5 January 2000 GST/HST Interpretation 13361 - Application of Paragraph 9(2)(c) of Part I of Schedule V - To the Excise Tax Act

We are writing in response to your telephone call of September 29, 1999 and subsequent memorandum to this office of November 10, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of real property XXXXX[.] All legislative references are to the Excise Tax Act (ETA).

Our understanding of the situation is as follows:

1. An individual purchased a woodlot measuring approximately 86 feet by 600 feet (Lot 1). The individual is not registered for the GST/HST.

2. The individual subsequently purchased the adjacent woodlot, measuring 43 feet by 600 feet (Lot 2). This lot had a cottage situated on it.

Lot 2

600'

3. A neighbour disputed the boundary of Lot 2 and contested the individual's ownership of the lot.

4. To settle the dispute, the individual gave 29 feet by 600 feet of Lot 2 to the neighbour for no money. The remainder of Lot 2 still shared the 600 foot interior boundary with Lot 1. The cottage was then dismantled.

600'

5. The individual then consolidated Lot 1 and the remainder of Lot 2 into one legal description (100 feet by 600 feet) (Lot 3).

600'

100'

250'

100'

6. The individual has recently severed Lot 3 into two pieces and proposes to sell one piece. One piece is approximately 100 feet by 250 feet and the other is approximately 100 feet by 350 feet. Each piece includes part of original Lot 1 and part of original Lot 2.

7. Neither subparagraphs 9(2)(a) nor 9(2)(b) of Part I of Schedule V to the ETA apply in the situation under review.

8. Your office has received lot plans from the individual. However, your office is not certain whether there was formal agreement for the first division of Lot 2 (where part was given to the neighbour), nor does your office have evidence that Lot 1 and the remainder of Lot 2 were legally merged into one new legal description.

Issue

You have asked us whether the sale of one piece of Lot 3 will be considered taxable under the subject reference. The owner's position is that Lot 3 stands on its own and that only one severance has been done to it, resulting in the two pieces.

Response

Assuming that the facts are as indicated in items 1 through 7 above and that we are dealing with legal severances and titles, then Lot 3 can be considered a new parcel for purposes of paragraph 9(2)(c) of Part I of Schedule V. Accordingly, since Lot 3 has only been severed into two parts, then paragraph 9(2)(c) will not apply to make the sale of either part taxable.

Analysis

The application of paragraph 9(2)(c) of Part I of Schedule V to any particular transaction will depend on the specific fact situation.

In the subject case, one indicator that Lot 3 may be considered a new parcel is that the remainder of Lot 2 forms only a minor portion of the whole of Lot 3 (14 feet by 600 feet of the total 100 feet by 600 feet parcel). A review of relevant provincial and municipal legislation, regulations and by-laws regarding minimum lot sizes would be necessary in order to determine whether a piece of land 14 feet by 600 feet could qualify as a separate lot.

A determination of what forms a "minor" portion would not necessarily be restricted to consideration only of the size of various components of a piece of land. The consideration might also include the comparative value of the smaller portion to the larger. For example, a small portion of waterfront property might be much more valuable than the larger, non-waterfront remainder of the land. Another factor to consider is whether the acquisition of the smaller portion significantly increased the selling potential of the new enlarged piece of land.

Generally in circumstances such as those described in the subject case, we will consider that the two adjoining pieces of land "merged" and were consolidated into one new whole lot once both lots were under one owner. This new lot is considered the "parcel" for purposes of paragraph 9(2)(c) Part I Schedule V. The subsequent division of the parcel into reconfigured lots would be considered the relevant subdivision or severance of land for purposes of applying paragraph 9(2)(c). XXXXX[.]

As we have discussed, your office may wish to request from your client copies of relevant agreements of purchase and sale and deeds for review. As well, your office may wish to confirm how the XXXXX shows the subject property as far as legal description and title.

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,

(Mrs.) S.C. Cahill
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate