20 August 1999 GST/HST Interpretation HQR0001902 - Re: ss 183(1)

As per your e-mail dated July 20, 1999 you have asked us to comment whether subsection 183(9) and consequently 183(1) applies to the transactions under consideration in the agreement provided.

Our Comments

We were provided with a copy of the Agreement dated XXXXX between the XXXXX[.] The preamble in the Agreement documents the history of transactions taking place between the two parties XXXXX[.] It intended to develop the property and in order to obtain approval for the development, XXXXX to purchase the density rights. Under the XXXXX agreement XXXXX was to pay the purchase price as required under the XXXXX agreement XXXXX effected the transfer of the density rights to XXXXX XXXXX never made any payments under the XXXXX agreement[.] A second agreement dated XXXXX was entered into wherein the terms of payment of the purchase price and other payments due and owing to XXXXX were restructured in exchange for release of obligations under the XXXXX agreement. XXXXX was dissolved. The XXXXX assumed all rights and obligations of XXXXX including those contained in the XXXXX agreement. XXXXX was required to re-pay the Debt together with interest on or before XXXXX. XXXXX by extending the date for payment of the Debt to XXXXX. The XXXXX[.] Subsequent to this date, XXXXX submitted a proposal to the XXXXX for the restructuring and amendment of the XXXXX agreement, which is to include a revised development plan based upon a reduced land area. The XXXXX authorized a further extension to XXXXX[.] The current agreement restores the density rights by transferring the density from XXXXX[.] The issue is whether this transfer of the density rights back to the XXXXX is a voluntary transfer of the density rights under subsection 183(9) and consequently requires the application of subsection 183(1).

Subsection 183(9) states "(f)or the purposes of this section, where property is at any time voluntarily transferred by a particular person to another person for the purpose of satisfying in whole or in part a debt or obligation in respect of which the particular person is in default, the other person shall be deemed to have seized or repossessed the property from the particular person at that time in circumstances in which subsection (1) applies."

Subsection 183(1) states, "(w)here at any time after 1990 property of a person is, for the purpose of satisfying in whole or in part a debt or obligation owing by the person to another person (in this section referred to as the "creditor"), seized or repossessed by the creditor under a right or power exercisable by the creditor (other than a right or power that the creditor has under, or because of being a party to, a lease, licence or similar arrangement by which the person acquired the property),

a) for the purposes of this Part, the person shall be deemed to have made, and the creditor shall be deemed to have received, at that time, a supply by way of sale of the property;

b) for the purposes of this Part (other than sections 193 and 257), that supply shall be deemed to have been made for no consideration;

c) where the supply referred to in paragraph (a) is a taxable supply of real property, for the purposes of sections 193 and 257, the tax payable in respect of the supply shall be deemed to be equal to tax calculated on the fair market value of the property at that time; and

d) where the supply referred to in paragraph (a) is a supply of real property included in section 9 of Part I of Schedule V, in section 1 of Part V.1 of that Schedule or in section 25 of Part VI of that Schedule, for the purposes of sections 193 and 257, the supply is deemed to be a taxable supply and the tax payable in respect of the supply is deemed to be equal to tax calculated on the fair market value of the property at that time."

The agreement covers two transfers:

The transfer of density rights by XXXXX The transfer of land by XXXXX states that the additional density transferred by XXXXX will be transferred back to the XXXXX transfers a portion of XXXXX out conditions upon which the agreement is conditional which include rezoning by-laws being passed and XXXXX revised development plan receiving approval.

Section 10.0 (Release) states that upon performance and satisfaction of all terms, conditions and covenants hereunder, including the closing, both parties will be considered to have met their obligations and satisfied all of their liabilities under the XXXXX agreement and the XXXXX agreement shall be terminated and neither party shall have any right, liability or claim against the other in respect of it. However, Section 11.0 states that if XXXXX is in default of any terms of this agreement then the XXXXX may terminate this agreement by notice in writing. In the event of this agreement being terminated, the XXXXX will be entitled to exercise any right or remedy it may have in law or contract against XXXXX[.] The XXXXX agreement was not provided and is not available for review, however, we can assume that if the XXXXX were to exercise its rights in respect of XXXXX non performance of its obligations, the XXXXX would likely force a seizure or repossession to take place.

XXXXX, the Court noted that the transaction could have been structured in a tax-free manner if the taxpayer corporation had quit claim its interest in the land to the holding company ... In the Court's view, these steps would have fallen under subsection 183(9).

According to Black's Law Dictionary, Sixth Edition "quitclaim" mean "in conveyancing, to release a claim; to execute a deed of quitclaim." A quitclaim is also defined as "a deed of conveyance operating by way of release; that is intended to pass any title, interest, or claim which the grantor may have in the premises, but not professing that such title is valid, not containing any warranty or covenants for title." "Release" is defined as "a writing or an oral statement manifesting an intention to discharge another from an existing or asserted duty."

Based on the above definitions, it would appear that the Agreement meets the definition of a quitclaim consequently the transaction would fall under the provisions of subsection 183(9) as a voluntary transfer.

Since we do not have the XXXXX agreement, we do not have any detailed information regarding the transactions contemplated under that agreement. We are not able to comment on how to treat the transfer of the land as to whether it would also be part of the voluntary transfer under subsection 183(9) or not.

Should you have any questions please do not hesitate to call me at (613) 952-9577 or Duncan Jones at (613) 952-9210.

Marilena Guerra
A/Senior Technical Analyst
Financial Institutions Unit
Financial Institutions and Real Property Division