31 July 2001 GST/HST Ruling 35719 - Purchase of Real Property:

Dear XXXXX:

This is in response to your telephone conversation with Michael Wolff of our office, your subsequent fax dated March 30, 2001, and our conversation on June 12, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the above-noted purchase of real property. At your request, we contacted XXXXX, the real estate agent involved in this purchase, who provided information and documentation to us. We have also obtained additional information regarding this property from XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

1. You purchased real property from XXXXX (the vendor).

2. The property was listed as a residential property.

3. Although the property purchased included a structure that was a house, it had last been used XXXXX exclusively as an XXXXX office.

4. This use continued until a number of months prior to the sale to you. At that time, the property became vacant. It would require modifications to be suitable for residential use.

5. The sale was completed in XXXXX and HST was paid.

Ruling Requested

You are requesting that we review whether HST should have been payable on the supply of the real property XXXXX in the circumstances described.

Ruling Given

Based on the facts set out above, we rule that the sale of the above-referenced real property is taxable at 15%.

Explanation

Generally, all supplies of real property made in Canada will be subject to GST/HST at the rate of 7% (or 15% when made in an HST-participating province) calculated on the value of consideration for the supply. However, there are specific exempting provisions in the Excise Tax Act (the Act) which may apply to exempt supplies of real property from the GST/HST in certain circumstances.

Accordingly, while generally sales of real property are taxable, the sale of a residential complex (as defined in the Act) may be exempt from tax in certain circumstances.

However, the subject property does not meet the definition of a residential complex because it is not a "residential unit" as defined in the Act. Our understanding is that the most recent use of the subject property was exclusively as office use, i.e., XXXXX facility. Therefore, the subject property does not qualify as a residential unit for GST/HST purposes because its last use prior to vacancy was not as a place of residence or lodging for individuals. As a result, the exempting provisions relating to the sale of a residential complex would not apply.

Furthermore, in these circumstances, no other provision exists which would exempt the sale of such a property and therefore, the sale is taxable. Accordingly, in this case HST would be payable.

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 our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling

Other Information

In addition, the materials provided by XXXXX raised the question of eligibility for a new housing rebate.

You may be eligible to apply for a GST/HST New Housing Rebate to receive a rebate of a portion of the GST/HST paid on the acquisition of the property and on certain improvements to the property.

Subsection 190(1) applies, in certain cases, where real property was not a residential complex, and a person acquires the real property to hold or use it as a residential complex and, in fact, begins to hold or use the real property as a residential complex. (Generally, when a house begins to be used primarily as a place of residence by an individual or individuals, it would qualify as a residential complex.) If a person converts non-residential real property into a residential complex without newly constructing or substantially renovating the property, the conversion is deemed to be a substantial renovation.

Therefore, if you purchased the above property to hold or use as a residential complex and actually begin to hold or use it as a residential complex, you may be deemed to have substantially renovated the complex. As a result, you may be eligible to apply for be a new housing rebate, filed as an "owner built" rebate under section 256 of the Act, assuming the conditions of the rebate have been met. We are enclosing our guide, GST/HST New Housing Rebate, for information on the conditions of the rebate, as well as the method of application. If you wish further information regarding this rebate, please contact the Atlantic GST/HST Rulings office at 1-800-959-8287.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-1512.

Yours truly,

Mark Seigel
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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