Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 243558r
Dear [Client]:
Subject: GST/HST RULING
Assignment of an interest in a residential condominium unit
Thank you for your fax of [mm/dd/yyyy], in which you requested a reconsideration of our ruling issued on [mm/dd/yyyy], under case number 243558, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the assignment of an interest in a residential condominium unit.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your fax, the additional information provided, your telephone conversations with Canada Revenue Agency (CRA) representative, […][a CRA official], and our telephone conversations with […][your authorized representative], we understand the following:
1. […] is your authorized representative for the purpose of this ruling request. We are in receipt of the third party authorization letter.
2. On [mm/dd/yyyy], you entered into an Assignment of Agreement of Purchase and Sale (AAPS1), for a residential condominium unit known as […][the unit], together with one parking unit and one storage locker unit, at a development known as […][the condominium complex], located at […][the address].
3. Under AAPS1, you acquired the rights and obligations of an Agreement of Purchase and Sale (the APS) for the Unit from […] (the Assignor), who had entered into the APS with […][the Vendor].
4. A copy of the Interim Statement of Adjustments was provided and can be summarized as follows:
- The assignment fee of $[…] was equal to the original purchase price in the APS, and included the reimbursement of deposits in the amount of $[…], which were previously paid by the Assignor to the Vendor.
- A deposit of $[…] was due at interim closing, at the Firm Occupancy Date on [mm/dd/yyyy].
- The remaining balance of $[…] was due at the Final Closing Date, which was expected to be in [mm/dd/yyyy].
- The Occupancy Fee payable to the Vendor would be $[…] per month, for the period from the Firm Occupancy Date to the Final Closing Date.
5. At the time that you signed the AAPS1, your stated intention was to occupy the Unit as your primary place of residence.
6. Prior to obtaining occupancy of the Unit on [mm/dd/yyyy], you were a tenant living in a basement suite.
7. At the time that you signed the AAPS1, you were not employed, and you were completing a […] course to become a […]. Following completion of the course, you began working […] for […] and your employment income for the remainder of [yyyy] was approximately $[…]. You were previously self-employed as a ride-sharing driver.
8. You determined that your credit rating and your income would not qualify you to obtain financing from traditional lenders. However, you believed that you could complete the purchase of the Unit from the Vendor on the Final Closing Date by obtaining financing from an alternative lender (B Lender).
9. You explained that B Lender would finance the purchase of the Unit provided that you could fulfill the monthly payment obligation (the Obligation) and could pay a fee of approximately $[…]to $[…]. Based on interest rates at the time, the estimated Obligation was $[…]to $[…].
10. You stated that many factors would need to come together in order to fulfill the Obligation and the fee, namely, that you would have to work more hours, rent an unused bedroom to a tenant, and resume self-employment as a ride-sharing driver. However, you did not pursue any of these options.
11. You explored other financing options, namely, the option of […][a person] refinancing a property […] owned jointly [by the person and X, however] the payments would be high and [the person] abandoned the refinancing option.
12. You decided to sell your interest in the Unit as you concluded that you would be unable to obtain affordable financing. You contracted the realty services of […][the realtor], a realtor from […][a realty brokerage], to assist you with the sale of your interest in the Unit by way of an assignment (the Assignment). On [mm/dd/yyyy], the Unit was listed for $[…].
13. On [mm/dd/yyyy], you and […][the Assignee] entered into an Assignment of Agreement of Purchase and Sale (AAPS2). The Offer Summary Document and AAPS2 have the following relevant terms, summarized as follows:
- Purchase Price: $[…]
- Section 6 – HST: If the sale of the Unit is subject to the HST, it is included in the $[…].
Schedule A:
- You have paid deposits of $[…] to the Vendor.
- The Assignee shall pay the final closing balance prior to or upon final registration, plus any adjustment fees.
Schedule B:
- As the Assignment may be subject to the HST, both parties agree that the HST occurred in this Assignment shall be $[…]. This amount is withheld by your solicitor.
- The consideration for the Assignment has the following components:
- Total purchase price: $[…]
- Purchase price per the APS: $[…]
- Deposits previously paid to the Vendor: $[…]
- Assignment fee: $[…]
- ($[…] - $[…] + $[…])
- HST: $[…] ($[…] multiplied by […]%)
14. On [mm/dd/yyyy], the Assignee acquired the interest in the Unit from you through AAPS2. The Vendor authorized AAPS2 on [mm/dd/yyyy].
15. You had occupancy of the Unit from [mm/dd/yyyy] to [mm/dd/yyyy]. A copy of your driver’s license, a bank statement, and a utility bill were provided. These documents list the Unit as your address.
16. After you sold your interest in the Unit, you rented […][a unit at a different address], from [the realtor], and occupied it as your place of residence.
17. Other than the transactions described above, you have never owned, had a right or interest in, and/or sold any type of real property in any form or arrangement either solely or jointly with other person(s).
18. You are registered for GST/HST purposes related to your previous self-employment as a ride-sharing driver.
RULING REQUESTED
You would like to know if the Assignment under AAPS2 is subject to the GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that the Assignment under AAPS2 is a taxable supply and is subject to the GST/HST at the rate of 13%.
EXPLANATION
Builder for GST/HST purposes
To assist you in better understanding the below explanation, we are providing the definition of the term “builder”, which is defined in subsection 123(1):
Generally, paragraph (d) of the definition provides that a person is a builder of a residential complex (for example, the Unit) where the person acquires an interest in the complex
(i) in the case of a condominium complex or residential condominium unit, at a time when the complex is not registered as a condominium, or
(ii) in any case, before it has been occupied by an individual as a place of residence or lodging,
for the primary purpose of
(iii) making one or more supplies of the complex or parts thereof or interests therein by way of sale, or
(iv) making one or more supplies of the complex or parts thereof by way of lease, licence or similar arrangement to persons (other than to individuals who are acquiring the complex or parts otherwise than in the course of a business or an adventure or concern in the nature of trade).
However, a person that meets the conditions in paragraph (d) of the definition of “builder” might nonetheless be excluded from the definition if the person meets the conditions set out in subparagraph (f)(iii). Generally, subparagraph (f)(iii) of the definition provides that a person is not a builder of a residential complex if the person is an individual who acquires the complex or interest in it, otherwise than in the course of a business or an adventure or concern in the nature of trade.
The matter of whether an individual is a builder of a residential complex under paragraph (d) of the definition of “builder” in subsection 123(1) depends, in part, on the primary purpose for which the individual acquires an interest in the complex. The primary purpose for which the individual acquires the interest in the complex is a question of fact that can only be judged by outward indicators (that is, the presence or absence of physical actions and/or evidence).
Generally, if an individual acquires an interest in a residential complex and sells the interest before or while the complex is under construction or in the case of a residential condominium unit, before the complex is registered as a condominium, then the action of selling the interest is viewed strongly as evidence that the individual acquired the interest in the complex for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade. However, if the individual asserts that they acquired the interest in the complex for the primary purpose of using the residential complex as a place of residence either for themselves or a relation, then outward indicators must support the asserted primary purpose in order for it to be proven true. Practically, this means that the onus is on the individual to prove two things.
First, the individual must prove that the primary purpose for which they assert that they acquired the interest in the residential complex was a firm, fixed, and settled intention that was not likely to change. Put differently, the asserted primary purpose of using the complex as a place of residence either for the individual or a relation must have been more than a tentative, provisional, or exploratory contemplation and must not have been conditional or dependent on future events occurring.
Second, the individual must prove that, objectively, they had reasonable prospects of bringing the primary purpose for which they assert that they acquired the interest in the residential complex to fruition or fulfillment within a reasonable time.
Based on the facts stated above, at the time when you entered into AAPS1, the feasibility of being able to fulfill your stated primary intention was highly dependent on future events occurring. It is questionable that even if these events occurred, whether your stated intention could be fulfilled. The CRA’s position is that the facts presented do not support the intention of acquiring the residential complex for its use as your place of residence, but rather, the facts demonstrate the intent of acquiring an interest in the complex for the purpose of resale. As such, it is our position that you are a builder of the Unit under paragraph (d) of the definition of “builder” in subsection 123(1).
Exempt supply by way of sale of a residential complex by a builder
The sale of a residential complex by a builder is generally a taxable supply. The only exemption that may apply in this case is found in Section 3 of Part I of Schedule V.
Section 3 of Part I of Schedule V generally exempts the sale of a residential complex by an individual who is a builder of the complex where:
(a) after the construction of the complex is substantially complete, the complex is used primarily as a place of residence of the individual or a relation of the individual, and
(b) the complex is not used primarily for any other purpose between the time construction of the complex is substantially completed and the time it is used as a place of residence of the individual or a relation.
You assigned your interest in the Unit before the complex was registered as a condominium, which implies that the assignment was made in the course of an Adventure or Concern in the Nature of Trade (ACNOT). Where it is established that an individual is selling an interest in a new residential complex in the course of an ACNOT, the individual is considered to have entered into the purchase and sale agreement for the primary purpose of selling the residential complex or an interest therein.
Although you used the Unit as your place of residence for a short period following the Firm Occupancy Date, the CRA has determined that it was used primarily for the purpose of selling your interest by way of assignment before its registration as a condominium complex. The stated primary intention is not corroborated by the available facts. The primary purpose remains that of resale of the interest.
As a result, the exemption under section 3 of Part I of Schedule V is not applicable to the Assignment under AAPS2. The facts support that the Unit was used primarily for a purpose other than as a place of residence (i.e. supplying the interest by way of assignment) between the Firm Occupancy Date and the time it was sold to the Assignee. Given that no other exemptions are applicable, the supply by way of sale of the Assignment under AAPS2 is subject to the GST/HST.
For further information on the topics discussed above, including the term “builder”, refer to GST/HST Memorandum 19.2, Residential Real Property, GST/HST Memorandum 19.2.1, Residential Real Property - Sales, and GST/HST Info Sheet GI-005, Sale of a Residence by a Builder Who is an Individual.
Collection and remittance of tax on a taxable sale of real property
Under subsection 221(1), generally, a supplier of taxable real property by way of sale must collect the tax. However, subsection 221(2) generally relieves the supplier of the obligation of collecting the tax where the recipient is registered for GST/HST. Under such circumstances, it is the recipient that must account for the tax payable.
Further information may be found in GST/HST Memorandum 19.1, Real Property and the GST/HST, GST/HST Memorandum 19.2.1, Residential Real Property – Sales, and GST/HST Memorandum 19.4.1, Commercial Real Property – Sales and Rentals.
Liability to report and remit GST/HST
Registrant supplier
Where a supplier who is registered for GST/HST purposes makes a taxable sale of real property to a person who is not registered for GST/HST purposes, the supplier has the obligation to report and account for amounts of the GST/HST that became collectible or were collected by them, and remit any positive net tax owing.
Subsection 225(1) requires a registrant to include amounts that became collectible and all other amounts collected as or on account of tax in a particular reporting period, when determining the net tax for the reporting period.
Please note that under subsection 228(1), the person is required to report, in a return, the net tax for the person's reporting period covered by that return. Where the person's net tax is a positive amount, subsection 228(2) requires the person to remit that amount to the Receiver General, generally not later than the last day for filing the return in question.
Assignment agreements entered into after May 6, 2022
Pursuant to section 192.1, all assignment sales entered into after May 6, 2022 are subject to the GST/HST. As AAPS2 was entered into on March 1, 2022, section 192.1 does not apply. For information regarding the GST/HST treatment of assignment sales entered into after May 6, 2022, see GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 403-827-0674. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287. Sincerely,
Ahmed Msougar, CPA
Rulings Officer
Real Property Unit 2
Financial Institutions and Real Property
GST/HST Rulings Directorate
Email this Content