18 November 2003 GST/HST Ruling 42577 - Sale of Condominium 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 response to the letter XXXXX submitted by XXXXX on your behalf, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of the condominium unit owned by you XXXXX XXXXX. This response is being addressed to you directly as per your e-mail request XXXXX.

All legislative references are to the Excise Tax Act (ETA) unless otherwise stated.

Statement of Facts

From the letter XXXXX, your subsequent e-mail XXXXX, and my discussions with the insurance adjustor who handled the claim, our understanding of the facts is as follows:

1. You were the owner of condominium unit XXXXX, and described as XXXXX.

2. The condominium complex was built in XXXXX. From the time you purchased the residential condominium unit XXXXX, the condominium unit was owner occupied.

3. XXXXX there was a fire on the top XXXXX floor of the residential condominium complex (the "RCC") in which the condominium unit was located. While the fire was confined to the XXXXX floor, there was extensive water damage to the building. All residents of the XXXXX units in the complex were required to vacate the premises.

4. 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.

5. The XXXXX Corporation's building insurance paid for the costs of the repairs/reconstruction, estimated at approximately $XXXXX, plus GST. No ITCs have been claimed in respect of the reconstruction.

6. Although the exterior walls and foundation were not replaced, we understand that the RCC was essentially stripped back to its frame and that the following elements were replaced: the roof, all drywall, insulation, floor coverings, cabinetry, lighting fixtures, baseboard heaters, and appliances. We are further advised that a balcony and some windows and doors on the top XXXXX floor of the complex were replaced while the remaining windows and doors, as well as the elevator remained.

7. The RCC remained vacant for approximately XXXXX months, until the reconstruction was completed, and the Municipality XXXXX issued an occupancy permit in XXXXX. The RCC now resembles its condition prior to the fire, albeit with much newer material.

8. The condominium unit was not occupied after reconstruction was completed. The unit remained empty until it eventually sold XXXXX.

9. You indicated that in the summer of XXXXX you were looking to purchase a house with the intention of selling your principal residence at XXXXX. With this in mind, you did not move back into the condominium unit after reconstruction in order to keep it "clean and new for the sale".

10. Pursuant to an agreement of purchase and sale XXXXX, you sold the condominium unit. The sale was completed XXXXX.

11. You confirmed that the condominium unit was your personal residence and that it was never used for any other purpose either before or after the fire.

Ruling Requested

Whether the sale of the residential condominium unit XXXXX, is subject to the GST/HST.

Ruling Given

Based on the facts set out above, we rule that the sale XXXXX of the residential condominium unit XXXXX is an exempt supply under section 2 of Part I of Schedule V to the ETA.

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 transaction(s) 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 Act. Part I of Schedule V contains a number of exempting provisions with respect to the supply of real property. Specifically, section 2 of Part I of Schedule V exempts the sale of a residential complex by a person other than a builder, unless the person has claimed an input tax credit in respect of the last acquisition of the complex or in respect of an improvement to the complex.

In this particular case, no ITCs have been claimed with respect to the reconstruction of the RCC. In addition, an individual who undertakes the construction of a residential complex for personal use is not a "builder" under the ETA since, under such circumstances, we would not consider the individual to have been involved in a business or adventure or concern in the nature of trade.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9212.

Yours truly,

Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate