GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
XXXXX
XXXXX Case: HQR0001139
XXXXX June 4, 1998
Dear XXXXX
We are writing in response to a memorandum (with attachments) received from XXXXX concerning the application of the Goods and Services Tax (GST) to life leases of units in a senior citizen housing complex built by a charity.
Facts
The facts as set out in her letter, and as provided to me in a discussion with XXXXX , on May 22, 1998 are as follows:
1. A local charity constructed two separate senior citizen complexes.
2. The charity receives government funding to help subsidize the cost of a XXXXX unit apartment building that is located XXXXX However, none of the government funding was used to finance the construction of the complexes.
3. The rights to occupy units in the complex were sold under life leases to residents prior to construction. The sale price for the life leases was equal to the estimated construction cost of each unit.
4. The cost of construction of the complex was XXXXX , however, the fair market value of the property when completed was determined by an independent appraiser to be only XXXXX
Interpretation Requested
In your letter, you expressed concern that section 191.1 of the Excise Tax Act (ETA) does not appear to cover situations where the developer of a complex is in receipt of government funding, but has not received or used government funding for the particular development under consideration. XXXXX echoed these concerns noting that developments such as the one under consideration in this case, are becoming increasingly popular and there is a significant potential for lost revenue because the fair market value of these complexes is often less than the construction cost and hence the developer's recover ITC's in excess of the GST that they remit when they self supply on the complex.
Interpretation Given
Based on the facts provided to us, we confirm that section 191.1 of the ETA does not apply to effect the fair market value determination of this particular complex. The phrase "in respect of" which is used in the definition of "government funding" in subsection 191.1(1) and in paragraph 191.1(2)(c) requires that there be some connection between the funding received by an organization and the development work that it undertakes.
Conversely, where a charity is in receipt of government funding and that funding is specifically granted by the government for the construction of a residential complex described in paragraph 191.1(2)(b), it is possible to apply section 191.1 on the grounds that the government funding is made "in respect of" a residential complex.
In cases where the construction cost of a seniors residential complex significantly exceeds the appraised fair market value of the project, departmental appraisers should be utilized to determine the validity of the appraisal.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.
Yours truly,
Michael Ezri
Acting Rulings Officer
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Legislative References: ETA s. 191.1
NCS Subject Code(s): I 1, 11870-1
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