28 March 1996 GST/HST Interpretation 1996-03-28 - Farmland Willed to Spouse / Part I Exemptions

                                                                        XXXXX

Background

XXXXX has the following query from a lawyer representing a widow who is bequeathed farmland by her husband.

The property (house & farmland) was farmed until Fall/95, when the husband died. His widow inherited the farm. It is not used for any farming activity over the winter months, and she does not intend to farm it herself in the Spring. Rather, she intends to sell it and has found a potential purchaser. The question is whether the transfer to the widow from the husband's estate is taxable or exempt.

Reply

The transfer from the estate to the widow is a taxable supply in accordance with the definition of "supply", "taxable supply" and "commercial activity" under ss 123(1). Since none of the exemptions under Part I of Sch V apply, the supply of the property from the estate to the widow is taxable.

Explanation

On the issue of the references to supplies "by way of sale" in the Part I, Sch.V exemptions, Policy Statement P-111 (p.2) indicates that the supply of farmland by gift or upon death may be exempt under s.9 or 10 of Part I sch V as a supply "by way of sale". Accordingly, we are able to consider whether the sections 9 to 12/I/V exemptions will apply.

It is clear that under the GST, a "trust" is not an individual. Typically, the property of a deceased is held in the deceased's estate and is then distributed to the beneficiaries. Accordingly, the widow in the present situation has not been supplied farmland by an individual, but rather by a trust. For this reason, the exemptions under sections 10 and 11 cannot apply.

Further, the exemption under section 9 will not apply because of the application of para 9(a). To elaborate, subsection 267(1)(c) deems the estate to have used the property of the deceased for the same purposes as the deceased immediately before his death. Accordingly, the property will be considered to have been used "primarily ...in a business...of the trust" and thus excluded, pursuant to para 9(a), from the section 9 exemption.

The only other possible exemption, it appears, would be section 12.I.V. This exemption might be applicable under the described circumstances except for the requirement that, immediately after the transfer from the estate, the farmland must be "for the personal use and enjoyment" of the beneficiary. Although there is insufficient information to rule definitively, it appears that the farmland inherited in this situation was not used not meant to be used "for the personal use and enjoyment" of the widow. In order to rule definitively, more facts on the size and nature of the property, and its use after the transfer should be obtained.

We should also mention, if you are not aware, that the transfer from the deceased to his estate is a deemed supply for no consideration pursuant to subsection 267(1). The supply by the estate to the widow is subject to section 269, which deems the consideration to be equal to the amount determined under the Income Tax Act as proceeds of disposition.

Assuming that the transfer to the widow is taxable, you may also wish to point out that the estate, pursuant to paragraph 221(2)(b), will not be required to collect GST if the widow registers for the GST. Pursuant to subsection 228(4), the widow would then be required to remit the tax, using a GST 60 (GST Return for Acquisition of Real Property), and will be entitled to claim ITCs on her normal GST Return (GST 34).

If you have any questions concerning these comments, please feel free to contact me by E-mail, or phone (613) 954 7936.

FILE COPY APPROVED/SIGNED BY JOHN BAIN, A/MANAGER