23 June 1997 GST/HST Interpretation HQR0000496 - Determination of a Supply of a Residential Condominium Unit

Dear XXXXX

This is in response to your submission to the Real Property Unit, GST/HST Rulings and Interpretations, concerning XXXXX of the above-noted company.

Interpretation Requested

You had asked that we analyse the documents provided (see attached appendix for a listing) with a view to determining whether the transaction described therein represents a supply of a residential condominium unit:

(a) by way of lease,

(b) by way of sale, or

(c) by way of sale of the part of a building which forms part of a residential condominium unit with a lease of the related land.

Statement of Facts

All references to the Act in this letter are references to the Excise Tax Act unless otherwise noted.

XXXXX resident corporation which is also a GST registrant. XXXXX is developing a residential real estate project known as XXXXX XXXXX purchased a parcel of land, filed a phased strata lot plan and proceeded to build apartment-style condominiums. The apartment-style condominiums meet the definition of residential condominium unit in subsection 123(1) of the Act.

XXXXX entered into agreements with individuals whereby possession of the condominium units is transferred to the individuals for residential use. The XXXXX agreement between XXXXX described as the landlord, and XXXXX described as the tenant, was taken as representative of these agreements. The agreement carries a XXXXX term. The consideration for the use and occupancy of the unit is split between a lump-sum payment for the use and occupancy of the "suite" and a periodic (annual) payment for the use and occupancy of the related land and common areas.

Part 2 of the agreement between XXXXX contemplates no transfer of ownership of the residential condominium unit or any part of the unit from the landlord to the tenant:

•   the parties to the agreement are described as landlord and tenant,

•   XXXXX retains legal title to the property,

•   the agreement gives the tenant use and occupancy of the property for a specified period of time (section 1),

•   the tenant obtains the same right to use and occupy the suite as he obtains with respect to the lands and common property (paragraphs 1(a) and 1(b), respectively),

•   the agreement does not allow for the tenant to obtain or convey title to the property,

•   the tenant may not assign or sublet without the prior written notice to the landlord and any assignee must agree to assume the tenant's obligations under the agreement (subsection 2(c)),

•   the tenant may not make structural alterations to the property without the prior written consent of XXXXX (paragraph 2(i)),

•   the agreement allows XXXXX to unilaterally cancel the agreement when certain conditions exist (subparagraph 4(i)(i)),

•   the lump-sum payment for use and occupancy of the suite "... shall include the Goods and Services Tax pursuant to the provisions of the Excise Tax Act Statutes Canada after crediting the new housing rebate which shall be assigned to the Landlord." (section 5),

•   the tenant may claim a right to vote at strata council meetings if XXXXX sells the freehold interest of any of the strata units in XXXXX that are not subject to a residential lease (paragraph 6(a)).

Pursuant to section 69 of the XXXXX, an owner of a residential strata lot is deemed to have assigned all owner rights, powers and obligations to a lessee where possession of the lot is given to a lessee on the basis of a lease, sublease or assignment of lease for a term of three years or more. The right to vote at condominium council meetings is a right accruing to owners under the XXXXX XXXXX prepared a Vendor's Statement of Adjustment for the lump-sum payment that XXXXX was required to make pursuant to paragraph 1(a) of the agreement. The payment was shown as GST-taxable and XXXXX was credited with an amount equivalent to the GST new housing rebate.

Interpretation Given Based on the information provided it is our opinion that:

1. The transaction in question represents a supply by way of lease of a residential condominium unit by XXXXX as supplier, is the landlord and XXXXX as recipient, is the tenant. The supply by way of lease is exempt pursuant to paragraph 6(a) of Part I of Schedule V to the Act. As a result, both the lump-sum payment and the annual payment for the use and occupancy of the residential condominium unit represent consideration for a supply which is exempt from GST. XXXXX is deemed, pursuant to subsection 191(1) of the Act, to have made and received a taxable supply by way of sale of the unit at the time that possession of the unit is given to the tenant after the construction of the unit is substantially complete.

2. Subparagraph 191(1)(b)(i) of the Act applies to this transaction. The object of the lease agreement is the entire residential condominium unit, including the related land and common areas. The transaction is not a supply by way of sale of part of the building and a supply by way of lease of the land, each of which forms part of the single unit residential complex. As a result, subparagraph 191(1)(b)(ii) does not apply.

3. The tenant is not entitled to a GST new housing rebate under section 254 of the Act. As the tenant has not received a taxable supply by way of sale of a residential condominium unit from a builder, the condition outlined in paragraph 254(2)(a) is not met. Furthermore, the tenant and XXXXX have not entered into a purchase and sale agreement. The condition outlined in paragraph 254(2)(b) is not met. Finally, ownership of the unit is not transferred to the tenant. The condition outlined in paragraph 254(2)(e) is not met.

4. The tenant is not entitled to a GST new housing rebate under section 254.1 of the Act. The tenant has not received a supply by way of sale of the part of the building in which the residential unit forming part of the complex is situated. Therefore, the condition outlined in paragraph 254.1(2)(a) is not met. (Note that for rebates filed with the Department prior to April 24, 1996, a rebate under section 254.1 was not available for a residential complex that was a residential condominium unit within the definition in subsection 123(1) of the Act. Bill C-70 added a "residential complex that is a single unit residential complex or a residential condominium unit" to paragraph 254.1(2)(a). This change was effective for rebates filed on or after April 23, 1996.)

Based on the provisions within the agreement, the legal and common meanings of the words sale and lease, the transaction between XXXXX is, in substance and form, a supply of a residential condominium unit by way of lease for the purposes of the Excise Tax Act.

Should you have any further questions or require clarification on this matter, please do not hesitate to contact me at 954-8852.

Yours truly,

Heather MacLeod
A/Rulings Officer
Financial Institutions and Real Property
GST/HST Rulings and Interpretations