19 August 2002 GST/HST Interpretation 37285-1 - Eligibility for the New Residential Rental Property Rebate

XXXXX

Further to our letter of XXXXX, we are pleased to be able to provide you with the following additional information.

All legislative references are to the Excise Tax Act (the Act).

Our understanding of the situation was set out in our previous letter and is repeated here for convenience.

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 of 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, 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.

We further understand that XXXXX is comprised of XXXXX floors, XXXXX of which contain units that each have a private bath, private kitchen facilities and a private living area. The remaining XXXXX floors will not contain these amenities and will house individuals who require varying degrees of personal care.

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.

Interpretation Given

The issue concerning the coming-into-force provisions was dealt with in our response of May 15, 2002. We will now outline the other conditions that must be met in order for XYZ to be eligible for the NRR and provide additional information on certain aspects of the conditions.

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

A person who begins construction of a residential complex after February 27, 2000, will qualify for the NRR provided all of the following conditions are met (The NRR is available in certain other circumstances as set out in section 256.2. However, we will restrict our comments to the eligibility criteria that are relevant to the circumstances you described in your letter.):

1. The person is a builder of a residential complex and makes exempt supplies of residential units in the complex by way of lease, licence or similar arrangement where those supplies are included in section 6 or section 6.1 of Part I of Schedule V to the Act and which result in the person being deemed to have made and received a taxable supply by way of sale of the complex under section 191.

2. Tax in respect of the deemed supply made under section 191 is deemed to have been paid by the person.

3. The residential complex includes one or more qualifying residential units.

4. The person is not entitled to include the tax payable on the deemed supply under section 191 in determining an input tax credit of the person.

5. In respect of the tax included in determining the NRR, the person would not otherwise be entitled to include the tax in determining a rebate under section 254, 256, 256.1 or 259.

6. The person files an application for a rebate within two years of the end of the month in which the person is deemed to have paid tax under section 191 in respect of the complex. If the end of that month is before the day on which the legislation received Royal Assent, the person will have two years from the date of Royal Assent to claim the rebate.

We would like to provide additional comments on some of the eligibility criteria listed above.

Condition 1

A "builder" is defined in subsection 123(1) to include a person who:

(a) at a time when the person has an interest in the real property on which the complex is situated, carries on or engages another person to carry on for the person

(i) in the case of an addition to a multiple unit residential complex, the construction of the addition to the multiple unit residential complex,

(ii) in the case of a residential condominium unit, the construction of the condominium complex in which the unit is situated, and

(iii) in any other case, the construction or substantial renovation of the complex, and

(b) acquires an interest in the complex at a time when

(i) in the case of an addition to a multiple unit residential complex, the addition is under construction, and

(ii) in any other case, the complex is under construction or substantial renovation.

In our previous letter we indicated that XXXXX was not a residential complex at the time when XYZ acquired the property, on the basis that there were no residential units in XXXXX at that time. Under such circumstances, a particular person would be considered to be a builder of a residential complex when that particular person constructs a residential complex or engages another person to carry on for the particular person the construction of a residential complex.

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 ...". 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".

It appears that XXXXX is a residential complex on the understanding that XXXXX meets the definitions set out above.

Condition 1 also requires the person to make a supply of a residential unit in the residential complex by way of lease, licence or similar arrangement where the supply is included in section 6 or section 6.1 of Part I of Schedule V to the Act. Accordingly, if the supply by the person is exempt under a different section (e.g. section 2 of Part II of Schedule V or section 2 or 3 of Part IV of Schedule V), this condition will not be met and there will be no eligibility to the NRR.

Whether a particular supply is exempt under section 6 or 6.1 or some other section will depend on the facts of the case. It is possible that a supplier could be providing other goods and services in conjunction with or in addition to the supply that would ordinarily be included in section 6 or section 6.1. It then becomes a question of whether the supply being made is a single supply or multiple supplies. (See Policy Paper P-077R, "Single and Multiple Supplies", for guidance in making such a determination.) If it is determined that a supply is a single supply, it becomes necessary to characterize the supply and then determine whether any exempting provisions apply. For example, where a supplier is supplying a residential unit along with a number of other properties and services, it is possible that the single supply may be characterized as something other than a supply of a residential unit that is exempt under section 6. If the supply is exempt under section 2 of Part II of Schedule V or section 2 or 3 of Part IV of the same Schedule for example, the supply may not be considered to be exempt under section 6 of Part I. If the supplier is making multiple supplies, it must be determined whether any supplies are incidental to any of the others and whether any of the remaining supplies are included in section 6 or section 6.1 of Part I of Schedule V. If as a result of the forgoing analysis, it is determined that there is no supply being made that is included in section 6 or section 6.1, there will be no eligibility to the NRR.

In order to satisfy the first condition, not only must the person be making an exempt supply under section 6 or section 6.1, but also that supply must result in the person being deemed to have made and received a taxable supply of the complex under section 191. Subsection 191(3) will apply in respect of a multiple unit residential complex (which XXXXX appears to be) where the following conditions are met:

(a) the construction or substantial renovation of the multiple unit residential complex is substantially completed,

(b) the builder of the complex gives possession of any residential unit in the complex under a lease, licence or similar arrangement entered into for the purpose of the occupancy of the unit by an individual as a place of residence, and

(c) the individual is the first individual to occupy a residential unit in the complex as a place of residence after substantial completion of the construction or renovation.

You indicated in your letter that XYZ did not receive a taxable supply by way of sale of the complex. (As indicated in our previous response, this supply may have been subject to the GST.) However, it should be noted that XYZ will still be eligible for the NRR if XYZ is deemed to have made and received a taxable supply by way of sale of XXXXX under subsection 191(3), i.e., whether the 'self-supply' rules in that subsection applied when XYZ first made supplies of units in XXXXX such that XYZ is required to account for tax. More specifically, the condition in paragraph 256.2(3)(a) will be met where subparagraph (ii) is satisfied even though the condition in subparagraph (i) is not met.

Condition 3

With respect to this condition, it should be noted that in order to be a qualifying residential unit, the residential unit must be a "self-contained residence". A "self-contained residence" is defined in subsection 256.2(1) as a residential unit,

"(a) that is 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

(b) that contains private kitchen facilities, a private bath and a private living area" (emphasis added).

We have not been provided with sufficient details to determine whether XYZ meets all the eligibility criteria for the NRR as set out above. Should you wish to pursue the matter further, we invite you to submit any relevant documents, agreements and information that will allow us to make such a determination.

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