5 August 1999 GST/HST Interpretation HQR0001848 - REVIEW OF GST/HST INTERPRETATION [Application of the GST/HST to the Supply by Way of Sale of Real Property]

Dear XXXXX

Thank you for your letter of June 6, 1999 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply by way of sale of real property by a company.

From your letter, I understand that you have purchased a vacant residential lot for the purpose of relocating your personal residence. On the morning of the closing, you were informed for the first time that you were required to pay XXXXX in GST. The reason provided to you for the applicability of GST was that while there is an exemption from GST for a sale of land by an individual or a personal trust under certain conditions, namely section 9 of Part I of Schedule V to the Excise Tax Act (the Act), there is no GST exemption for a similar sale of land by a company or by an entity which is not an individual or a personal trust. In your letter, you indicate that the lot is in an R1 (residential only) zone. You are questioning the application of the GST on the purchase of the lot in question and the fact that it depends on the nature of the seller.

I further understand that, in answer to your query of February 18, 1999, XXXXX July 22, 1999 to the effect that the supply of the lot in question by a company was subject to GST. The file material from XXXXX as well as the information which you have provided in your letter of June 6, 1999 has been reviewed and considered.

Based on this review and our understanding of the circumstances, we are confirming the interpretation of our XXXXX to the effect that the purchase of a vacant residential lot from a corporation is subject to GST by virtue of subsection 165(1) of the Act. Under this charging provision, any supply of real property by way of sale made in Canada is subject to GST unless it qualifies for tax exemption under Schedule V to the Act.

The exemptions for sales of real property are provided under Part I of Schedule V to the Act and in section 25 of Part VI of the same Schedule in the case of sales by public service bodies. Section 9 of Part I of Schedule V reads in part "a supply of real property made by way of sale by an individual or a personal trust ...". The exemption under section 9 is clearly limited to sales by individuals and personal trusts, and does not extend to the case at hand which is a sale by a corporation. Please note that this section does not provide a blanket exemption for sales of real property by individuals as there are numerous exceptions. For example sales of the following real property by an individual would be taxable unless they qualify for exemption under other provisions of the Act:

•   capital real property used primarily in a business carried on by the seller with a reasonable expectation of profit,

•   real property sold in the course of a business of the seller,

•   a part of a land parcel which has been subdivided or severed into more than two parts.

While the sale of the residential lot by a company is subject to GST, you may qualify for a New Housing Rebate, up to a maximum of $8,750, under section 256 of the Act where you meet the conditions described in the GST/HST New Housing Rebate Guide, as mentioned in the above cited letter from our XXXXX.

While we appreciate your views on this matter, we have no alternative but to confirm the interpretation by our XXXXX Revenue Canada is responsible for the administration of the GST legislation as passed by Parliament and it is a continuing goal to carry out this responsibility in a manner which is both fair and uniform for all taxpayers. Extending the exemption under section 9 cited above to sales of real property by corporations would entail an amendment to the Excise Tax Act, which falls within the responsibilities of the Department of Finance. This department is aware of the issue.

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
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