14 August 2000 GST/HST Interpretation 30510 - Self-Supply Provisions of the Excise Tax Act - Life Lease Residential Housing

Dear XXXXX:

Thank you for your letter of March 17, 2000 concerning the application of the Goods and Services Tax (GST) to life lease residential housing. Your letter raises two issues, the valuation of the property for self-supply purposes and the characterization of the supply made under the XXXXX agreement used by your clients. We understand that the Audit Directorate is dealing with the matter of valuation. The purpose of this letter is to address the issue of the characterization of the supply.

In preparing our response, we have carefully reviewed the provisions of the XXXXX agreement. We have also considered the analysis and conclusions contained in the legal brief provided by your solicitors, XXXXX.

In your correspondence you indicate your view, supported by your solicitors' brief, that a supply of a residential unit in a multiple unit residential complex under the XXXXX agreement is a supply by way of sale rather than a supply by way of lease for purposes of Part IX of the Excise Tax Act (the Act). Your submission is that your clients should not be assessed under the self-supply rules in subsection 191(3) of the Act, and that their "purchasers" should be entitled to apply for GST new housing rebates under section 254 on the same basis as purchasers of residential condominium units.

The Canada Customs and Revenue Agency (CCRA) and its predecessor, Revenue Canada, have consistently maintained that where a supply of real property is recognized in real property law as that of a lease and not a sale, the supply will be a lease for purposes of Part IX of the Act. In this case the XXXXX agreement discloses the following:

-    the agreement is referred to throughout as a "lease";

-    there is a fixed lease term of 99 years;

-    the rights of use and enjoyment on the part of the recipient are subject to ongoing conditions including the payment of an occupancy charge;

-    the rights of the recipient extinguish upon the recipient's death;

-    the recipient lacks rights that would be characteristic of ownership in fee simple;

-    the supplier holds a right of reversion;

-    the recipient's interest may be transferred by sublease or assignment; and

-    the division of insurance obligations is proportionate to the parties' respective extent of ownership.

While we appreciate your view on the matter, we have concluded that both in form and substance the supply of the residential units in issue is made by way of lease and not sale. Accordingly, your clients are properly subject to a taxable self-supply under subsection 191(3) of the Act and their lessees are not eligible to claim GST new housing rebates. We should note, however, that clients making supplies of "qualifying residential units" by way of lease may be entitled to the New Residential Rental Property Rebate in respect of tax paid on the self-supply of the complex provided the construction of the complex commences after February 27, 2000, as proposed in the February 2000 budget.

Thank you for bringing this matter to our attention. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Costa Dimitrakopoulos at (613) 954-3772 or Michael Wolff at (613) 952-9212.

Yours truly,

John Sitka
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate