25 June 2002 GST/HST Ruling 40037 - Construction of an Apartment Building by

Dear XXXXX

Thank you for your letter of April 9, 2002, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

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

Statement of Facts

Our understanding of the facts and the transactions is as follows:

1. The XXXXX forms part of the XXXXX provincial government entity for purposes of the GST/HST.

2. The XXXXX has full ownership of a parcel of land that is currently used as a XXXXX. The land (the Property) is legally described as XXXXX document lists several lots within XXXXX, however, as you indicated in your phone call of XXXXX, the Property in fact is only one parcel of land and has only one legal description.

Proposed Transactions

1. The XXXXX will construct a multiple unit residential complex (the Complex) on the Property. The Complex will contain up to XXXXX residential units and will consist solely of residential units and related common areas.

2. Upon substantial completion of the Complex, the XXXXX will give possession of a residential unit in the Complex to a person under a lease, licence or similar arrangement (Lease). These persons will enter into the Lease for the purpose of occupying the residential unit as a place of residence.

3. The person (or an individual who is a tenant or licencee of the person) who enters into the Lease will be the first individual to occupy a residential unit in the Complex as a place of residence after substantial completion of construction of the Complex.

4. The XXXXX may decide to sell the Complex to a third person at an undetermined time in the future. Any such sale would not occur until a residential unit in the Complex has been supplied under the conditions noted in Fact #2. In any event, the sale is not expected to take place in the near future.

Rulings Requested

1. You are requesting confirmation that when the XXXXX commences to supply residential units in the Complex under a Lease, the XXXXX will be deemed to have received a taxable supply of the Complex by way of sale under subsection 191(3).

2. You are requesting confirmation that this deemed supply will not result in the XXXXX being required to pay tax because the XXXXX is a provincial government entity.

3. You are requesting confirmation that any subsequent sale of the Complex by the XXXXX will be exempt under section 5 of Part I of Schedule V to the Act.

Rulings Given

Although you requested an advance ruling on this matter, there is no certainty as to when the transactions are likely to be completed. As an advance ruling specifies time limits within which the transactions must be completed, we are providing you with a GST/HST application ruling.

Based on the facts and proposed transactions set out above, we rule that:

1. Where the conditions set out above have occurred, the XXXXX will be deemed to have made and received, at the later of the time construction of the Complex is substantially complete and the time possession of any residential unit in the Complex is given to a person in the circumstances described above, a taxable supply by way of sale of the Complex.

2. The deemed supply under subsection 191(3) will not result in the XXXXX having to pay or remit tax in respect of the deemed supply.

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 transactions for which you requested a ruling.

Interpretation Given

We are unable to provide a ruling on the tax status of a subsequent sale of the Complex by the XXXXX as the tax status of that sale will depend on events that take place during the time the XXXXX owns the complex. These events cannot be factually established at this time and we are therefore unable to issue a ruling on this matter. We can, however, provide the following interpretation.

Section 5 of Part I of Schedule V to the Act, in part, exempts the sale by a builder of a multiple unit residential complex or an addition thereto where the builder last acquired the complex or addition by way of a deemed sale under subsection 191(3). The sale is exempt provided that:

(a) the builder has not claimed an ITC in respect of the last acquisition of the complex (or addition), or in respect of an improvement to the complex (or addition) since the last acquisition, and

([b]) the builder has not substantially renovated the complex (or addition), or engaged another person to substantially renovate the complex (or addition) after the last acquisition of the complex (or addition) by the builder.

Should the conditions in section 5 of Part I of Schedule V be satisfied at the time the XXXXX sells the Complex, the sale will be exempt.

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