File No. 11950-1
Case No. HQR0000107
XXXXX
XXXXX
XXXXX
XXXXX
Dear XXXXX
This is further to the E-mail message of June 10, 1996, from XXXXX Tax Services Office, TIS, concerning the application of section 9 of Part I of Schedule V to the Excise Tax Act (the "ETA") in respect of the supply of real property by an individual. I apologize for the delay in responding to XXXXX query.
All legislative references are to the ETA or the regulations thereunder unless otherwise specified.
Statement of Facts
Our understanding of the facts is as follows:
1. An individual owns three pieces of property located in the province of Ontario x that are contiguous with one another and they share common boundaries. Two of the pieces of real property are held side by side. One piece is wider than the other, and is approximately square. The third piece of land lies along the bottom of the first two pieces, as shown in the diagram on the following page.
2. The property in question is located in the province of Ontario.
3. Each of the three pieces of land is listed as a separate property by the provincial land registry.
4. The owner wishes to change these three pieces of land into three rectangular lots of the same shape and size, each having a separate legal description. The diagrams below show the proposed shape of the restructured lots, as well as the existing lots.
Diagram A: Existing Lots
Diagram B: Proposed Shape of Lots
As it is not possible to acquire further information from the individual owner in respect of this query, I have made the following assumptions in preparing this response:
a. the three pieces of property at issue in Diagrams A and B consist of vacant land;
b. the individual owner of the three lots does not own any other real property that is contiguous to the three pieces of property at issue; and
c. there are no other facts or circumstances which would indicate that the sale of any of the three lots in Diagram B would be excluded from the exemption in section 9 of Part I of Schedule V apart from (possibly) subparagraph 9(2)(c)
Interpretation Requested
XXXXX had submitted the following questions:
1. Do the three lots form one "parcel" of real property for purposes of section 9 of Part I of Schedule V, or is each legal description of land a "parcel" for purposes of section 9?
2. If each lot is a "parcel" for purposes of section 9, does the proposed restructuring of the lots constitute a severance or subdivision of any of the three lots for purposes of section 9? Or would it constitute more than one severance of any of the lots? Only lot 1 would have one simple change consisting of one piece being added to it at the bottom of the lot. Lot 2 would also have a piece of land added at the bottom of it, but would also be made narrower. Lot 3 would have two pieces deleted from it and would have another piece added to it. Does this mean that only lot 1 could be supplied exempt by way of sale pursuant to section 9?
3. If the restructuring of the lots is not considered to be a severance or a subdivision, or if the restructuring does not take place, can the individual divide each of the three pieces of land into two and still have the supply of each lot exempted by section 9, or would the three pieces of land be considered to form one "parcel" of land as referred to in section 9?
4. Because of the restrictions regarding severance and subdivision in the proposed amendment to section 9 announced on April 23, 1996, an individual could sell two contiguous parcels of land with one piece of land being exempt and the other taxable. How should he explain the tax status of the supply?
5. Alternatively, if the three pieces of land owned by the same individual are considered to be one "parcel" for purposes of section 9, because they are contiguous with one another, what actions would or would not be considered to constitute a severance of the parcel?
6. Will there be any transitional provisions to relieve supplies of GST from tax in cases where individuals have already severed property into more than two parts, but have not yet sold it? At the time the individuals severed the property for eventual sale, they would not have been aware that severing the property into more than two parts would make the subsequent supplies taxable.
Interpretation Given
Please note that the laws regulating real property in the province of x Ontario were taken into account in providing the following interpretation. This interpretation may differ in respect of land located elsewhere in Canada.
1. In order to effect the proposed restructuring of land (outlined in Diagram B) in the province of Ontario, the lots 1, 2 and 3 in Diagram A would be consolidated so that there would be no boundaries within the larger square. Diagram A would then be considered one "parcel" of land for purposes of section 9 of Part I of Schedule V. To create Diagram B, new boundaries would be drawn. The division of the parcel into three lots would result in three separate and distinct lots capable of being disposed of separately.
2. The proposed restructuring or re-division of the lands into three differently configured lots constitutes a subdivision or severance of land.
3. As stated above, the restructuring of the three lots is into three differently configured lots constitutes a subdivision or severance of land.
If the individual did not restructure the lots and had not previously subdivided or severed the land, she could divide one lot into two pieces and sell the two pieces on a tax exempt basis, pursuant to section 9 of Part I of Schedule V provided that none of the paragraphs in subsection 9(2) of Part I of Schedule V apply to exclude the sale from the section 9 exemption. The fact that the three lots are contiguous with one another would not matter.
4. For purposes of section 9 of Part I of Schedule V, the land comprised of the consolidation of lots 1, 2 and 3 constitutes a parcel. Once there is a subdivision or severance of this parcel into three lots as outlined in Diagram B, the sale of any of the lots would result in there being a taxable supply since paragraph 9(2)(c) would result in excluding such a sale from the section 9 exempting provision. Please note however, that paragraph 9(2)(c) would not apply where the recipient of the supply is related to or is a former spouse of the individual supplier and the land is being acquired for the personal use and enjoyment of the recipient. It should also be mentioned that a subdivision or severance of a part parcel that is sold to a person who has the right to expropriate that parcel is deemed not to be a subdivision or severance for the purposes of this exclusion.
5. Under Ontario legislation, namely, the Planning Act and Registry Act, in order to convert the configuration in Diagram A to that in Diagram B, the following procedure would be followed. Lots 1, 2 and 3 in Diagram A would be consolidated so that there would be no boundaries with the larger square. Diagram A would then be considered one parcel. To create Diagram B, new boundaries would be drawn. Governmental permission would be required, either for a plan of subdivision, or for consent to severance. Because only three lots are contemplated by Diagram B, it is likely that an application for consent to severance would be made. In either case, the division of the parcel into three lots would be considered a subdivision or severance of land. The result would be three separate and distinct lots of land capable of being disposed of separately.
6. No special transitional provisions are being contemplated with respect to paragraph 9(2)(c) of Part I of Schedule V. However, the amendment to paragraph 9(2)(c) [as a result of Bill C-70 (1997 c. 10)] applies to supplies made after April 23, 1996.
Explanation
The interpretations given are developed from the point of view of the laws regulating real property in the province of Ontario. Under Ontario real estate law and, in particular, under the Ontario Planning Act and Registry Act, the following procedure is required in order to covert the configuration of the existing three lots in Diagram A to that proposed in Diagram B. Lots 1, 2 and 3 in Diagram A would be consolidated so that there would be no boundaries within the larger square. Diagram A would then be considered one parcel. To create Diagram B, new boundaries would be drawn. Governmental permission would be required, either for a plan of subdivision, or for consent to severance. Because only three lots are contemplated by Diagram B, it is likely that an application for consent to severance would be made. In either case, the division of the parcel into three lots would be considered a subdivision or severance of land. The result would be three separate and distinct lots of land capable of being disposed of separately.
The meaning of "subdivide" and "sever" in relation to paragraph 9(2)(c) of Part I of Schedule V and the law regulating real property in Ontario
In considering paragraph 9(2)(c) of Part I of Schedule V, the ETA does not define terms such as "parcel", "subdivide" and "sever". Accordingly, reference must be made to other sources of definitions.
The Oxford Shorter English Dictionary (1975 edn.) defines "subdivide" as: "To divide (a part of a divided whole); to divide again after a first division ... . To break up into subdivisions." "Subdivision" is defined in the same dictionary as: "The act or process of subdividing, or the fact of being subdivided ... . One of the parts into which a whole is subdivided; part of a part; a section resulting from a further division ... a subordinate division of a group."
However, the word "subdivide" has developed a different meaning in legal terminology. Black's Law Dictionary, 6th edn., defines "subdivides" as follows: "To divide a part into smaller parts; to separate into smaller divisions ...". Black's Law Dictionary defines "subdivision" as: "Division into smaller parts of the same thing or subject-matter. The division of a lot, tract or parcel of land into two or more lots, tracts, parcels or other divisions of land for sale or development."
The Ontario Registry Act defines a "plan of subdivision" in section 1. This definition expresses the common understanding in the legal real estate community of the word "subdivision" in relation to land. A "plan of subdivision" is: "a plan by which the owner of land divides the land into areas designated on the plan". In other words, a large parcel of land is divided into smaller parcels on a plan of survey. Under this interpretation, the creation of the 3 lots in Diagram B would be considered a "subdivision".
The word "sever" is not defined in the ETA nor is it defined in the Ontario Registry Act or Planning Act. From the dictionary definitions, and from use of the word in case law, it seems to have the same meaning as the broader meaning of "subdivide".
The Oxford Shorter English Dictionary defines "sever" as: "To put apart, set asunder...To divide into (two or more) parts. ... To part, become divided, be separated into parts. ... ." A "severance" is: "The act or fact of severing; the state of being severed; separation."
Black's Law Dictionary defines "sever" as: "To separate, as one from another; to cut off from something; to divide. To part in any way, especially be violence, as by cutting rending, etc. ... ." "Severance" is defined as: "Act of severing, or state of being severed; partition; separation; ..."
The Ontario Real Estate Law Guide (CCH), at p. 3768 refers to the case of Re Kilbourn and Committee of Adjustments (1975), 8 O.R. (2d) 142. A testator divided a parcel into 4 parcels by will. The Court referred to this as a severance.
Based on the various definitions discussed above, it is our view that a "subdivision" or "severance" within the meaning of section 9 of Part I of Schedule V occurred when the abutting lots in issue were re-structured in Diagram B.
Subdivision of land in Ontario
In Ontario, lands may be subdivided either by plan of subdivision or by application for consent to a severance. Generally, if only a small number of lots are contemplated, and no new roads are to be created, an owner will prefer the severance method because it is faster and less expensive. The local Committee of Adjustments, or Planning Committee may consider an application for consent provided a plan of subdivision is not considered necessary for the orderly development of the municipality. The plan or survey registered against the title is a plan of reference, wherein the new lots are given a description by reference to that plan. A plan of subdivision is generally used in larger parcels where more lots are being created and where roads are required. The plan is registered on title and the legal description of each lot is related to the plan number.
The meaning of "parcel" in relation to paragraph 9(2)(c) of Part I of Schedule V and the law regulating real property in Ontario
Black's Law Dictionary defines "parcel" as follows: "A part or portion of land. A part of an estate. 'Parcel' as used with respect to land generally means a contiguous quantity of land in the possession of an owner. ... A continuous quantity of land in possession of, owned by, or recorded as property of the same claimant, person or company. ... Term may be synonymous with 'lot'." "Parcels" is defined as "a description of property, formally set forth in conveyance, together with the boundaries thereof, in order to provide for easy identification."
The Oxford Shorter English Dictionary defines "parcel" as "... A part of anything, considered separately, as a unit; a small portion, a particle. ... A component part (of something), something included in a whole. ... A piece of land; ... that part of a conveyance, etc. which follows the operative words, and describes the property dealt with ... ."
Based on the particular circumstances of this case and the laws of Ontario regulating real property, we would apply subparagraph 9(2)(c) of Part I of Schedule V on the basis that the land comprised of the consolidation of lots 1, 2 and 3 constitutes a parcel. Consequently were the consolidation of the three lots is subsequently subdivided as described in Diagram B, then the sale of lots 1, 2 or 3 would be excluded from the exemption under section 9 of Part I of Schedule V as a result of subparagraph 9(2)(c) of that same Part. Please note however, that paragraph 9(2)(c) would not apply where the recipient of the supply is related to or is a former spouse of the individual supplier and the land is being acquired for the personal use and enjoyment of the recipient. It should also be mentioned that a subdivision or severance of a part parcel that is sold to a person who has the right to expropriate that parcel is deemed not to be a subdivision or severance for the purposes of this exclusion.
If you require any further information concerning this matter, please call me at (613) 957-8226.
Costa Dimitrakopoulos
Senior Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations
XXXXX
Legal References: ETA subpara. 9(2)(c) of Pt. I of Sch. V
Authority: Memorandum from Dept. of Justice
NCS Subject Code(s): I 1
| b.c.c.: |
H.Q. Quality Assurance
hard copy - XF GST - XXXXX |
XXXXX
Rulings Interpretation Routing Slip
1. In order to effect the proposed restructuring of land (outlined in Diagram B) in the province of Ontario, the lots 1, 2 and 3 in Diagram A would be consolidated so that there would be no boundaries within the larger square. Diagram A would then be considered one "parcel" of land for purposes of section 9 of Part I of Schedule V. To create Diagram B, new boundaries would be drawn. The division of the parcel into 3 lots would result in 3 separate and distinct lots capable of being disposed of separately.
2. The proposed restructuring or re-division of the lands into three differently configured lots constitutes a subdivision or severance of land.
3. If the individual did not restructure the lots and had not previously subdivided or severed the land, she could divide one lot into two pieces and sell the two pieces on a tax exempt basis, pursuant to section 9 of Part I of Schedule V provided that none of the paragraphs in subsection 9(2) of Part I of Schedule V apply to exclude the sale from the section 9 exemption. The fact that the three lots are contiguous with one another would not matter.
4. For purposes of section 9 of Part I of Schedule V, the land comprised of the consolidation of lots 1, 2 and 3 constitutes a parcel. Once there is a subdivision or severance of this parcel into 3 lots as outlined in Diagram B, the sale of any of the lots would result in there being a taxable supply since paragraph 9(2)(c) would result in excluding such a sale from the section 9 exempting provision.
5. Under Ontario legislation, namely, the Planning Act and Registry Act, in order to convert the configuration in Diagram A to that in Diagram B, the following procedure would be followed. Lots 1, 2 and 3 in Diagram A would be consolidated so that there would be no boundaries with the larger square. Diagram A would then be considered one parcel. To create Diagram B, new boundaries would be drawn. Governmental permission would be required, either for a plan of subdivision, or for consent to severance. Because only 3 lots are contemplated by Diagram B, it is likely that an application for consent to severance would be made. In either case, the division of the parcel into 3 lots would be considered a subdivision or severance of land. The result would be 3 separate and distinct lots of land capable of being disposed of separately.
6. No special transitional provisions are being contemplated with respect to paragraph 9(2)(c) of Part I of Schedule V. However, the amendment to paragraph 9(2)(c) [as a result of Bill C-70 (1997 c. 10)] applies to supplies made after April 23, 1996.
Email this Content