7 April 2022 CBA Roundtable, Q.3

CRA was described as denying builders of purpose-built residential rental housing ITCs for GST/HST paid on appliances (fridge, stove, dishwasher and washer/dryer) for each unit and furniture, fixtures [sic] and equipment (FF&E) for common areas on the basis that the appliances and FF&E are for use in making an exempt supply of a rental. However, on the later of first rental and substantial completion there is a deemed self-supply by the builder, so that all inputs to bring the building to such state are for use in commercial activity). On what basis does CRA distinguish appliances and common area FF& E from all other building inputs, such as windows, doors and flooring?

After discussing the common law as to when personal property becomes a fixture and thus becomes annexed to the real property, CRA stated:

Any property inside a residential complex that remains personal property would not form part of the residential complex. Consequently, appliances and common area furniture and equipment that are not fixtures to the real property and remains personal property, would not be included as inputs in the construction of the residential complex.

CRA confirmed that since appliances and common area furniture and equipment that are acquired in connection with the construction of, say, a residential complex such as an apartment building and which do not become fixtures, will be considered to have been acquired for the purpose of the intended exempt rental of the completed units, so that no input tax credits will be available. Regarding what is a fixture, it stated:

Whether personal property has become real property is a question of fact. Generally, if property is resting on its own weight or can be easily removed with no damage, such as unplugging an appliance, it would remain personal property. When personal property is even slightly attached, one has to consider both the degree and the object of the annexation to determine if personal property has become real property:

• The degree of annexation test generally involves the personal property being attached or connected to land or a building in a substantial manner, such as by nails or screws; the more firmly or irreversibly the personal property is affixed to the land or the building, the more likely it is to be regarded as a fixture.
• The object of the annexation test generally involves the purpose for which the personal property is attached or connected to the land. Generally, personal property is not regarded as a fixture where it is attached or connected to land for purposes of the enjoyment of the personal property. For example, the courts have long accepted that something which is affixed merely to facilitate its display, or in order to steady it, is not to be regarded as a fixture.