16 June 1999 GST/HST Interpretation HQR0001838 - REVIEW OF GST/HST APPLICATION RULING [Application of the GST/HST to a Proposed Sale of Land]

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Thank you for your letter of May 5, 1999, (with attachments) in which you asked for a review of an application ruling dated March 25, 1999 from the XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

1. A XXXXX of vacant land described as XXXXX is owned as tenants in common (equal in proportion) by XXXXX[.]

2. Immediately across the roadway access on the XXXXX, another piece of real property described as XXXXX is owned as tenants in common by the XXXXX (described as Parts 9 through 19 inclusive in the enclosed drawing) included cottages or summer homes belonging to the above named children of XXXXX[.]

3. Following the death of XXXXX her children sought to sever their cottage lots from one another with regard to the XXXXX in order to secure individual deeds.

4. In order to accomplish the severance of the XXXXX required that the cottage lots each take an additional strip of land from the XXXXX[.]

5. In order to comply with requirement described in paragraph 4 above, the XXXXX[.]

6. The name of the purchaser and the purchase price regarding the proposed sale of the remainder of XXXXX are not available. The purchaser is neither related to nor is a former spouse of any of the tenants in common who wish to sell this property. The purchaser is not a person who has the right to expropriate this property.

7. On March 25, 1999, a GST/HST application ruling letter was issued to you by the Revenue Canada XXXXX regarding the proposed transaction described in paragraphs 5 and 6 above. The March 25, 1999 ruling letter indicated that the transaction would be subject to the GST, and would be taxable at 7% on the total consideration charged, pursuant to subsection 165(1) of the Excise Tax Act (ETA).

8. Your case, including the file material from case number XXXXX as well as the additional information which you provided in your letter of May 5, 1999, has been forwarded for our review and consideration.

Transaction

The proposed sale of the XXXXX to an unspecified unrelated person, who does not have the right to expropriate this property, for an unspecified amount of consideration by the following owners as tenants in common (equal in proportion XXXXX[.]

Ruling Requested

Is the above noted transaction subject to the GST?

Ruling Given

Based on the facts set out above, we confirm the ruling of the XXXXX that the transaction described above is subject to the GST, and would therefore be taxable at 7% on the total consideration charged by virtue of subsection 165(1) of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Please note that the laws regulating real property in the XXXXX were taken into account in providing the following explanation. The same conclusion may not apply with respect to land located elsewhere in Canada.

Explanation

Supplies of real property made in Canada are ordinarily taxable pursuant to section 165 of the ETA. However, Schedule V ("Exempt Supplies") to the ETA permits exemptions to the GST/HST in specific circumstances. Part I of Schedule V to the ETA deals with the exempting provisions related to real property transactions (other than supplies of real property by a public service body).

Section 9 of Part I of Schedule V exempts the sale of real property by an individual or a personal trust with certain exceptions. The exception in paragraph 9(2)(c) of Part I of Schedule V provides that the supply of a part of a parcel of land by a person who is an individual, a trust, or the settlor of a trust will not be exempt where the parcel was severed or subdivided by the person.

There are two exceptions to this rule. Where the parcel of land was subdivided or severed into only two parts, and the person did not previously subdivide or sever it from another parcel of land, paragraph (c) does not apply. This paragraph also does not apply in the case of a subdivision or severance where the recipient is related to or is a former spouse of the individual supplier or settlor, and the land is being acquired for the personal use and enjoyment of the recipient.

Further, for purposes of determining whether land has been subdivided or severed, where the individual, trust or settlor supplies a part of a parcel of land to a person who has the right to acquire the land by expropriation, such as a municipality or utility commission, that part and the remainder of the parcel will not be considered to have been subdivided or severed from each other by the individual, trust or settlor.

Based on the particular circumstances of this case and the laws of XXXXX regulating real property, we would apply subparagraph 9(2)(c) of Part I of Schedule V on the basis that the land comprised of XXXXX vacant land described as XXXXX constitutes a parcel. Consequently where XXXXX was subdivided in XXXXX to an unspecified unrelated person (that does not have the right to expropriate this property) would be excluded from the exemption under section 9 of Part I of Schedule V by virtue of subparagraph 9(2)(c) of that same Part.

Accordingly, while we appreciate and are cognizant of your views on this matter, we have no alternative but to confirm the ruling by the XXXXX[.] Revenue Canada is responsible for the administration of the Excise Tax Act and it is a continuing goal to carry out this responsibility in a manner which is both fair and uniform for all taxpayers

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9212.

Yours truly,

Costa Dimitrakopoulos
Senior Technical Applications Officer
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

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