HQR0000078
January 22, 1997
Dear XXXXX
We are replying to your memorandum (E-Mail) of July 19, 1996, addressed to John Bain, A/Manager, Real Property Unit, with respect to joint tenancies relating to farmland. We apologize for the delay in responding.
Facts
Our understanding of the facts based on the information provided, your telephone conversation with Costa Dimitrakopoulos, Real Property Unit, and our telephone conversation of December 19, 1996, is as follows:
1. Husband and wife have owned farm property in joint tenancy since XXXXX[.]
2. Both husband and wife were reporting farming income on a 50/50 basis for Income Tax purposes.
3. Wife was actively involved in the farming operation.
4. Husband only was registered for GST purposes as a sole proprietorship. He collected and remitted GST on taxable (7%) supplies.
5. Husband and wife did not acquire additional land after 1990. In addition, no capital improvements have been made to the property since 1990.
6. Husband died on XXXXX[.] Upon his death, only the farmland was transferred to his wife since all farm equipment had either been sold or transferred to his son.
7. Wife had sole ownership of farmland for a certain period after death of husband.
8. The farmland previously owned by the husband and wife (as partners) is now held in joint tenancy between the wife and her son. The wife allowed the son to be joint owner for no consideration.9. Son is also a registrant who operates his own farm.
10. The farmland is now used by the son for his cattle operations and crops and for oil exploration. The wife receives XXXXX of the revenues from the cattle operations as consideration for allowing her son to use her share of the land for his cattle operations. Wife receives no revenues for the use by her son in the crops. Wife receives some revenues from the oil wells and oil leases on the land.
11. Wife is also registered for GST purposes effective January 7, 1995 and the property is being used in commercial activities. However, wife wishes to de-register.
Comments
A) Did a partnership exist before death of husband?
Since the husband and wife were reporting farming income on a 50/50 basis for income tax purposes and the wife was actively involved in the farming operation, it is our view that both contributed to the farming business and a partnership existed.
Upon the husband's death, the partnership ceased to exist and the farmland was transferred from the partnership to the wife. This transfer would constitute a taxable supply of property since the joint tenancy rules referred to under Policy Statement P-109 would not apply for GST purposes in this particular case.
However, since the wife is registered, effective January 7, 1995, and the supply of the farmland would constitute a taxable supply of real property, the wife, as recipient, would account for the GST on the supply pursuant to subsections 221(2) and 228(4) of the Act. Consequently, as the transaction took place on January 7, 1995, the wife would still be required to file the GST 60 form.
B) Is the election under subsection 167(2) of the Act available?
Since a partnership would have existed for GST purposes between the husband and wife, the election under subsection 167(2) of the Act concerning the supply of business assets of a deceased would not be available as the election applies only to individuals.
C) Does the non-arm's length rule in subsection 155(1) of the Act apply?
In the E-Mail message, it is stated that the land is currently held in joint tenancy between the wife and son. The transfer of the farmland from sole ownership (wife) to joint tenancy (wife and son) would constitute a taxable supply. Related persons are deemed not to deal with each other at arm's length. However, subsection 155(1) of the Act would not apply in this case since the son is a registrant and is acquiring interest in the farmland exclusively for use in the course of commercial activities.
D) Should the wife de-register?
The wife is currently engaged in commercial activities, i.e., property rental. In the event she chooses to de-register, then, the wife will be deemed to have ceased using the property in commercial activities and to have made a supply of that property under paragraph 171(3)(b) and subsection 207(1) of the Act.
In your memorandum you refer to paragraph 198.1(b) concerning the limitation of tax liability imposed on registrants where the change of use rule applies. Since the wife acquired the property from the partnership on January 7, 1995, paragraph 198.1(b) would not apply.
Note that no ITCs can be claimed after de-registration. Therefore, if the wife intends to claim ITCs, she must do so before de-registering.
If you have any question or wish to discuss this matter further, please call me at (613) 954-4394.
J.E. Allard
Policy Officer
Financial Institutions and Real Property Division
GST Rulings and Interpretations
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