27 March 2001 GST/HST Interpretation 33592 - Sale of Residential Complexes

Dear XXXXX:

Thank you for your letter of November 17, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the proposed transfers of real property described below. We have also received the additional documentation submitted by you to this office by facsimile on March 14, 2001.

All legislative references are to the Excise Tax Act (ETA) unless otherwise noted.

You had requested that our office issue advance rulings in connection with the subject transactions. Advance rulings refer to specific persons, specific transactions and specific time periods within which the transactions must be completed. Application rulings provide Canada Customs and Revenue Agency's position on specific provisions of the ETA as these relate to a clearly defined fact situation of a particular person.

On February 14 and on March 12, 2001, we advised you that since the subject transactions may number in the hundreds, in order to issue rulings on this matter we would require, at a minimum, a list of the addresses of all properties to be covered by the requested rulings. As such a list has not been presented, we provide the interpretations contained herein. If additional information is obtained by you in the future, we would be pleased to review it in order to determine if it is sufficient to support the issuance of rulings.

Our understanding of the situation is as follows, based upon your letter, our telephone conversation of January 4, 2001 and Canada Customs and Revenue Agency records.

The XXXXX is a statutory corporation created under the XXXXX. The XXXXX is registered for the GST/HST under account number XXXXX. The XXXXX is a designated municipality pursuant to section 259, with respect to its activities relating to the construction and delivery of social housing, in accordance with the XXXXX[.] Accordingly, the XXXXX is entitled to a public service body rebate in respect of GST/HST payable by it on its purchases related to social housing activities.

Pursuant to the XXXXX, the XXXXX pays the GST/HST on its purchases and may claim input tax credits in respect of its purchases related to commercial activities. Further, the XXXXX is entitled to a rebate under section 261 of the GST/HST relating to administration and overhead.

The XXXXX owns real estate throughout XXXXX. XXXXX manage this real property on behalf of the XXXXX. The XXXXX also owns tangible personal property used in respect of the management of its real property.

Prior to 1991, the XXXXX contracted for the construction of apartment buildings and houses, as well as mixed-use buildings consisting of apartment units, related common areas and commercial portions, which are leased to third parties. The XXXXX had an interest in the real property upon which the buildings were constructed at the time the buildings were constructed. The buildings were constructed and completed prior to 1991.

Upon completion of the construction of the buildings, the XXXXX rented the apartment units or houses to individuals under long-term leases, for use by the individuals as their place of residence. None of the residential tenants were purchasers under an agreement of purchase and sale of the relevant complex. Each of these tenants was the first tenant of each unit and in all cases possession was given prior to 1991. The XXXXX did not claim any input tax credits in respect of the residential portions of these properties. There have been no substantial renovations to the properties.

By XXXXX, the XXXXX will transfer to newly created lXXXXX legal title of the XXXXX real property described above. The XXXXX will also transfer to each particular XXXXX the tangible personal property, which relates to the maintenance and management of theXXXXX real property transferred to that particular XXXXX.

The XXXXX will not be agents of XXXXX for any purpose nor will they be administrative units of the XXXXX. Rather, the XXXXX will be held and controlled by XXXXX.

Interpretations Requested

You have asked us to confirm the application of section 191 to the subject property. Additionally, you have asked us to confirm the tax status of the transfer of the subject property from the XXXXX to the XXXXX.

Interpretations Given

Enclosed for your reference is section 19.2, Residential Real Property, of the GST/HST Memoranda Series. The section examines terms that are relevant to the subject transactions, including "builder", "multiple unit residential complex", "residential complex", "residential unit" "single unit residential complex" and "substantial renovation". May we suggest that you read the section in connection with this letter.

Section 191 ensures that GST/HST applies to newly constructed or substantially renovated premises once they are rented out or otherwise occupied as places of residence before being sold (Subsection 123(1) of the ETA defines "sale" in respect of real property as including "... any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property".), since the subsequent sales of those premises will generally be exempt of GST/HST, as used housing. This is accomplished by treating the builder of a residential complex as having sold and repurchased the complex. The builder is then required to account for tax on the fair market value of the complex. Section 191 describes the criteria which triggers self-supply as well as the applicable timing provisions.

Under section 14 of Part I of Schedule V to the ETA, the self-supply rules in section 191 are deemed to have been in force at all times before 1991 for the purposes of determining whether a sale of a residential complex constitutes an exempt sale under section 4 or 5 of this Part. As a result, a residential complex that was constructed and occupied prior to 1991 is generally exempt when sold after 1990. In such cases, there would be no GST/HST payable on the self-supply, as provided for by subsection 336(1) in connection with the transfer of real property before 1991.

Sections 4 and 5 of Part I of Schedule V to the ETA exempt the sale of a single unit residential complex, a multiple unit residential complex (MURC) or an addition to the MURC, where the sale is made by the builder and the builder is deemed to have self-supplied under subsection 191, provided the builder did not claim an input tax credit in respect of the property after the self-supply and the property has not been substantially renovated.

The following information is provided regarding properties which are used partly for commercial purposes and partly for long-term residential purposes. Subsection 136(2) provides that, where a supply of real property includes a residential complex (including any land that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals) and other real property, the provision of the residential complex is considered to be a separate supply from the supply of the non-residential complex portion of the property.

In connection with the sale of personal property, paragraph 141.1(1)(b) generally provides that supplies of personal property will not be considered to be made in the course of a commercial activity if the property was acquired exclusively ("exclusively" generally means 90% or more, or 100% in the case of financial institutions) for use or consumption in non-commercial activities and was actually consumed and used exclusively in non-commercial activities, such as the provision of long-term residential housing.

If the personal property being sold is capital property of a government, subsection 200(4) must be referenced. Normally sales by a government XXXXX of its capital personal property are deemed to have been made in the course of its commercial activities. However, if an entity is a specified Crown agent (Subsection 123(1) of the ETA defines "specified Crown agent" as a prescribed agent of Her Majesty in right of Canada, or an agent of Her Majesty in right of Canada, that pays tax because of an agreement under section 32 of the Federal-Provincial Fiscal Arrangements Act entered into by the government of the province, or that is prescribed.) and a GST/HST registrant, it will be deemed to have made such sales otherwise than in the course of a commercial activity, where the particular property was last used by the entity otherwise than primarily in commercial activities of the entity.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretations 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 613-957-8222.

Yours truly,

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