15 May 2002 GST/HST Interpretation 37285 - Eligibility for the New Residential Rental Property Rebate

Dear XXXXX:

We refer to the letter from XXXXX of your office, dated XXXXX, concerning your client's eligibility for a certain Goods and Services Tax (GST)/Harmonized Sales Tax (HST) rebate in respect of a residence for seniors.

All legislative references are to the Excise Tax Act.

Based on the letter and the telephone conversations between our office and yours, our understanding of the situation is as follows:

1. Your client, (XYZ), purchased a piece of real property in XXXXX. XYZ did not pay the GST/HST on the acquisition of any part of the property. The property consisted of XXXXX towers that were built in the late XXXXX to provide residences to seniors. The towers are constructed on one parcel of land and share a common atrium at ground level. The original developer completed XXXXX but encountered financial difficulties before XXXXX could be completed. No work was done by the original developer XXXXX. XYZ purchased the property as part of the liquidation of a creditor who had originally financed the project. There were no restrictive covenants or other caveats as to how the property could be used when XYZ purchased the property.

2. When XYZ purchased the property, XXXXX consisted of XXXXX residential units that were finished and, subject to normal periods of vacancy, occupied. XXXXX also contained dining facilities, a lounge, recreation and social areas all of which were complete and operational. The atrium was also complete and operational.

3. XXXXX was left as a concrete shell. That is, the outside of the building was completed to the extent that no additional work was required to the exterior walls to make them complete. On the interior XXXXX, the elevator stack and concrete floor plates for each floor were poured, but no work had been done to create any type of residential unit in that XXXXX. If one entered the atrium between XXXXX, one would turn left to XXXXX and meet a closed off wall. Behind the wall the elevator shafts were located which, when upon installation of the elevator cars, would take residents and guests to suites to be located on floors above the ground floor. The floor plates on each floor were bare with no delineation for the residential units that were planned for XXXXX. There was a bare steel shell in the elevator stack with a motor and a platform, but otherwise the elevator was not finished. No additional work had been done on XXXXX between the time construction of XXXXX was abandoned on the financial failure of the original developer and when XYZ acquired the property.

4. From the time of acquisition in XXXXX to XXXXX, XYZ was planning the construction of residential units in XXXXX. This involved drafting new blueprints, acquiring the services of engineers and architects, obtaining the various permits required and making plans for renting the units. XYZ incurred various 'soft costs' within this time period.

5. In XXXXX, XYZ commenced physical work on XXXXX with respect to the development of residential units within the XXXXX. XYZ has incurred or will incur approximately XXXXX in completion costs with respect to XXXXX. XYZ described the project on various permits as a "major renovation". XXXXX consists or will eventually consist of XXXXX units. XXXXX floors in XXXXX will be composed of units with private kitchen facilities, a private bath and a private living room. The other XXXXX floors will not contain these amenities and will house individuals requiring varying degrees of personal care.

6. XYZ acquired the property on an arm's length basis.

Interpretation Requested

You are requesting our interpretation as to whether XYZ will be eligible to the New Residential Rental Property Rebate (NRR) as set out in section 256.2.

As discussed in our telephone calls of XXXXX, we are unable to provide an interpretation on the eligibility of XYZ to the NRR, as we are still formulating our administrative policy on certain aspects of the rebate. However, as agreed in our telephone conversation, we can provide an interpretation on the coming-in-to-force provisions as they relate to the NRR and the situation you described. When we have finalized our position on the other aspects of the rebate eligibility, we will provide you with a complete response at that time.

Interpretation Given

We are assuming that the property is not a condominium complex.

The coming-into-force provisions for section 256.2, the section that provides for the NRR, read as follows:

"Section 256.2 of the Act...is deemed to have come into force on February 28, 2000 except that

(a) subsections (3) to (5) apply

(i) to a taxable supply by way of sale of a residential complex or an interest in a residential complex to a person who is not a builder of the complex, or of a residential complex or an addition to a residential complex to a person who is, otherwise than by reason of subsection 190(1) of the Act, a builder of the complex or addition, as the case may be, only if the construction or last substantial renovation of the complex or addition, as the case may be, began after February 27, 2000, and

(ii) to a taxable supply by way of sale of a residential complex or an addition to a residential complex that is deemed to have been made to a person who has converted real property for use as the residential complex or the addition to a residential complex and is, as a result, deemed under subsection 190(1) of the Act to be a builder of the complex or addition, only if the construction or alteration necessary to affect the conversion began after February 27, 2000

(b) ..."

Subsection 123(1) defines "residential complex", in paragraph (a), to mean, "that part of a building in which one or more residential units are located, together with ...". (There are other definitions of "residential complex", none of which are relevant to the case at hand.) The same subsection defines "residential unit" as:

(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

(c) any other similar premises,

or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals.

Given the situation as you described it, there is no indication that XXXXX contained any residential units at the time XYZ acquired the property. As such, we would consider that XXXXX was not a residential complex at the time XYZ acquired it. Given the particular circumstances of this case and the fact that XYZ did not commence physical work on the property until XXXXX, it is our interpretation that the coming-into-force provisions would be satisfied in the situation described.

It should be noted that if part of the property was not a residential complex when it was acquired by XYZ in XXXXX, that sale to XYZ may have been subject to tax. It appears that in the situation you described, there are no exemptions for the sale of real property that was not a residential complex. As such, if XYZ was registered for the GST/HST at the time of the sale, XYZ should have remitted tax on the sale pursuant to the provisions of subsections 221(2) and 228(4). If XYZ was not registered for the GST/HST at the time of the sale, XYZ should have paid tax to the vendor pursuant to subsection 165(1).

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.

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 and Real Property Division
Excise and GST/HST Rulings Directorate