Re: Primary Place of Residence; Residential Complexes on Leased Land; Conversion of an Existing Duplex to Condominiums
This is in response to your questions of November 29, 1994, December 15, 1994, and January 23, 1995, regarding the Goods and Services Tax (GST) and residential complexes. The issues to be addressed are as follows: meaning of "primary place of residence", residential complexes existing on leased land and the conversion of an existing duplex into a condominium complex. Accordingly, the issues will be dealt with in the order received. We apologize for the delay in responding but understand that you have had discussions regarding all of the above with John Bain of the Real Property Unit.
Issue #1 Primary Place of Residence
Statement of Facts
1. A married couple resided in XXXXX The legal title to the house was held in the wife's name only.
2. The husband and wife have never been legally separated.
3. The husband is XXXXX and moved to that locale in September of 1993. His wife remained in XXXXX[.]
4. He purchased a newly constructed residential condominium unit from a builder in his name only. Pursuant to the agreement of purchase and sale, he was credited for an amount equal to the GST new housing rebate by the builder of the condominium complex.
5. He resided alone in the residential condominium unit lived for XXXXX months. In June of 1994 his wife sold the XXXXX house and moved to XXXXX[.]
6. In August of 1994, the husband and wife purchased a house which was to become their primary place of residence. The residential condominium unit was sold.
Interpretation Requested
During the time in which the husband resided in the residential condominium unit, would the unit be considered his primary place of residence for GST new housing rebate purposes? May a husband and wife each have a different primary place of residence?
Interpretation Given
Before addressing whether or not the newly purchased residential condominium unit was the primary place of residence of the husband, it must first be established that the unit was his place of residence rather than a place of lodging. Policy Statement P-130 entitled Place of Residence will be helpful in this regard.
A place of residence should be a place of dwelling or habitation and would not normally include a vacation abode of a transient nature (e.g. short-term hotel accommodation in a hotel). Some factors that can be considered in determining whether a place is being used as a person's place of residence would include:
• the place in question is the only residence of the person;
• the occupant owns or leases the premises versus occupying the premises under a licence;
• the place is furnished by the occupant;
• there has been a change of address for postal, municipal taxes and other purposes;
• there is a telephone listing for the occupancy at the premises; and
• the individual has taken out insurance in respect of the home and its contents.
As well, the circumstances surrounding the acquisition of the premises may be considered. For example, in the scenario provided above, the husband relocated for work purposes on a permanent basis as opposed to a temporary basis.
It appears, based on the above criteria, that the residential condominium unit did constitute a place of residence of the husband. However, the fact that a premises forms a place of residence of an individual does not necessarily make it a primary place of residence as required for GST new housing rebate purposes.
The word "primary" itself indicates something first in order of importance, that is not subordinate or secondary. Factors which would suggest that the place is a person's primary place of residence (but not necessarily conclusive on an individual basis in and by itself) would include:
• the intentions of the individual;
• the actual use as evidenced by time or the degree of permanency;
• factors such as employment or schooling which may dictate that the person would be required to live in the premises;
• the address on their personal records designates this address as the primary address;
• reasonableness of the residence constituting a primary place of residence rather than a secondary residence (e.g. a ski chalet, summer home) or a place of business;
• determined to be so for the jurisdiction of the various taxing authorities;
• may exercise privilege of voting;
• any other legal rights and privileges;
• address provided for memberships or associations (e.g. alumni association, professional association);
• evidence of involvement in community organizations (e.g. block parent, parent-teacher) and
• newspaper or magazine subscriptions delivered to this address.
From the facts presented, and further to your telephone conversations with John Bain, it appears that the residential condominium unit did constitute the primary place of residence of the husband. As such, if all the other conditions under section 254 of the Excise Tax Act (the "Act") are satisfied, the GST new housing rebate will be available.
Accordingly, it is possible for a husband and wife to each have a different primary place of residence.
Issue #2 Residential Complexes on Leased Land
Statement of Facts
1. It is your understanding that to be eligible for the GST new housing rebate under section 256 of the Act, the individual who is making application must have legal ownership of the land on which the house is constructed. You note, however, that paragraph 32 of Memorandum 500-4-5 states that an individual may qualify for the rebate where they own or lease the land.
2. It is your view that a house constructed on leased land is not consistent with the definition of "residential complex" for GST purposes as defined in subsection 123(1) of the Act. Without the land, you consider the "house" (i.e. the building) to be tangible personal property. Accordingly, an individual constructing a house on leased land would be precluded from the GST new housing rebate under section 256 of the Act as paragraph 256(2)(a) requires that the claimant construct a single unit residential complex.
3. In your view, if Memorandum 500-4-5 is correct, the GST new housing rebate under section 254.1 of the Act would not be necessary as section 256 of the Act would allow a rebate regardless of the length or terms of the leases and regardless of the supplier.
4. Additionally, you note that subparagraph 7(a)(ii) of Part I of Schedule V to the Act refers to a residential complex being constructed on land supplied by way of lease, licence or similar arrangement for a period of at least one month. You note that subparagraph 7(a)(i) of that same Part refers to residential unit, rather than a residential complex. If a residential complex cannot be constructed where there is no ownership of the building and the land, it is your view that subparagraph 7(a)(ii) should also refer to a residential unit.
