10 July 2000 GST/HST Interpretation 8347/HQR0001953 - Dissolution of Plan

Dear XXXXX:

Thank you for your letters of June 7 and July 9, 1999, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the dissolution of the referenced XXXXX plan. Your letters were forwarded to us from the XXXXX Technical Interpretation Services unit for our reply. We apologize for the delay in our response.

You have been unable to contact us to provide further information concerning the transactions involved in this case, as we requested in our telephone calls to your office of April 13 and May 15, 2000. Therefore, as we are unable to determine all of the facts surrounding the transactions, we are unable to issue a ruling in this matter. We can, however, provide the following interpretation.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

All legislative references are to the Excise Tax Act unless otherwise specified.

Our understanding of the situation is as follows:

XXXXX the XXXXX Corporation XXXXX is a XXXXX corporation created under the XXXXX.

2. The XXXXX plan developed by the XXXXX Corporation consists of XXXXX buildings and XXXXX XXXXX lots. XXXXX of the buildings are condominium complexes and the others are commercial properties. Of the XXXXX lots, two are commercial properties, one is owned by the XXXXX Corporation and used as a meeting room, and each of the remaining XXXXX lots contain a residential unit that is for residential use. The residential lots are either owned by an individual and used as their primary residence or are owned by an individual or a corporation and are used in supplying long-term (i.e. for a period of at least one month) residential rents.

3. Each owner of a XXXXX lot owns their individual XXXXX lot and has an interest in the common property in the XXXXX plan based on their unit entitlement.

4. There is a proposal to dissolve the XXXXX Corporation, which is allowed under the provisions of the XXXXX, in order to facilitate a reorganization of the XXXXX plan. The reorganization will occur as follows:

(a) Legal title to all the lots within the XXXXX plan (which includes the common property in the original XXXXX plan) will be transferred to a trust.

(b) Concurrent with the conveyance will be a division of the property within the original XXXXX plan into four parcels. The four newly created parcels will be set up as follows:

(i) Two new XXXXX plans will be created on two of the newly formed parcels with a new XXXXX corporation being formed for each of these parcels. Title to the new XXXXX lots will be re-conveyed to the original owners of the XXXXX lot in the original XXXXX plan. The area of the individual residential XXXXX lots in the new XXXXX plan will be the same as under the original XXXXX plan, although the interest in the common property will be based on a smaller area of common property. Common areas within the original XXXXX plan will be divided equally between the owners of the XXXXX lots in the new XXXXX plans.

(ii) The XXXXX lot that is currently owned by the XXXXX Corporation (used as a meeting room) will be conveyed to the two new XXXXX corporations and the two commercial lot owners in appropriate percentages as tenants in common.

(iii) Each of the other two parcels will be held by the persons who currently own a commercial lot on the existing XXXXX plan. Both of these commercial owners are registered for the GST/HST. Part of a parking lot that forms part of one of the commercial XXXXX lots will not form any part of the new successor lot after the transaction is complete. Further, the commercial owners' interest in the common areas of the original XXXXX plan will be surrendered to the owners of the new XXXXX lots in the new XXXXX plans. With these exceptions, the actual lots which are owned and registered in the Land Title Office will be the same area after the reorganization as before.

5. All registrations of title will happen concurrently, that is, on the same day as the new XXXXX corporations are created on the filing of the new XXXXX plans.

6. There is no indication whether the trust to which the original XXXXX lots will be conveyed is a bare trust, however, we will assume that it is.

Should the trust not be a bare trust, our response may differ from that provided herein.

Interpretation Requested

You are enquiring as to the GST implications of the proposed transactions as outlined above.

Interpretation Given

The owners of lots in the original XXXXX plan are making a supply by way of sale of legal title to the lots to the trust. The trust will re-convey legal title to the new lots to the same owners. Pursuant to sections 268 and 269, where a person settles property on an inter vivos trust and where the trustee distributes property of the trust to the beneficiaries, the settling or distribution of the property is deemed to be a supply for consideration equal to the amount determined under the Income Tax Act to be proceeds of the disposition of the property. Sections 268 and 269 apply to all inter vivos trusts including a bare trust where only the legal title is transferred to or from the trust. Nevertheless, legal title without the equitable interest would normally have little or no monetary value. The settling of the legal title in a bare trust and the transfer of the legal title to the beneficial owner would normally have no GST implications.

Real property is defined in subsection 123(1) to include, in respect of property outside Quebec, every estate or interest in real property. Accordingly, a beneficial interest in real property will constitute real property as will a legal interest in real property. The exempting provisions for supplies of real property apply equally to a supply of a beneficial interest in real property and the supply of a legal interest in real property. The supply of the beneficial interest may be a taxable supply or it may be exempt under Schedule V to the Act. The supply of legal title to real property is treated in a like manner.

The beneficial interest in the XXXXX lots is, to an extent and with certain exceptions (identified below), retained by the current owner of each lot in the original XXXXX plan. The owners of the original residential XXXXX lots are surrendering their interest in the common property of the entire original XXXXX plan in exchange for an interest in the common property of one of the newly formed residential XXXXX plans. The sale of a residential complex or an interest therein by a person other than a builder of the complex is exempt from GST, unless the person has claimed an input tax credit in respect of the last acquisition of the complex by the person or in respect of an improvement to the complex since it was last acquired.

The owners of the original commercial lots are surrendering their interest in the common property of the entire original XXXXX plan to the owners of the new XXXXX lots in the two new XXXXX plans. That supply is not exempt.

In the following two cases, the person is not retaining a beneficial interest in certain property:

1. The XXXXX Corporation is making a supply by way of sale of the beneficial interest in the meeting room to the two new XXXXX corporations and the two commercial lot owners. That supply is not exempt.

2. The owner of the commercial lot that contains the parking lot, part of which is being surrendered, is making a supply by way of sale of the legal and beneficial interest in that part of the parking lot that is being surrendered. The property that is surrendered, which will form part of the common area of one of the new XXXXX plans, is a supply made to the owners of the new XXXXX lots in one of the new XXXXX plans. That supply is not exempt.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

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,

Hugh Dorward
Real Property Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

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