10 November 1997 GST/HST Interpretation HQR000455 - Disposals of Crown Real Property

Dear XXXXX 1996 signed by XXXXX and my telephone conversations with XXXXX of your office, concerning the application of the Goods and Services Tax / Harmonized Sales Tax (GST/HST) to your Department's disposal of real property owned by Her Majesty in right of Canada (Crown).

Statement of Facts

From your letter and my above mentioned conversations, I understand the following pertinent facts:

1. As the Crown's principal real estate agent, your Department ("PWGSC") is engaged in the disposal of Crown real property, which include commercial, industrial and residential property, "trailers", as well as engineering works, such as dams and bridges.

2. The sale of Crown real property may be made to:

i) another federal department ("transfer of administration"),

ii) a Province ("transfer of administration and control"),

iii) a Region or a Municipality ("deed of transfer"),

iv) a non-profit organization / community association, or

v) a private individual or business.

3. In some cases, the property is disposed of for $1 although it may be appraised at a higher amount, e.g. $10,000.

4. In some cases, there is a barter or exchange. You cite an example where two properties are "exchanged", valued at $6M and $10M respectively, with a cash transfer of $4M to offset the difference.

Interpretations Requested

1. Is it correct that GST applies to the sale by PWGSC of commercial, industrial and new residential property, as well as to engineering works such as bridges and dams? Does GST apply to the sale of trailers?

2. Is it correct that GST does not apply on disposals described in 2(i) and 2(ii) of the Statement of Facts, and that it applies on the remaining transactions 2(iii) to 2(v)?

3. Are there special circumstances when GST does not apply on the "sale price", such as in transaction (3) of the Statement of Facts for example?

4. Is PWGSC responsible for both the calculation and charging of the GST? Where GST is applicable, is it true that XXXXX must either:

i) obtain the purchaser's GST registration number, if this is the case, or

ii) collect the GST from the purchaser.

Is PWGSC obligated to verify the validity of the registration number provided, or to retain proof of the purchaser's remittance to Revenue Canada?

5. What is the GST treatment of barters and exchanges?

6. Where HST at a blended rate (15%) is charged, does the full blended rate apply to the sale of Crown real property? Is there not an inequity when XXXXX sale of a commercial building attracts more tax in a harmonized province than in a non-harmonized one?

Interpretations Given

Please note that, in this letter, interpretations are provided under the Excise Tax Act ("the Act"), using only definitions in that Act and not those in other Acts. For example, under the Federal Real Property Act (and Regulations), "disposition" of real property is defined as including a lease, gift, surrender of a lease in which Her Majesty is the tenant, or relinquishment of an easement where Her Majesty is the holder of the easement, but not including a transfer of administration and a transfer of administration and control. The Act imposes a tax on a "supply" which is the "provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition", where "disposition" is not defined in the Act. The expression "in any manner" gives a broad scope to the word "supply".

Based on the information made available, I am providing the following interpretations, in the same order as listed above:

1. GST/HST applies to sales by your Department of commercial or industrial property as well as trailers and engineering works such as bridges or dams. Please note that the definition of "sale" in subsection 123(1) of the Act applies where there has been either: (i) a transfer of ownership; or, (ii) a transfer of possession under an agreement to transfer ownership, but does not include a lease. We also draw to your attention the fact that the definition of "real property" under the Act includes "mobile homes" and "floating homes".

A "mobile home" means "a building, the manufacture and assembly of which is completed or substantially completed, that is equipped with complete plumbing, electrical and heating facilities and that is designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence, but does not include any travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreatinal use". A"floating home" means "a structure that is composed of a floating platform and a building designed to be occupied as a place of residence for individuals that is permanently affixed to the platform, but does not include any freestanding appliances or furniture sold with the structure or any structure that has means of, or is capable of being readily adapted for, self-propulsion."

The supply of previously occupied residential property (by sale, lease, barter, etc.) by your Department would usually be exempt from GST/HST when certain conditions are met, as described in Part I of Schedule V to the Excise [T]ax Act and as explained in the attached chapter of the GST/HST Memoranda Series, Chapter 19 "Special Sectors: Real Property".

2. When the recipient of the real property is another federal department of the government of Canada, there is no supply for GST/HST purposes and therefore no GST/HST applies, if the recipient is named on the list of entities under the GST/HST registration number of the federal government.