Interpretation Requested
Is an individual who constructs a house on leased land constructing a residential complex for GST purposes? Further, would such an individual be eligible for a GST new housing rebate pursuant to section 256 of the Act?
Interpretation Given
The definition of "residential complex" for GST purposes, as found in subsection 123(1) of the Act, basically includes a building and the land reasonably necessary for the use and enjoyment of the building as a place of residence. While paragraph (b) of the definition contemplates ownership of a separate parcel or other division of real property, no such stipulation is required under paragraph (a). As there is no requirement for legal ownership of the underlying land, a person constructing a building that is a residential unit on land that is supplied to that individual by way of lease, licence or similar arrangement is constructing a residential complex for GST purposes. Consequently, paragraph 32 of Memorandum 500-4-5 which states that a GST new housing rebate is available when a person constructs or substantially renovates his or her own primary place of residence, or who hires another person to do so, on land owned or leased by the individual is correct.
For purposes of the GST new housing rebate available under section 256 of the Act, there is no requirement that the particular individual have legal ownership of the land on which the construction, or substantial renovation for that matter, is occurring. Paragraph 256(2)(a) of the Act requires that a particular individual construct or substantially renovate, or engage someone to construct or substantially renovate for the particular individual, a single unit residential complex. As a single unit residential complex must be a residential complex, and as residential complex consists of both the building and the land with no regard to actual ownership of that land, paragraph 256(2)(a) of the Act would be satisfied.
(We note that this lack of an ownership requirement with respect to the land is unlike the GST new housing rebate pursuant to section 254 of the Act which specifically requires that the particular individual acquire ownership (i.e. legal title) to a residential complex, both building and land.)
It is possible that an individual who acquires a single unit residential complex on leased land from a builder would be eligible to claim a GST new housing rebate under section 256 of the Act where the particular individual can be considered to have engaged the builder at the outset to construct or substantially renovate the complex. However, where an individual purchases a substantially completed single unit residential complex from a builder, a GST new housing rebate under section 256 of the Act will not be applicable if the individual did not engage the builder to construct the complex. Rather, a GST new housing rebate would be available under section 254.1 of the Act where all of the conditions under that section are satisfied.
Section 254.1 of the Act provides for a partial rebate of tax paid in respect of the supply of a residential complex to an individual under an agreement to sell the house and lease the land under a minimum twenty year lease or a lease with an option to purchase. The rebate under this section is determined by reference to the consideration payable for the building only. Section 254.1 of the Act is applicable where an individual purchases a completed or substantially completed complex on leased land from a builder and this section allows a builder of said complex situated on leased land to pay or credit a GST new housing rebate.
Subparagraph 7(a)(i) of Part I of Schedule V to the Act makes reference to, "... a residential unit that is or is to be affixed to the land ...". This subparagraph is intended to exempt a lease of land to an occupant of a residential unit (e.g. a mobile home, a mini-home, etc.). A requirement of this provision is that the unit be affixed to the land. The term affixed is used as the residential unit has already been manufactured or, if you will, constructed.
Subparagraph 7(a)(ii) of that same Part refers to, "... constructing a residential complex ... in the course of commercial activity ...". This subparagraph applies where a builder for GST purposes constructs a residential complex (i.e. a building on the leased land). This provision is in accordance with the definition of "residential complex" such that the construction of a building on land is the construction of residential complex regardless of the ownership of that underlying land.
Issue #3 Conversion of a Duplex to Residential Condominium Units
Statement of Facts
1. A corporation purchased a single story, side-by-side duplex which was not strata-titled and had been previously occupied by individuals as a place of residence.
2. The intention of the corporation was to renovate, strata title and ultimately sell the two newly created residential condominium units for use as a place of residence by individuals.
3. The renovations consisted of adding a second story to the duplex and making cosmetic changes (i.e. minor renovations) to the first floor. The second story on each side of the duplex contains additional bedrooms and a bathroom. The second story comprises approximately 40 per cent of the entire floor space of the building.
4. The corporation is not registered for GST purposes and, as such, has not claimed any input tax credits in respect of the construction of the additional floor or the renovations.
Interpretation Requested
Is the supply by way of sale of the two renovated residential condominium units by the corporation subject to GST?
Interpretation Given
The supply by way of sale of the two residential condominium units by the corporation will be exempt from GST pursuant to section 2 of Part I of Schedule V to the Act. Section 2 of Part I exempts a supply by way of sale of a residential complex or an interest therein made by a person who is not a builder of the complex, or where the complex is a multiple unit residential complex, an addition thereto, provided no input tax credit was claimed in respect of the last acquisition of the complex or an improvement thereto.
