15 January 2003 GST/HST Interpretation 42670 - Transfer of Real Property in Lieu of Dedicated Land

Further to your facsimile XXXXX we provide the following interpretation on the GST/HST status of a conveyance of land, which includes a building, from XXXXX (the developer) to XXXXX (the municipality).

The relevant facts pertaining to this transaction are as follows:

1. the developer engaged in the development of a residential subdivision within the municipal boundaries of the municipality;

2. in accordance with XXXXX, the municipality has the authority to require the developer to convey to the municipality XXXXX percent of the land included in the subdivision (the dedicated land) as a condition for the municipalities' approval of the plan of subdivision;

3. where the municipality has imposed a XXXXX percent land transfer requirement on the developer as a condition for subdivision approval, XXXXX permits the municipality to accept, in lieu of this condition, a payment of money from the developer equal to the value of the land otherwise required to be transferred XXXXX[.]

4. rather than transferring ownership of XXXXX percent of the subdivision land to the municipality, the developer constructed a building on a portion of land included in the subdivision (the subject property) and, once the building was constructed, transferred ownership the subject property to the municipality;

5. the subject property was transferred to the municipality for use as XXXXX;

6. the municipality determined the value of the subject property to be XXXXX at the time of its transfer;

7. the municipality determined that the value of the subject property was in excess of the value of the dedicated land the developer would otherwise be required to convey by an amount of XXXXX, and

8. the municipality paid XXXXX and issued a charitable donation receipt for XXXXX to the developer in exchange for the subject property.

Interpretation Requested

Based on the above facts, you have asked whether the consideration for the supply of the subject property made by the developer to the municipality is XXXXX or XXXXX.

Interpretation Provided

In our view, the consideration for the supply of the subject property is XXXXX provided the following conditions having been met:

•   the municipality had the authority to require the developer to transfer ownership of the subject property as a condition for its approval of the developer's plan of subdivision pursuant to XXXXX; and

•   the municipality fully complied with all of its requirements under the XXXXX in setting such a condition.

Analysis

To the extent that there is no monetary consideration for the transfer of ownership of real property the consideration will be nil for GST/HST purposes where the transfer of real property is made by a developer to a municipality in fulfilment of a commitment under a development agreement and such a commitment is lawfully imposed as a statutory obligation upon the developer under provincial legislation.

In these circumstances the developer would generally be considered to be transferring real property (e.g. dedicated land in the subdivision or development area) in fulfilment of its statutory obligations under provincial legislation and not in return for something that the municipality has supplied.

For example, in the typical case of a developer transferring dedicated land to a municipality for nil (or nominal) consideration, the developer is not considered for GST/HST purposes to have done so in exchange for a permit to develop or subdivide property but rather because it is required to do so by law.

In the present case, the developer would be considered for GST/HST purposes to have made a supply by way of sale of the subject property for consideration of XXXXX provided the developer was required to transfer the subject property pursuant to condition imposed by the municipality under XXXXX. In effect, the value of the subject property in excess of XXXXX would be considered for GST/HST purposes to have been transferred to the municipality for nil consideration.

In discussion with a representative of the XXXXX we were not able to obtain specific assurance that the subject property would be regarded as XXXXX as described XXXXX XXXXX. However the XXXXX representative did not express any concerns over a municipality requiring the transfer of land and building for use as XXXXX as a condition under XXXXX XXXXX. (Spoke to XXXXX XXXXX. He stated that he had not addressed the issue of a municipality requiring a developer to transfer land and building for use as XXXXX to a municipality under XXXXX.)

In addition, we note that XXXXX states that the approval authority may impose conditions to the approval of a plan of subdivision provided that in the opinion of the approval authority these conditions XXXXX XXXXX. Further, the XXXXX representative confirmed that requirements (or conditions) listed XXXXX are not exhaustive.

In order to obtain further assurance that the municipality acted in accordance with XXXXX by imposing on the developer the requirement to transfer ownership of the subject property, you may wish to request an interpretation of the relevant provisions of XXXXX from the XXXXX or other applicable XXXXX[.] Finally, we wish to point out that determining whether the developer had a statutory obligation to transfer ownership of the subject property to the municipality may affect the transaction's status as a gift for purposes of issuing an official charitable donation receipt under the Income Tax Act.

For instance, if it is found that the developer transferred ownership of the subject property pursuant to a statutory obligation, then such a transfer would not qualify as a gift for purposes of sections 110.1 or 118.1 of the Income Tax Act. (Refer to Income Tax Interpretation Bulletin IT-110R3 - Gifts and Official Charitable Donation Receipts, dated June 20, 1997. In accordance with paragraph 3 of this IT bulletin "[a] gift, for purposes of sections 110.1 and 118.1 [of the Income Tax Act], is a voluntary transfer of property without valuable consideration.") In this case, the municipality should be advised to take appropriate steps to withdraw the donation receipt issued in the amount of XXXXX. Care should be taken not to confirm or imply that the transfer of the subject property qualifies as a gift for purposes of sections 110.1 or 118.1 of the Income Tax Act where it was made pursuant to a statutory obligation.

If it is found that the subject property was not transferred pursuant to a statutory obligation and that a gift was made for income tax purposes, the amount for which a donation receipt can be issued XXXXX would not be treated as consideration for the sale of the subject property for GST/HST purposes. In this case, GST would apply only to the monetary consideration of XXXXX, as stated above. Should you determine that a statutory obligation does not exist for the transfer of the subject property, you may wish to contact the Registered Charities Division of the Policy and Legislation Branch to confirm whether the municipality is eligible to issue an official donation receipt for income tax purposes.

Should you wish to discuss this matter further, please contact me at (613) 954-8852.