12 October 1999 GST/HST Interpretation HQR0001926 - APPLICATION OF GST/HST TO SUPPLY

Dear XXXXX

Thank you for your E-mail message of August 19, 1999 and earlier telephone conversations between our offices concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

On April 1, 1997, the HST replaced the GST and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. As the transactions described below occur in a non-participating province, the HST will not been addressed.

Statement of Facts and Transactions

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

1. On July, 1999, an auction was held for the sale of XXXXX XXXXX. The XXXXX[.]

2. The XXXXX was owned by the XXXXX, a corporation non-resident to Canada.

3. The XXXXX once had a lodge which was apparently used by the XXXXX employees and also rented out to guests. XXXXX.

4. XXXXX a registered charity XXXXX was the successful bidder, and the XXXXX was sold to XXXXX[.]

5. XXXXX will be transferring the ownership XXXXX[.]

Interpretation Requested

1. Would GST apply to the purchase of the XXXXX[.] If yes, can XXXXX recover the tax by way of refund, rebate or input tax credit (ITC)?

2. Would GST apply to the transfer of the XXXXX[.] If yes, can XXXXX recover the tax by way of refund, rebate or ITC?

3. Would a direct transfer of the XXXXX change the answers to questions in (2) above?

Interpretation Given

Based on the information provided, our interpretation is as follows:

1. The supply of the XXXXX by way of sale is subject to GST (i.e. 7% on the consideration paid or payable on the sale of the XXXXX under subsection 165(1) of the Excise Tax Act (the Act). Public Service Bodies (PSB), i.e. non-profit organizations, charities, municipalities, school authorities, hospital authorities, public colleges or universities, are entitled under section 259 of the Act to a PSB rebate which is a partial rebate of the GST paid by them on inputs for which they are not entitled to claim an ITC. As a charity, XXXXX is entitled to claim a PSB rebate for 50% of the tax paid on the purchase of the XXXXX[.] Under section 211 of the Act, a PSB can elect to treat its exempt supplies of a specific real property as taxable supplies. If it so elects, the "extent of use" test rather than the "primary use" test will apply, that is, the organization will be entitled to input tax credits in respect of the acquisition of the property - including improvements - proportional to the extent that the property is used in commercial activities. On the other hand, such an election will render taxable the supplies by the PSB of the property which would otherwise qualify for exemption under section 25 of Part VI or section 1 of Part V.1 of Schedule V to the Act.

If the XXXXX files an election under section 211 of the Act, it would be entitled to claim an ITC for the remaining 50% of the GST paid upon its purchase of the XXXXX. But in that case, the transfer of the XXXXX would be subject to GST as pointed out in (2) below.

2. The supply of the XXXXX by way of sale is exempt from GST under section 1 of Part V.1 of Schedule V to the Act, where the XXXXX has not filed a section 211 election with respect to the XXXXX[.] Where such an election is filed by the XXXXX, the supply is subject to GST under subsection 165(1) of the Act, as it is specifically excluded from the exemption by paragraph (m) of section 1 of Part V.1 of Schedule V to the Act. On the other hand, as pointed out in section (1) above, the XXXXX would recover all the tax paid upon its purchase of the XXXXX. by way of an ITC and a PSB rebate.

3. Where the ownership of the XXXXX is transferred directly from XXXXX the supply would be subject to GST under subsection 165(1) of the Act, as there is no exemption in the Act applying to such a supply. There are no provisions under the Act to allow XXXXX to recover the tax paid in this case.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-9587.

Yours truly,

Bao Tran
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate