4 November 1998 GST/HST Ruling HQR0001325 - Application of the GST/HST to the Sale of Lots

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

                                                                        Business Number: XXXXX

Dear XXXXX

Thank you for your letter of August 5, 1998 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below, which was forwarded to our office by the Southern Ontario TIS Centre for reply.

Statement of Facts

Our understanding of the facts and the transactions is as follows:

1. XXXXX ("the Company") was incorporated in XXXXX as the result of an amalgamation of XXXXX corporations, XXXXX[.]

2. In 1971, XXXXX was formed for the purpose of acquiring XXXXX acres of land in the Township of XXXXX legally described as Part of XXXXX ("the Property").

3. The Property has XXXXX feet of lake frontage on its easterly lot line fronting onto XXXXX[.]

4. At the time of the purchase, there were two residential detached houses located on the Property.

5. Two additional residential houses were constructed on the Property, one in 1974 and the second in 1979.

6. With the exception of the two houses built in 1974 and 1979, the Company has never engaged in the business of constructing buildings.

7. The Company has claimed no input tax credits with respect to improvements and repairs made to the houses on the Property.

8. Each house is used by a specific shareholder of the Company and his/her family with no cross usage.

9. From the time the houses were either purchased with the Property or newly-built, each has been either vacant or occupied by the same shareholder and his/her family, off and on throughout the year, as a secondary place of residence.

10. One of the houses purchased with the property was occupied by a particular shareholder as a primary place of residence from XXXXX[.]

11. Each shareholder occupying a particular house has furnished it with his/her personal belongings.

12. Each shareholder occupying a particular house has purchased insurance policies on that house under the Home Owner Policy category.

13. The area around the Property is generally occupied by cottagers and year round residents.

14. The lakefront of the Property is shared equitably by the XXXXX houses.

15. In XXXXX, with the decline in use of the houses by two of its shareholders, the Company decided to apply to XXXXX to sever the Property. The purpose of the severance was to provide more opportunity for each individual shareholder to control his/her house.

16. The Property is designated as a XXXXX under XXXXX[.]

17. Under XXXXX the maximum number of lots created from severing a "land holding" is XXXXX including the original lot.

18. XXXXX requires that all severance applications ensure that the new lots have adequate services with no undue burden on the existing potable water and sewage disposal systems. In addition, development in XXXXX is not to be linear or strip pattern, and backlotting and secondary tier development to the existing developed area are discouraged.

19. In 1996, the Company approached XXXXX with the proposal to sever the Property into XXXXX [L]ots, which was rejected.

20. The Company engaged a local planning consulting firm to formulate a severance plan that would incorporate the underlying principles of XXXXX[.]

21. The severance plan proposed to subdivide the Property with XXXXX Front Lots along the shoreline, and a Back Lot representing the balance of the Property. The lots would have the following dimensions (as the lots are irregular, the second dimension of the Front Lots is approximate):

XXXXX

XXXXX

XXXXX

XXXXX

22. Under the severance plan, the houses in place at the time of acquisition would be on XXXXX, while the houses built by the Company would be on XXXXX.

23. On XXXXX, the severance plan was adopted by XXXXX[.] Amendment was approved by the Ministry of Municipal Affairs and Housing on J XXXXX[.]

24. In describing the development proposal, XXXXX Amendment stated as follows:

"Key planning considerations incidental to the proposed lot design include:

•     maintain uniformity in the configuration of all proposed lots;

•     providing equitable shoreline frontage and area for each of the proposed lots;

•     maintaining the historic integrity of this waterfront estate development;

•     ensuring acceptable setbacks to existing dwellings, accessory buildings/structures, well and septic services;

•     ensuring that functional waterfront area and lake access are provided for each lot/dwelling ..."

25. In explaining why an exception to the policies for severances in XXXXX would be permitted, XXXXX Amendment noted the following:

XXXXX requires that the size of new lots be appropriate to accommodate the use and would not require an undue extension of major services. The proposed lots exceed the current minimum standards established in the Township's comprehensive zoning by-law for recreational dwelling lots. As the established uses are presently serviced to the extent proposed, no new services would be required. Therefore, the proposal is deemed to conform with this policy.

"The policies ... permit consents to private roads [i.e. as in the proposal] where the length of the private road is not extended; the lot created will have access to the private road; and the lot created lies between existing non-agricultural buildings separated by not more than XXXXX[.] [T]he proposed consents would maintain the spirit and intent of these policies.

XXXXX requires that proposed lots are suitable to permit the proper siting of buildings, sufficient potable water and adequate means of sewage disposal. Again, the existing dwellings are serviced by individual wells and approved sewage disposal systems. The proposed lot areas and boundaries are also adequate to ensure the reasonable separation of the existing uses.

"Overall, the proposal maintains the overall spirit and intent of the official plan, specifically in respect of multiple severances on private roads. Apart from relocation of the vehicular right-of-way the private road is not being extended. To the contrary, by virtue of its relocation and realignment, the private road will be shortened in terms of eventual length."

Transactions

1. In XXXXX the Company decided to dispose of all four houses.

2. The sale of the XXXXX Lots was completed in XXXXX[.]

Ruling Requested

The Company requests confirmation that the sale of the XXXXX Lots is GST exempt.

Ruling Given

Based on the facts set out above, we rule that:

a) the sale of Lots XXXXX as shown on the plan designated as XXXXX attached to XXXXX, is exempt from GST pursuant to section 4 of Part I of Schedule V to the Excise Tax Act; and

b) the sale of Lots XXXXX as shown on the plan designated as XXXXX attached to XXXXX is exempt from GST pursuant to section 2 of Part I of Schedule V to the Excise Tax Act.

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 transactions for which you requested a ruling. [required only when the decision is unfavourable]

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-3413.

Yours truly,

Michael Wolff
Real Property Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate

Legislative References:           Excise Tax Act, subsection 123(1) builder residential complex
Excise Tax Act, subsection 191(1)
Excise Tax Act, Schedule V, Part I, section 2
Excise Tax Act, Schedule V, Part I, section 4
Excise Tax Act, Schedule V, Part I, section 14