When your department disposes of real property in favour of a government of a province of Canada, the supply is not subject to GST/HST. Please refer to our enclosed Memorandum 500-2 "Provincial Governments". Please note also that only those entities listed in the Reciprocal Taxation Agreements between Canada and the provinces are treated as being part of a province for GST/HST purposes and entitled to relief of their purchases. We also wish to indicate that participating provinces have agreed to pay GST and HST. (Participating provinces will pay the GST/HST on taxable purchases but will be relieved of tax through the rebate mechanism.).

There are no exempting or zero-rating provisions which apply to supplies of non-residential real property to other recipients, i.e. regions and municipalities, non-profit organizations, private individuals and businesses. Therefore, such supplies are subject to GST/HST. For supplies of residential property, please refer to the preceding Point 1 above.

For your benefit, please find enclosed , the Treasury Board Manual - Comptrollership, Chapter 5-8 "Policy on the Application of the Goods and Services Tax in the Departments and Agencies of the Government of Canada" and Appendixes.

3. Where you make a taxable supply at arm's length, the GST applies on the sale price, even in the example you cited of a property which may be appraised at $10,000, yet sold for $1. However, if the supply was not made at arm's length, and the sale price is less than the fair market value (appraised value) of the property, the GST/HST would apply on the fair market value pursuant to section 155 of the Act. There are exceptions, as listed in subsection 155(2), but none apply to PWGSC's x sales of real property.

4. It is correct that, as a registrant, you are responsible for both charging and calculating the GST/HST when you make a taxable supply. Where GST/HST is applicable, you must collect the GST/HST and remit to this Department, but you are not required to obtain the recipient's GST/HST registration number.

Where you are selling to a GST/HST registrant real property which is not a residential complex , you do not have to charge GST/HST to the recipient, pursuant to subsection 221(2) of the Act. In this case, the recipient is required to remit the GST/HST to this Department under subsection 228(4) of the Act, but you must obtain the GST/HST registration number of the recipient and exercise due care and diligence. You may wish to contact the Ottawa Tax Services Office (333 Laurier Ave; Tel: 598-3986) to verify that the registration number is a valid one. It is up to you whether you wish to obtain proof that the recipient remitted tax to this Department.

5. In subsection 123(1) of the Act, the definition of "supply" includes, in part, "the provision of property or a service in any manner, including barter ...". Each party in a barter transaction will have received a supply and must pay GST/HST on that supply unless it is specifically exempt.

Paragraph 153(1)(b) of the Act provides that where the consideration, or part thereof is property and not money, its value is the fair market value of the property determined at the time of the supply. Barter transactions do not reduce the value of the deemed consideration under paragraph 153(1)(b) of the Act.

In the example described in your letter where two properties valued at $6 million and $10 million, owned by A and B respectively, are exchanged with an additional cash transfer of $4 million from A to B to offset the difference, for GST/HST purposes, two supplies are considered to have been made:

1) One supply from B to A of a $10 million property. The consideration for this supply is deemed to be $10 million, i.e. $4 million cash plus the FMV of $6 million of the property received by B. Where this supply is taxable and made in a non-participating province, the GST payable by A would be:

7% x $10 million = $700,000.

2) One supply from A to B of a $6 million property. The consideration for this supply is deemed to be $6 million, i.e. the FMV of the property supplied. If this supply is taxable and made in a non-participating province, the GST payable by B would be:

7% x $6 million = $ 420,000

6. Where you are making a taxable supply of real property in a participating province, i.e. Nova Scotia, New Brunswick, or Newfoundland and Labrador, on or after April 1, 1997, the HST will apply at the single rate of 15%. HST replaces the GST and the provincial sales tax in the participating provinces.

Where you sell two different properties with the same selling price, one in a harmonized province and the other in a non-harmonized province, there is no inequity. Where the property is for use in commercial activities, and the recipient is a registrant, the latter may claim an Input Tax Credit of 100% of the HST. I refer you to the aforementioned enclosed GST/HST Memoranda Series Chapter 19 "Special Sectors and Real Property"(pp. 24-30) for further details.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above or any other Excise/GST matter, please do not hesitate to contact me at (819) 952-9587.

Yours truly,

Bao Tran
Rulings Officer
Real Property
Financial Institutions and Real Property
GST/HST Rulings and Interpretations
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