GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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Case: HQR0000915
XXXXX
S7K 0A8 NCS 11950-01
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Attention: XXXXX
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October 13, 1998
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Subject:
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GST/HST INTERPRETATION
XXXXX - Purchase of Real Property
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Dear Mr. XXXXX
Thank you for your letter of October 23, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST) to the sale of real property made by Ms. XXXXX[.]
Statement of Facts
1. Prior to June 30, 1992 property described as XXXXX (the "property") was used as capital property in a business carried on by XXXXX operated the said business as a sole proprietorship under the trade name of XXXXX[.]
2. XXXXX[.] The property formed part of the deceased estate. XXXXX Title to the property was transferred in fee simple from the estate to XXXXX [d]aughter of the deceased, on XXXXX[.]
3. XXXXX listed the property with a real estate agent for the purpose of selling the property.
4. On XXXXX received an offer to purchase the property from XXXXX[.] The offer was accepted on or about the same date thus forming a binding Agreement of Purchase and Sale.
5. In XXXXX took possession of the property under the said Agreement of Purchase and Sale.
6. On XXXXX title to the property was transferred from XXXXX to XXXXX under the said Agreement of Purchase and Sale.
The following information was provided by XXXXX in a number of telephone conversations with the Department:
7. During a period of approximately XXXXX, the property remained vacant and unoccupied with the exception of a brief period of time commencing late XXXXX[.]
8. From the time of XXXXX inherited the property until XXXXX, when XXXXX decided to sell the property, she was undecided as to what to do with the property.
9. XXXXX did not at any time attempt to lease the property. She received an unsolicited offer from XXXXX to use the property sometime in XXXXX XXXXX use of the property was limited to a place to connect a telephone line and for employees to use the washroom from time to time. XXXXX is of the view that the property was never really "rented".
10. The duration of XXXXX use of the property was approximately three to four weeks. XXXXX ended its use of the property on its own accord.
11. XXXXX made no subsequent attempts to supply the property in any manner prior to her receiving an offer to purchase the property from XXXXX[.]
12. The amount of the "rent" charged to XXXXX was only enough to cover the electricity, heat and property taxes for the duration of the rental period.
13. According to copies of Statements of Real Estate Rentals provided by XXXXX rental losses were reported by XXXXX for income tax purposes in XXXXX[.]
14. XXXXX is not currently engaged in, nor does she have a history of having been engaged in, any business activity which derives income from the development and/or sale of real property.
Interpretation Requested
You have asked whether the sale of the property is exempt of GST.
Interpretation Given
Based on the information provided in the above Statement of Facts it is our view that the sale of the property is an exempt supply. The sale would be exempt under subsection 9(2) of Part I of Schedule V to the Excise Tax Act (ETA). The sale would not be excluded from exemption by paragraph 9(2)(a) of Part I of Schedule V to the ETA as the property was not capital property used primarily in the course of a business carried on by XXXXX[.]
Analysis
Given that all real property acquisitions occur for a purpose it could be said that, in the context of section 9 of Part I of Schedule V to the ETA, an individual or personal trust acquires real property for one or more of the following purposes:
1. for use as capital property in the course of a business carried on by the individual or personal trust,
2. for the purpose of sale, or
3. for the personal use and enjoyment of the individual or the beneficiaries of the personal trust.
Note, although purposes (1) and (2) are regarded as mutually exclusive, purpose (3) can be present in combination with either purpose (1) or (2).
Since the facts of this case are that XXXXX inherited the property, it is difficult to establish the purpose(s) for which the property was acquired. For such acquisitions, which are usually unexpected and hence unplanned, the Department takes the view that the property was neither acquired for use in a business as capital property nor acquired for the purpose of sale unless there is sufficient evidence to the contrary. In the case at hand the property is considered to have been acquired by XXXXX for her personal use and enjoyment.
Given the above facts, it can be concluded without further analysis that:
• the property was capital property of XXXXX and
• the sale of the property was not made in the course of a business of Ms. XXXXX as described in subparagraph 9(2)(b)(i) of Part I of Schedule V to the ETA.
Since none of the other exclusionary paragraphs of subsection 9(2) of Part I of Schedule V to the ETA are relevant in this case, the only provision of any application is paragraph 9(2)(a).
The relevant condition to be met in determining whether the sale of the property is taxable or exempt turns on whether the property was, immediately before the time possession is transferred to the recipient XXXXX under the agreement for the sale of the property, capital property used primarily in a business of the individual [Ms. XXXXX with a reasonable expectation of profit.
The two issues which must be decided upon are:
1. whether the capital property was "used primarily in a business carried on" by XXXXX immediately prior to the sale of the property by XXXXX as described in paragraph 9(2)(a), and
2. and if so, whether the [rental] business carried on by XXXXX was with a reasonable expectation of the profit (REOP).
Issue 1
At this point the question becomes whether the letting of the capital property to the oil company for a two to four week time period constitutes a business carried on by Ms. XXXXX[.]
Since the facts are that the entire activity involves a supply of the capital property by lease, licence or similar arrangement, such an activity will only be considered a "business" for GST/HST purposes where this activity is "engaged in on a regular or continuous basis" in accordance with the definition found in subsection 123(1) of the ETA. Policy Paper P-205 - "Meaning of the Second Part of the Definition of "Business" ...", states that:
"[t]here are no definitive criteria in determining whether an activity is engaged in on a regular or continuous basis, or the length of the period."
Policy Paper P-051 - "Carrying Business in Canada", states that:
"the courts have held that to be carrying on a business, the activities in question must be considered to occur on a regular or continuous basis. Each case must be determined based on the facts of that case, taking into consideration the history of the persons activities as well as the person's intention."
In the context of whether a business is "carried on" for purposes of the Income Tax Act, the courts have interpreted the term "regular" as being with respect to the frequency of the transaction or transactions occurring in the activity and the term "continuous" as being with respect to the overall length of time in which the activity persists.
In this case, the facts are that the letting of capital property to the oil company was a single transaction which occurred for only a short time period. Also XXXXX did not actively try to supply the property by way of lease licence or similar arrangement either before or after the short interval of the single supply. Therefore the property was neither supplied, nor intended to be supplied, on a continuous basis.
Issue 2
Since, as determined in Issue 1, there was no business carried on by Ms. XXXXX it can be concluded that paragraph 9(2)(a) of Part I of Schedule V will not exclude the sale of the subject property from exemption without having to address the issue of whether there was a REOP[.]
It important to note that the Department's conclusion that the supply of the property by way of lease, licence or similar arrangement is not a business carried on for purposes of Part IX of the ETA is independent of any conclusion as to the characterization of the use of the property for purposes of the Income Tax Act.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-8852.
Yours truly,
Daryl Hooley
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
| Legislative References: |
Section 9 of Part I, Schedule V to the ETA
Subsection 123(1) - definition of "business" [part 2] |
Authorities: Policy Paper P-051
Policy Paper P-205
| NCS Subject Code(s): |
11950-1 |
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