrangement, be it verbal or otherwise.
On October 20, 1993, the XXXXX signed a document assigning to the XXXXX their right, title and interest in the Unit and related agreements. A day earlier on October 19, 1993, the XXXXX signed an undertaking in which they agreed to undertake responsibility for any readjustments to the closing statement of adjustments should readjustment be necessary. Such an assignment, at the closing date, would be in accordance with the limitations set out in paragraph 26 of the Agreement of Purchase and Sale.
At this time, it appears that the XXXXX made a supply by way of an assignment of their interest in the Unit to the XXXXX[.] That supply, being a supply of an interest in a residential complex by person who is not a builder of the complex, would be an exempt supply pursuant to section 2 of Part I of Schedule V to the Act (provided the XXXXX did not claim an input tax credit in respect of the last acquisition of the complex or, after such time, in improvement thereto).
3. The XXXXX applied for the GST new housing rebate in the summer of 1994 in respect of a portion of the GST paid to XXXXX in respect of the Unit. Their GST new housing rebate application was received by the Department on June 8.
In order to qualify for the GST new housing rebate, all of the conditions outlined under section 254 of the Act must be satisfied. Paragraph 254(2)(e) of the Act requires that ownership of the residential condominium unit be transferred to the particular individual after the construction of the residential condominium unit is substantially completed. As outlined above, the XXXXX never acquired ownership (i.e. legal title) of the Unit, merely possession. As the XXXXX have not satisfied paragraph 254(2)(e) of the Act, they are precluded from receiving the GST new housing rebate.
The XXXXX while not yet having filed the GST new housing rebate form with the Department, are hoping to make application. This is evidenced by correspondence from the XXXXX solicitors to the receiver appointed for XXXXX, asking that the builder identification section be completed so that the form could be completed and submitted in prescribed form and manner.
Paragraph 254(2)(g) of the Act requires that the first individual to occupy the residential condominium unit as a place of residence at any time after substantial completion of the construction is an individual, or a related individual, who was at that time a purchaser of the unit under an agreement of purchase and sale of the unit. As previously discussed, the XXXXX although being the first individual to occupy the Unit, did not do so pursuant to an agreement of purchase and sale. It is assumed, in absence of any other information, that they first occupied the Unit pursuant to a lease, licence or similar arrangement. The XXXXX did not actually acquire the Unit until October 20, 1993, at which time the XXXXX (who are not builders) assigned their equitable interest in the Unit to the XXXXX[.] This assignment was an exempt supply of an interest in a residential complex made by a person other than a builder. Accordingly, as the XXXXX do not satisfy the conditions of section 254 of the Act and, while not precluded from making application, will not be eligible for the GST new housing rebate.
If you require clarification of any of the above, do not hesitate to contact John Bain at (613) 954-8852.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
11870-4-2, 11950-4
c.n. 990(JB)
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