18 November 2003 GST/HST Ruling 46047 - Sale of Condominum Unit Rebuilt After Fire

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

This is in reply to correspondence XXXXX submitted on your behalf XXXXX XXXXX, and further to our telephone conversation XXXXX, concerning the application of the Goods and Services Tax ("GST") to the subject sale. We apologize for the delay in responding.

All references are to the Excise Tax Act ("ETA") unless otherwise indicated.

Statement of Facts

Our understanding of the facts is as follows:

1. The Unit is a residential condominium unit ("RCU") as defined in subsection 123(1).

2. Subsequent to purchasing the Unit XXXXX, you leased it on a long-term basis to tenants who used it as a place of residence. The Unit has never been used for any other purpose.

3. XXXXX a fire destroyed the top XXXXX floor of a residential condominium complex (the "RCC") containing the Unit. While the fire was confined to the XXXXX level of the RCC, the RCUs on the XXXXX levels were severely water-damaged.

4. As a result of the fire and water damage to the RCC, the residents of the XXXXX RCUs comprising the complex were required to vacate the premises.

5. An insurance claim was commenced in respect of the RCC, which resulted in the rebuilding of the complex. The RCC was rebuilt by a contractor under the supervision of the insurance company.

6. The insurance claim covered the cost of the rebuilding process, which is estimated as approximately $XXXXX.

7. Although the exterior walls and foundation remained in place, we understand that the RCC was essentially stripped back to its frame and the following elements replaced: the roof, all drywall, insulation, floor coverings, cabinetry, lighting fixtures, appliances, some floors, a balcony, and some of the interior supporting walls separating the RCUs. We are further advised that some windows and doors on the top floor of the complex were replaced while the remaining windows and doors, as well as the elevator remained.

8. The RCC remained vacant for approximately XXXXX months until the rebuilding process was completed. XXXXX. The RCC now resembles its condition prior to the fire, albeit with much new material.

9. At the time of the fire, you had not yet formed an intention to sell the Unit; however, sometime during the rebuilding process, you decided to sell it.

10. XXXXX you completed the sale of the Unit.

11. You did not lease or occupy the Unit subsequent to the rebuilding process and prior to its sale.

12. You are not GST/HST registrants; moreover, you have claimed no input tax credits ("ITCs") in respect of the Unit.

Ruling Requested

The sale of the Unit is exempt from the GST.

Ruling Given

The sale of the Unit is exempt from the GST.

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 ETA or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The sale of a residential complex (including a residential condominium unit) is generally taxable under section 165 unless specifically exempted under another provision of the ETA. Section 2 of Part I of Schedule V exempts the sale of a residential complex by a person who is not a builder, unless the person has claimed an ITC in respect of the last acquisition of the complex or in respect of an improvement to the complex. In this particular case, we do not consider you to be a builder. Since no ITCs have been claimed with respect to the Unit, the sale is exempt pursuant to section 2 above.

Should you have any further questions or require clarification on the above or any other GST or Harmonized Sales Tax matter, please do not hesitate to contact me at (613) 952-8816.

Yours Truly

Paul Hawtin
Rulings Officer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate