c.n. #1142
Thank you for your letter dated February 9, 1994 in which you request confirmation of the application of the GST to the granting of permission to increase the height and density of the above property. As you are aware, we were awaiting a legal opinion as to the status of the granting of air and density rights. We have now received and reviewed that legal opinion. We apologize for any inconvenience our delay in responding may have caused.
Statement of Facts
Our understanding of the situation as described in your letter is as follows:
1. XXXXX has entered into an agreement with XXXXX XXXXX (the City) whereby the City has agreed to pass a by-law allowing XXXXX to increase the height and density of the building located at the above address.
2. In return for having his by-law passed, XXXXX has agreed to pay to the City an amount of XXXXX as a contribution toward social housing.
3. In relation to the XXXXX contribution, XXXXX has paid to the City an amount of XXXXX in respect of GST, which amount is being held in trust by the City pending our determination of the tax status of this transaction.
Interpretation Requested
You have asked us to confirm your draft ruling that the granting of the right, by the City, to increase the height and density of a property not owned by the City is an exempt supply pursuant to paragraph 20(c) of Part VI of Schedule V to the Excise Tax Act (the Act).
Interpretation Provided
The granting of permission by the City to XXXXX to increase the height and density of the property located at XXXXX is exempt under paragraph 20(c) of Part VI of Schedule V to the Act.
Analysis
Legal Services has provided their opinion that the granting of density rights does not constitute a supply of the underlying real property, but rather is a supply of a right to do something.
Paragraph 20(c) of Part VI of Schedule V to the Act exempts the supply by a municipality of a licence, permit, quota or similar right. This provision would namely exempt the granting of permission by a municipality unless otherwise specified in the legislation. Since the permit is not in respect of the right to enter, to have access to or to use property of the municipality, paragraph 20(1) of Part VI of Schedule V to the Act would not apply to exclude the exemption.
In situations where a municipality transfers density rights attendant on property that it owns, the supply may be considered to be an "assignment" of rights rather than a supply of a right such that the exemption in paragraph 20(c) of Part VI of Schedule V to the Act does not apply. Even if structured as a supply of a licence or permit within the exemption, if related to municipally owned property paragraph 20(1) of Part VI of Schedule V to the Act would apply to exclude the exemption.
Should you require further information on this matter, please contact Joy Weir at (613) 952-9212, or myself at (613) 954-3772.
Yours truly,
S. Farber
Manager, Tax Policy
Real Property
Policy and Legislation
Email this Content