HQR0000048
File No.: 11872-12
Dear XXXXX:
Thank you for your letters of June 5 and June 27, 1996, concerning the application of the GST to the supply by way of sale of beneficial ownership in a piece of real property from the XXXXX (the Corporation) to the XXXXX (the Band). I apologize for the delay in responding.
Facts
1. The Band is not currently registered or required to be registered for GST purposes.
2. The Band set up the Corporation to acquire or construct a building that is situated off the reserve. The building was to be used primarily as a Band office, but part of the building was rented to other persons.
3. Shares in the Corporation were held by the Band council members in trust for all the Band members.
4. The Corporation has reported a minor amount of rental income, and paid property taxes and insurance on the building. The Band paid for leasehold improvements to the building.
5. The Corporation intends to transfer all of the beneficial interest in the building to the Band, but will retain legal title, pursuant to a trust agreement. As a result of the trust agreement, the corporation will become the bare trustee of the building on behalf of the band, with an obligation to give the Band title to the building at the Band's request.
6. The Band has not made an election pursuant to section 211 of the Excise Tax Act (ETA) with respect to the building.
Interpretation Requested
1. Would this transfer of the beneficial interest in the real property be subject to the GST?
2. If the transfer were subject to GST, would the band be entitled to claim a 100 per cent rebate for the GST paid?
Interpretation Given
On the basis of the information provided, the transfer of the beneficial ownership in the real property would be subject to the GST.
The GST administrative policy pertaining to Indians is consistent with the Indian Act under which personal property of an Indian or an Indian band situated on a reserve and their interests in reserves or designated lands are not subject to GST. However, as the real property under consideration is not property on a reserve, the GST administrative policy would not provide any tax relief.
XXXXX will transfer beneficial ownership to XXXXX band by way of sale. The corporation will retain legal title to the property and begin to function as a "bare trust corporation", but the band will also acquire the right to acquire title to the property whenever it chooses. The terms of sale also specify that the corporation cannot sell, offer to sell, mortgage or otherwise encumber the real property without the permission of the band and that the band is entitled to any proceeds from the sale or other disposition of the real property.
Since there is a supply by way of sale of the equitable interest in the real property and no exempting provisions of the ETA would apply, the corporation is required to charge GST on the supply of the real property. As XXXXX and the XXXXX band are related persons, GST is payable on the fair market value of the supply. The band is not a registrant; therefore, the band must remit the GST to the corporation. If the band is a non-profit organization that uses the building primarily in its commercial activities and registers for GST prior to purchasing the building from the corporation, the band will be entitled to file a Form 60 and claim a full input tax credit for the GST payable on the purchase. If the band is a non-profit organization and a registrant and uses the building primarily for exempt purposes, it cannot claim any input tax credits on the purchase of the building.
If the band is not a non-profit organization and registers for GST prior to purchasing the building, and if the band uses a significant portion of the building in its commercial activities, it can claim as an input tax credit a corresponding proportion of the GST paid on the purchase of the building.
In addition, I would like to clarify the policy pertaining to rebates available to bands under the general rebate, reason code 8. Your letter made reference to the band claiming back any GST "in their usual general rebate claim based on Reason Code 8 (property used for band's management)." However, this rebate is not for property used for band's management.
Bands and band-empowered entities are required to pay the GST on off-reserve purchases of transportation, short-term accommodation, meals and entertainment. They may file a General Rebate application, Reason Code 8, to recover the GST paid on these purchases when they are purchased for band management activities or for real property located on reserve. For the remaining GST that was paid, the band and band-empowered entity may file the applicable Public Service Body rebate, or, if applicable, for Tax Paid in Error.
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.
Should you have any further questions or require clarification on the above, please do not hesitate to contact me at 954-7954.
Yours truly,
Jamie McInnis, C.G.A.
A/Senior Tax Policy Officer
Public Service Bodies & Government
GST Rulings & Interpretations
| c.c.: |
J. McInnis (3047/general/ HQR0048)
J. Bain
D. Dawson |
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