21 January 2002 GST/HST Interpretation 37504[2] - New Residential Rental Property Rebate - Queries [Two Questions]

This is in response to two questions, as attached, which were recently forwarded to us by XXXXX[.] The questions concern the new residential rental property rebate. As you are aware, other queries received from XXXXX concerning this rebate provision will be addressed under separate cover.

Interpretations Requested

You have asked for our comments on how section 256.2 applies with respect to the following situations, the first of which involves the situation where a triplex is used primarily for the personal use of the builder or purchaser, and the second where a builder applies the self-supply rules.

Interpretations Provided

Question #1:

If a triplex is used primarily as the personal residence of a builder or purchaser, does the following reflect how section 256.2 applies?

An individual purchases a triplex from a builder. He pays the tax at the time of the purchase and uses 60% of the triplex for his personal use.

Under subsection 191(5) of the Excise Tax Act ("ETA"), a person who builds himself this type of building and uses more than 50% of it for personal use is not required to self-assess and is therefore not eligible for the rental property rebates.

The purchaser, however, would be eligible for the rebate, even though he is using more than 50% of the triplex for personal use, because it is he, as opposed to the builder, who is using more than 50% of the building for personal use.

Reply

The new residential rental property ("RRP") rebate provisions, as set out under section 256.2 of the ETA, generally apply as you have described.

To elaborate, the provision that provides a rebate in respect the lease of land and building for residential rental accommodation is set out under subsection 256.2(3). Pursuant to this subsection, only

(i) a purchaser of a residential complex who is not a builder of the complex, or

(ii) a builder (Pursuant to subsection 123(1), a builder of a residential complex is defined, in part, as a "person who, (a) at the time 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 ... the construction or substantial renovation of the complex ... or (b) acquires an interest in the complex when ... the complex is under construction or substantial renovation ... (d) acquires an interest in the complex ... before it has been occupied by an individual as a place of residence for the primary purpose of ... making one or more supplies of the complex ... by way of) who makes an exempt supply by way of lease included in section 6 or 6.1 of Part I of Schedule V that results in a self-supply under section 191, is eligible for the RRP rebate, assuming that the remaining requirements of subsection 256.2(3) are met.

Further, a purchaser of a qualifying residential unit that is in a complex containing one or more other residential units (such as the triplex in this case) may qualify for the RRP rebate even if the complex in which the unit is located is used primarily (more than 50%) as a personal residence of the purchaser, but only if one or more of the other units in the complex are qualifying residential units of that purchaser, including the requirement that they are leased on an exempt basis pursuant to section 5.1, 6, 6.1 or 7 of Part I of Schedule V.

On the other hand, if a builder uses a residential complex primarily as a place of residence, it is possible that subsection 191(5) will apply to preclude self-supply under section 191. If so, the builder will not qualify for the RRP rebate. However, subsection 191(5) will apply only if all of the conditions set out under subsection 191(5) are present. Accordingly, if a builder claims input tax credits (ITCs) in respect of the acquisition of the complex, for example, then subsection 191(5) will not apply. This is addressed more fully in our reply to the following question.

Question #2:

Does the following reflect how section 256.2 applies to a registrant builder subject to the self-supply rules?

An individual registrant builds himself a triplex that he will use primarily for personal use (as a place of residence). Normally, he would not be required to self-assess and would not be entitled to the rental property rebate. However, according to point 47 of Memorandum 19.2.3, if he claims ITCs throughout the construction period, he would be entitled to apply the self-supply rules and should self-assess.

Would he be entitled to the rental property rebate, given that he self-assessed?

Reply:

In this situation, the builder will be entitled to the RRP rebate, assuming the remaining requirements of subsection 256.2(3) are met.

To elaborate, and as noted in reply to the question above, a builder who makes an exempt supply by way of lease included in section 6 or 6.1 of Part I of Schedule V that results in a self-supply under section 191, is entitled to the RRP rebate assuming, again, that the other requirements of subsection 256.2(3) are met. Pursuant to clause 256.2(1)(ii)(B), where one unit in a residential complex is used as the primary place of residence of the builder (as in the present case), that unit will meet the rebate requirements only if one or more of the other units is leased out on an exempt basis pursuant to section 5.1, 6, 6.1 or 7 of Part I of schedule V, and as well meet the other requirements of the definition of "qualifying residential unit" under subsection 256.2(1).

As noted in our reply above, where subsection 191(5) applies, the builder is neither required nor permitted to apply the self-assessment provisions of subsections 191(1) to (4). Accordingly, under these circumstances, the builder will not qualify for the RRP rebate. The conditions for subsection 191(5) to apply are set out in paragraphs (a) to (d) of that subsection; i.e.,

191(5) Subsections (1) to (4) do not apply to a builder of a residential complex ... where:

(a) the builder is an individual;

(b) at any time after construction is completed, the complex is used primarily as a place of residence of the builder (or relation, former spouse, or common-law partner);

(c) the complex is not used primarily for any other purpose after construction is completed and before it begins to be used as described under (b) above; and,

[(]d) the builder has not claimed an ITC on acquisition or construction costs.

Since one of the conditions, as indicated under (d) above, is that the builder "has not claimed an input tax in respect of the acquisition of or an improvement to the complex," the builder in the present example could register and claim ITCs during construction of the complex, thereby avoiding the application of subsection 191(5). In this situation, a self-supply pursuant to subsection 191(3) (We assume the complex qualifies as a "multiple unit residential complex." Otherwise, the self-supply provisions of subsection 191(1) may be applicable.) would occur at the time that the terms of that provision are met. Further, since the builder is subject to self-supply, the builder will be entitled to the RRP rebate for a portion of the tax deemed to have been paid upon the self-supply, assuming the remaining provisions of subsection 256.2(3) are met.

It should be noted that a builder may not necessarily be at a disadvantage if he/she is precluded from self-supplying and claiming a RRP rebate, since the self-supply is based on the fair market value of the complex, and the rebate is limited to a maximum of 36% of that amount.

We trust that our comments will assist you. If you have any questions or concerns, please contact Costa Dimitrakopoulos at (613) 954-3772 or Michael Place at (613) 952-9587.