31 May 2000 GST/HST Interpretation 2116 - Dedicated Land

This is in reply to your memorandum of December 6, 1999 (with attachments) concerning the application of the GST to land provided by developers to municipalities as a result of the approval of a subdivision plan.

Our understanding of the situation is as follows:

1. A municipality may issue a permit to a developer for a subdivision plan for a fee.

2. Certain sections of the XXXXX permit the municipality to require the developer to provide land to the municipality for various purposes such as to authorize an increase in the height and density of a development otherwise permitted, to permit widening of highways or access to highways that abut the land, to provide easements for the construction or improvement of watercourses, ditches, sewage facilities or other public utilities, public transit right of way or for park or public recreational purposes.

3. The developer then has a statutory (or contractual) obligation to dedicate land as parkland or roadways.

4. The land is subsequently transferred to the municipality for nominal consideration of perhaps $2.

5. A municipality that is a GST registrant is required pursuant to paragraph 228(4)(b) of the Excise Tax Act (ETA) to file a GST60 Tax Return and remit the GST payable on the supply of the land from the developer to the municipality.

Interpretation Requested

You are asking what the value of consideration is for the transfer of land from a developer to a municipality under these circumstances and if the municipality is required to file a GST60 Tax Return and remit the tax payable (i.e. 14 cents in the case of nominal consideration of $2) in respect of a transfer of land from the developer to the municipality.

Interpretation Given

Where a developer provides land to a municipality as a result of the approval of a subdivision plan, it is the CCRA's administrative position to treat the provision of land as a taxable supply for the stated consideration, which is usually a nominal amount.

If the municipality undertook the development by itself, it would be permitted ITCs in accordance with our administrative policy as stated in P-168 which entitles a municipality to claim ITCs in respect of GST incurred for infrastructure development relating to sales of serviced lots provided it can be clearly established that the infrastructure costs are directly related to commercial activities of the municipality. Note that the intent of P-168 is to put the municipality, as developer, on the same footing with the private sector developer. However, in cases where the municipality undertakes the land development by itself there would be no transfer of such dedicated land. If the CCRA were to conclude that the value of the consideration for transfers of dedicated land was a much higher amount, the GST/HST consequences would shift in favour of the municipality which undertakes its own development compared to the municipality which regulates the land development of others. Such a change in policy would not only be detrimental to private sector land development, but counter to the policy intent of P-168 as stated above.

The transfer of the land from the developer to the municipality is a taxable supply and the municipality, as a registrant, would be required to self assess the tax on the consideration paid or payable for the supply. However, if the municipality is required to pay the GST on consideration equal to the fair market value of the land, it will only be entitled to a rebate. As a result, any increase in unrecovered GST/HST by the municipality would likely be passed back to the developer in the form of an increase of the monetary consideration for the development permit. Such a cost borne by the developer would also likely have the effect of increasing the sales price of the serviced lots in the subdivision. Since the sales of such serviced lots are taxable, this could be regarded as a cascading of tax and, therefore, an unintended result.

By virtue of paragraph 221(2)(b) of the ETA, the developer is not required to collect the GST payable by the municipality (if it is a registrant) on the supply of the land. Instead, the municipality is required to self-assess the tax under paragraph 228(4)(b) by filing a form GST60 "Goods and Services Tax Return for Acquisition of Real Property" on or before the last day of the month following the calendar month in which the tax became payable and to pay the tax.

While it may appear that filing a GST60 for less than a dollar is a cumbersome process, the GST60 helps to facilitate compliance and verification of real property transactions which are generally significant.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8816.

Yours truly,

Anne Kratz
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate