29 September 1998 GST/HST Ruling HQR0001213 - Sale of Residential Complex

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5

Dear XXXXX

This is in reply to your letter to XXXXX TIS Centre concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

1. XXXXX is a non-resident for GST/HST purposes.

2. A residential complex located at XXXXX was acquired by XXXXX on XXXXX for the purpose of an a XXXXX[.] We understand that XXXXX purchased this property for XXXXX[.]

3. In order to accommodate its use as an XXXXX residence, XXXXX contracted to have another person to carry on the substantial renovation (as defined in subsection 123(1) of the Excise Tax Act) of this residential complex.

4. An Agreement of Purchase and Sale (Agreement) for this complex was entered into on XXXXX between XXXXX and two individuals. These individuals were not GST/HST registrants nor was the complex acquired by them primarily in the course of commercial activities. Under the Agreement, legal ownership or possession of the complex was transferred from XXXXX to these individuals.

5. At that time, the substantial renovations to the complex were incomplete and it was being sold on an "as is" basis. The transaction was to close on XXXXX[.] The complex was sold for XXXXX[.]

6. Clause 7 of the Agreement states "GST: If this transaction is subject to Goods and Services Tax (G.S.T.), then such tax shall be ... included in ... the Purchase Price. If this transaction is not subject to G.S.T., Vendor agrees to certify on or before closing, that the transaction is not subject to G.S.T."

7. As XXXXX you wrote to XXXXX TIS Centre to request confirmation on the tax status of the sale of this residential complex.

8. In order to determine the extent of the renovations made to the complex, an on-site visit was conducted by a Revenue Canada official on XXXXX with the approval of XXXXX[.] At that time, it was determined that the renovations made to the interior of this residential complex were 56% complete.

9. As a result of a verbal request made by you to Donna Harding of the Government's Unit, Revenue Canada issued a letter to you on May 6, 1998, indicating that XXXXX is not entitled to a rebate of GST payable by the recipient of the supply of the residential complex by XXXXX as the GST was not imposed on XXXXX[.] At that time, the extent of the renovations had not yet been determined by the Department .

10. On behalf of XXXXX you remitted an amount of XXXXX as GST to Revenue Canada with respect to the sale of this residential complex. In your letter of June 30, 1998, which accompanied the remittance, you indicated that the payment was made in protest and that it is XXXXX intention to appeal both the liability and assessment of this tax.

Transaction

XXXXX supplied, by way of sale, a residential complex located at XXXXX[.]

Ruling Requested

The supply of this residential complex by XXXXX is not subject to GST.

Ruling Given

Based on the facts set out above, we rule that the supply of the residential complex located at XXXXX is subject to GST.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

A supply of real property situated in Canada is subject to GST/HST unless the transaction is specifically exempt under the Excise Tax Act (ETA). Most exemptions that apply to residential real property are found in Part I of Schedule V to the ETA.

Generally, the sale of a previously occupied residential complex is exempt from GST/HST. However, where the supplier of such a complex is a builder who substantially renovated the complex or engaged another person to carry on the substantial renovation of the complex prior to its sale, the complex is treated as if it were newly constructed and subject to GST/HST at time of its sale by the builder.

Although the residential complex sold by XXXXX was not substantially renovated at the time of its sale, XXXXX did contract to have it substantially renovated prior to that time. As a result, XXXXX is treated as a builder for GST/HST purposes since "builder" is defined under the ETA to include a person who, at the time when the person has an interest in the real property on which the residential complex is situated, carries on or engages another person to carry on for the person the construction or substantial renovation of the complex. As no exempting provisions apply to a sale of this type, when made by a builder, as in the case of the residential complex sold by XXXXX its supply is taxable.

Section 165 of the ETA imposes GST/HST on every recipient of a taxable supply. Generally, the responsibility to collect GST/HST on a taxable supply rests with its supplier. However, paragraph 221(2)(a) of the ETA provides that where a taxable supply of real property is made by a non-resident person, in this case XXXXX, the obligation to account for tax on the supply rests with the recipient of the real property. In accordance with subsection 228(4) of the ETA, it is the recipient who is required to self-assess and remit any tax payable on the purchase to the Receiver General. The recipient is required to file form GST 60 "Goods and Services Tax Return for Acquisition of Real Property" with the Minister of National Revenue to account for the tax. (Please note that form GST 60 is only used where the recipient is not registered for GST/HST purposes and the complex is not being acquired by the recipient primarily in the course of commercial activities. If the facts show that the recipient is registered and is acquiring the complex primarily in the course of commercial activities, then the recipient would be required to report the tax on the purchase of the complex on its regular GST/HST return rather than file a GST 60.)

However, as the tax status of the supply of the residential complex in question had not been ascertained at its time of sale, and the Agreement of Purchase and Sale contained a GST-inclusive clause, an amount of XXXXX of the XXXXX purchase price was held in trust by you pending confirmation from XXXXX TIS Centre as to the status of the supply.

In reviewing your request, it was unclear at that time whether this sale by XXXXX which would have been considered a commercial activity for GST/HST purposes if found taxable, was in conflict XXXXX[.] As such, your enquiry was forwarded to this office from XXXXX TIS Centre for reply. On June 17, 1998, we wrote to the XXXXX[.]

XXXXX purchase price that XXXXX collected was remitted by you to Revenue Canada, on behalf of XXXXX[.] This amount was remitted in the event that the supply was found taxable. The Department has established that the supply of the complex is taxable. Since the Agreement of Purchase and Sale included a GST-inclusive clause, the amount of XXXXX was collected by XXXXX as or on account of tax. In accordance to subsection 222(1) of the ETA, XXXXX was deemed to hold the amount in trust for Her Majesty until its remittance to the Receiver General. Pursuant to subsection 225(1) of the ETA XXXXX was required to include this amount in its net tax calculation for the reporting period in which it was collected and remit any resulting positive amount of net tax in accordance with subsection 228(2).

Section 261 of the ETA provides in part for a rebate to a person who has remitted an amount as or on account of net tax where the amount was not remittable by the person. As previously stated, the amount of XXXXX that was collected as tax by XXXXX was required to be included in its net tax and the resulting net tax was required to be remitted. Since a rebate is only available under section 261 if the amount was not remittable, XXXXX is not entitled to the rebate in respect of the net tax that XXXXX remitted.

However, XXXXX is entitled to a rebate of tax paid on renovations carried out on the residential complex prior to its sale, pursuant to subsection 257(1) of the ETA. Under this provision, a non-registrant builder or other person who makes a taxable supply of real property is entitled to claim a rebate equal to the lesser of the basic tax content of the property, or the tax that is, or would be payable in respect of the particular supply. XXXXX[.]

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-7952 or Donna Harding, A/Manager, Governments Unit at 954-3551.

Yours truly,

Lynn F. Renner
Rulings Officer
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

ATIP

John Bain (Costa Dimitrakopoulos)
Jean Lauziere (Foreign Affairs)
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