GST/HST Rulings and Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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Case: HQR0001075
XXXXX Code: 11950-1
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June 17, 1998
Dear XXXXX
Thank you for your E-mail message of February 19, 1998 concerning the availability of input tax credits (ITCs) related to qualifying supplies made to a builder prior to the time of self-supply.
Statement of Facts
From the message dated February 17, 1998 from Murray Haapala to you, I understand the facts are as follows:
1. A registrant hires several subcontractors to build XXXXX apartment buildings for long-term rental to individuals for use as their place of residence. The registrant acts as his own general contractor. Sometimes, there is a written agreement, but not in all cases.
2. The registrant self-supplies under subsection 191(3) of the Excise Tax Act (the Act) on each of the two complexes at the later of the time the construction of each complex is substantially completed and the time possession of a unit in that complex is first given.
3. Most of the work performed by the subcontractors was done prior to the time of self-supply. However, the subcontractors did not invoice the registrant for some of the work until after the time of self-supply (i.e. in a subsequent reporting period).
Interpretation Requested
Is the registrant entitled to claim ITCs for the GST paid or payable on qualifying supplies which were made by subcontractors prior to the time of self-supply but which were invoiced in the reporting period after the self-supply?
Besides the above case, you have had several other similar cases in the past where the taxpayer was concerned about not being able to obtain ITCs after self-supply. Accordingly, you are asking for a broad answer which will also be useful in similar cases where the facts might be slightly different.
Interpretation Given
Based on the information provided, our interpretation is as follows:
If it can be determined that the supplies were acquired by the registrant before the time of self-supply, for consumption, use or supply in the course of commercial activities, the registrant is entitled to ITCs for the GST paid on the supplies, even when these supplies are invoiced after self-supply. In this case, the deemed sale of the apartment buildings under subsection 191(3) of the Act constitutes the only commercial activity of the registrant.
When there is no written agreement between the registrant and a subcontractor, the consideration and tax for the subject supplies become payable when the subcontractor's invoice is issued pursuant to subsection 168(1) and paragraph 152(1)(a), (i.e. when the registrant is making exempt supplies of long term rentals). However, the main requirements for claiming ITCs under subsection 169(1) of the Act are that the person must be a registrant during the reporting period that tax was paid or payable and the supplies were acquired by that person for consumption, use or supply in the course of its commercial activities. If these conditions are met, among others, ITCs may be allowed.
When there is a written agreement, and where any part of the consideration has neither been paid nor become due on or before the last day of the calendar month following the month in which the construction is substantially completed, the tax payable in respect of the subcontractor's work is due on that day under subsection 168(3) of the Act. In that case, the subcontractor's work was acquired prior to self-supply and for use in commercial activities, regardless of the subcontractor's invoice date, and ITCs may be allowed to the registrant.
If the registrant self-supplies at the time of substantial completion, based on the FMV of the building at that time, tax would be remitted on the fair market value of the building at substantial completion. No ITCs will be allowed on the remaining work completed. In this case, there is no possibility of double taxation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9587.
Yours truly,
Bao Tran
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Legislative References: ss. 152(1); 168(1); 169(1)
NCS Subject Code(s): I11950-01
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