As section 2 of Part I of Schedule V exempts a supply of a residential complex where the supplier is not a builder, it would be prudent to examine who or what constitutes a builder for GST purposes. Subsection 123(1) of the Act generally defines a "builder" to include:
(a) persons undertaking, or engaging another person to do so, the construction or substantial renovation of a residential complex, or the construction of an addition to a multiple unit residential complex, on land in which they have an interest;
(b) persons acquiring an interest in a residential complex while it is under construction or substantial renovation, or in the case of an addition to a multiple residential complex while it is under construction;
(c) suppliers of previously unoccupied mobile homes or floating homes;
(d) persons who acquire an interest in a residential complex before it has been occupied for the primary purpose of resupplying the complex either by way of sale or lease, licence or similar arrangement; and
(e) persons deemed to be builders under subsection 190(1).
Based on the fact scenario provided, and the above paragraphs, it does not appear that the corporation would be a "builder" for GST purposes. This conclusion is based on the following.
Paragraphs (c), (d) and (e) outlined above are not applicable as the residential complex in question is not a mobile or floating home, the complex was previously occupied as a place of residence and the corporation is not deemed to be a builder as there was no conversion of the property to a residential complex as the building already was a residential complex. This leaves only paragraphs (a) and (b) for more detailed consideration.
Paragraph (a) includes persons undertaking, or engaging another person to do so, the construction or substantial renovation of a residential complex, or the construction of an addition to a multiple unit residential complex, on underlying land in which they have an interest in. Paragraph (b) includes persons acquiring an interest in a residential complex while it is under construction or substantial renovation, or in the case of an addition to a multiple residential complex while it is under construction.
Let us address the issue of whether an addition to a multiple unit residential complex is being constructed. The duplex is not a multiple unit residential complex by virtue of the fact that the corporation had intention to create residential condominium units. The building would now be considered a condominium complex rather that a multiple unit residential complex. Subsection 123(1) of the Act defines a "multiple unit residential complex" to be a residential complex that contains more than one residential unit, but does not include a condominium complex. That same subsection defines a "condominium complex" to be a residential complex that contains more than one residential condominium unit.
The definition of "residential condominium unit" for GST purposes as defined under subsection 123(1) of the Act means 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 plan or description. As per the definition, only intention is required for the creation of a residential condominium unit. In Beau Rivage Appartements v. The Queen 1994, C.T.C. 94-1111(GST)I (TCC), Kempo, J.T.C.C. stated:
Having regard to the object and purpose of the applicable provisions of the Act, I am of the opinion that the phrase "intended to be" for the subsection 123(1) definitional meaning of the phrase "residential condominium unit" connotes:
- a firm, fixed and settled intention (as distinct from a provisional one)
which is not likely to be changed;
- objectively meeting the test of having reasonable prospects of bring the
stated intention into fruition or fulfillment within a reasonable time;
- a decision made being beyond the zones of contemplation and conditional
dependence on future events. ...
It would appear from the information provided, and further to the discussions between John Bain and XXXXX of your office, that the units by virtue of the intention of the corporation would be residential condominium units.
Based on the preceding, the issue of the construction of an addition to an existing multiple unit residential complex can be disregarded. However, can it be said that the residential condominium units were substantially renovated? Is the addition of the second floor to each of the units, in conjunction with the renovations, the construction of a residential condominium unit? Policy Statement P-153 entitled Construction of a Major Addition to a Single Unit Residential Complex and Policy Statement P-155 entitled Substantial Renovation will prove helpful in this regard.
In the incoming documentation it is stated that after reviewing the aforementioned policy statements it was determined that the residential condominium unit was not substantially renovated; nor was the construction of the addition the construction of a new residential condominium complex. As such, the corporation is precluded from paragraphs (a) and (b) of the definition of "builder". As the corporation does not fall within any of the paragraphs of the definition it is not considered to be a "builder" for GST purposes. Provided no input tax credits were claimed in respect of the last acquisition of the units or in respect of improvements thereto (which appears to be the case as the corporation is not registered for GST purposes), the supply by way of sale of the residential condominium units will be exempt from GST pursuant to section 2 of Part I of Schedule V to the Act.
Where a person in the course of a business of making supplies of real property acquires, renovates and resupplies a residential complex, and the renovation of the complex is not considered to be a substantial renovation for GST purposes, section 192 of the Act may be applicable. Under this section the person carrying out the non-substantial renovation is deemed to have made a taxable supply of certain costs associated with the renovation and is liable to remit GST with respect to such costs. The costs on which the GST would be exigible must meet the following requirements:
1. they are in respect of the renovation or alteration;
2. they are for amounts that would be included in the renovator's adjusted cost base for income tax purposes if the residential complex were capital property of the taxpayer;
3. they are not respect of interest or other financial services; and
4. they are not for property or services on which GST was paid by the renovator.
For example, the renovator is liable for GST on such renovation costs as wages, salaries and employee benefits applicable to employees of the renovator who are involved with the on-site renovation work.
In the scenario outlined above, the corporation did not substantially renovate or construct a new residential condominium unit. It did, however, carry out a non-substantial renovation of each unit. Accordingly, section 192 of the Act may be applicable to certain renovation costs.
Should you have questions or require clarification of any of the above, please contact John Bain at (613) 954-8852.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
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