30 June 1999 GST/HST Interpretation HQR0001749 - Application of the GST/HST to the Sale of a Duplex

Dear XXXXX

Thank you for XXXXX memorandum of April 19, 1999 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

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

Scenario 1: Property XXXXX

Statement of Facts:

1. This property was originally purchased exempt from GST on XXXXX for XXXXX[.] It was a rental property and was rented out after acquisition.

2. In February XXXXX and was attached to the existing house to make a duplex. The houses are not separately titled. The cost of relocating, setting up and renovating the XXXXX[.]

3. The existing house was rented out while the addition was being made. Renovations to the existing house at a cost of XXXXX were as follows: painting of the interior, repair of windows and doors, floor refinishing, stucco the exterior. To accommodate the addition, the overhang on the existing house was cut off and the two houses were butted together. No new plumbing and electrical systems were necessary except for some hook up work.

4. The duplex was sold on XXXXX, before the addition could be rented out. No input tax credits (ITCs) were claimed in relation to this property.

Interpretation Requested:

What is the GST status of the sale of the duplex? Is the vendor eligible to claim ITCs for GST paid on the acquisition of the relocated house and the renovations to the existing house?

Interpretation Given:

The vendor must self-supply on the fair market value of the duplex under subsection 191(3) of the Act, at the time the duplex is substantially completed. He is entitled to claim ITCs on the acquisition of the relocated house and the renovation to the existing house. The supply by way of sale of the duplex is exempt from GST under paragraph 5(a) of Part I of Schedule V to the Act, as a sale of a multiple unit residential complex by a builder of the complex who has self-supplied under subsection 191(3) of the Act.

Explanation

It is our view that the newly formed duplex is built by the owner, and that attaching the houses is equivalent to a substantial renovation of the existing house or a new construction. It is our policy (Policy Statement P-154) to consider a person who relocates a house to a new lot to be a builder and the relocated house is taxed as a new house.

Scenario 2: Property at XXXXX

Statement of Facts

1. The owner originally acquired it, exempt from GST, on XXXXX[.]

2. On XXXXX two other houses were acquired and relocated to the property, attached to the existing house to form a duplex. The relocated houses were attached together to form one half of the duplex, the existing house being the other half.

3. The existing house was rented out while the additions were made. A sewer system with larger pipes had to be installed to accommodate the additions. The overhang of the existing house was cut off where the additions are attached and a kitchen window had to be blocked off. Renovations to the existing house consisted of refinishing the basement flooring, painting, and a new closet in the master bedroom. The cost of the addition was XXXXX including moving costs of the relocated houses[.]

4. The units are not separately titled. The existing house was XXXXX[.]

5. The duplex was listed for sale for $XXXXX but a sale was never made. The addition was first rented out on XXXXX The accountant estimates the fair market value of the duplex to be between $XXXXX[.] No ITCs have been claimed in relation to this property.

Interpretation Requested

Is the owner of the duplex required to self-supply on XXXXX when the addition is rented? Is he entitled to claim ITCs for GST paid on the acquisition of the relocated houses and the renovations to the existing house?

Interpretation Given

The owner of the residential complex is required to self-supply on the fair market value of the complex, under subsection 191(3) of the Excise Tax Act (the Act). He is entitled to claim ITCs for the GST paid on the acquisition of the relocated houses and the renovations to the existing house.

Explanation

Scenarios 2 and 3 are similar to Scenario 1, except that the property is leased and not sold, thus causing a self-supply under subsection 191(3) of the Act, i.e. a deemed sale. The arguments are the same as in Scenario 1, with the end result that the newly formed multiple unit residential complex is taxed on its fair market value.

Scenario 3: Property at XXXXX

Statement of Facts

1. It was originally acquired exempt from GST on XXXXX. In XXXXX an addition was built onto the existing house to make a duplex. The existing house was XXXXX[.] The units are not separately titled.

2. The existing house was rented out while the addition was being made. Renovations to the existing house include replacing the siding and shingles, painting the interior and refinishing the flooring. The overhang was cut off to accommodate the addition.

3. The addition was completed in XXXXX and the new unit was rented out. No ITCs had been claimed in relation to the property.

Interpretation Requested

Scenario 3: Is the owner of the duplex required to self-supply in XXXXX when the addition is rented out? Is he entitled to claim ITCs for GST paid on the construction of the addition and the renovations to the existing house?

Interpretation Given

The owner of the residential complex is required to self-supply on the fair market value of the complex, under subsection 191(3) of the Act. He is entitled to claim ITCs for the GST paid on the acquisition of the relocated house and the renovations to the existing house.

Scenario 4: Property XXXXX

Interpretation Requested

1. The property was acquired exempt from GST with a house on the lot. In XXXXX three houses were relocated from other areas and attached to the existing house to form a 4-unit condominium complex. The four units are separately titled and have different addresses: the original house XXXXX[.]

2. ITCs were claimed on the costs of the whole project, including renovations to the existing house. GST had been paid on the purchase of units XXXXX XXXXX but not on the purchase of XXXXX because the latter was a formerly occupied residential complex. Renovations to XXXXX were not substantial renovations.

3. The accountant had advised the bookkeeper to claim ITCs on the relocated units only, and not on XXXXX. The bookkeeper claimed ITCs on XXXXX by oversight.

Interpretation Requested

What is the GST status of the sale of the condominium units at XXXXX is the vendor entitled to claim ITCs for the GST paid on the relocation of the additional houses and the renovations to the existing house?

Interpretation Given

The supply of each of the condominium units XXXXX by way of sale is subject to tax at the rate of 7% on the value of the consideration for the supply. The vendor is entitled to claim ITCs for the tax paid on the relocation of each of the three units.

The supply by way of sale of unit XXXXX is exempt from GST under paragraph 4(b) of Part I of Schedule V to the Act as a sale of a residential condominium unit by a builder of the unit who has received an exempt supply of the unit and that supply was the last supply of the unit by way of sale to the builder. No ITC is allowed for tax paid on the renovation of unit XXXXX[.] The vendor must remit also tax on the non-substantial renovations to unit XXXXX under section 192 of the Act.

Explanation

As the four units are separately titled and the existing unit was not substantially renovated, the supply by way of sale of the existing unit is an exempt supply.

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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