12 March 1999 GST/HST Ruling HQR0001657 - Application of the GST/HST to the Sale of Interest in a Ground Lease Held Under a Home Ownership Program

Dear XXXX

Thank you for your letter of Feb. 15, 1999 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale by the XXXXX of its interest in a number of ground leases that it holds under a XXXXX home ownership program. All references in this letter are to the Excise Tax Act (the Act) unless otherwise specified.

Facts

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

1. In XXXXX established a program entitled "XXXXX XXXXX[.] Under the program, the XXXXX purchased vacant land which it subdivided into lots and leased to various builders for terms of XXXXX years.

2. The lease agreements required the builders to construct single family homes on the building lots. The builders could then assign the leases to first time home buyers, however the sale price of the assignment could not exceed an amount stipulated in the lease.

3. Each purchaser of an assignment would pay to the XXXXX a low ground rent and, pursuant to the terms of the lease, would have an option to purchase the property. If the option is never exercised, the lands and buildings revert to the XXXXX at the expiration of the term of the lease.

4. The lease also contains provisions allowing the XXXXX on default by the lessee, to enter onto the property, take possession of the lands and buildings and terminate the lease.

5. Since the program's inception, many purchasers have exercised their options to purchase. A significant number have, however, continued to pay the monthly ground rent to the XXXXX[.]

6. The XXXXX has decided to divest itself of the remaining ground leases by selling the property that is subject to those leases.

7. The XXXXX is not a "builder" of the properties in question as that term is defined for GST/HST purposes in subsection 123(1) of the Act.

Transactions

1. The XXXXX proposes to sell the fee simple title to each remaining parcel that is subject to a ground lease.

Ruling Requested

1. You have asked us to provide a ruling as to whether or not the sale, by the XXXXX of the remaining property that is subject to ground leases would be subject to GST.

Ruling Given

Based on the facts set out above, we rule that:

1. The sale of the remaining properties that are subject to ground leases is exempt from the GST pursuant to section 2 of Part I of Schedule V to the Act.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Michael Ezri
A/Technical Analyst
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate