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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 245913
Business Number: N/A
Dear [Client]:
Subject: GST/HST RULING
Application of the GST on Title Transfer
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) on land title transfer. We apologize for the delay in this response.
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
For the purpose of this ruling, you have provided us with copies of the following documents:
Construction Agreement between […][ACo] and you dated [mm/dd/yyyy] (the “Agreement”);
Amendment to Construction Agreement between [ACo] and you dated [mm/dd/yyyy] (the “Amendment”);
[…][Province A] Land Titles Registry Title as of [mm/dd/yyyy];
Province [A] […] Land Titles Registry Title as of [mm/dd/yyyy]; and
Province [A] […] Land Titles Registry Title as of [mm/dd/yyyy].
Based on the information contained in your rulings request and the documents above, we understand the following:
1. The Agreement defines Lands to mean those lands owned by you upon which [ACo] is contracted to construct a residence, namely:
[…](Footnote 1)
2. You purchased the Lands in [mm/dd/yyyy] and upon the Lands there was a laneway dwelling and a single family detached house. Pursuant to the Province [A] Land Titles Registry Title dated [mm/dd/yyyy], you are registered owners, as joint tenants, of the Lands and […] had a mortgage interest in the Lands with a value of $[…].
3. The single family detached house would be demolished and a new house would be constructed. To do so, on [mm/dd/yyyy], you entered into the Agreement with [ACo] who agreed to construct a new residence on the Lands in accordance with the plans and specification that you provided to [ACo]. (Footnote 2)
4. At the time you entered into the Agreement with [ACo] the amount owing on the existing mortgage registered on the Lands was $[…].
5. As the single family detached house was to be demolished the amount owing of the existing mortgage registered on the Land needed to be paid. As such, it was agreed that immediately after the execution of the Agreement you will transfer the title of the Lands to [ACo] who will then obtain a construction mortgage against the Lands and dedicate the initial draws to a maximum of $[…] to pay off the existing mortgage that is registered against title to the Lands. (Footnote 3)
6. [ACo] may not further encumber the Lands unless you default on your covenants set out in the Agreement. (Footnote 4)
7. You may register a miscellaneous interest against the Lands after […][the Lands are] in the name of [ACo] and after [ACo]’s mortgage has been registered.
8. As indicated in the Province [A] […] Land Titles Registry [on a] Title dated [mm/dd/yyyy], [ACo] was the registered owner of the Lands and […] you have a miscellaneous interest as you are the owners of a beneficial interest and purchasers of the Lands under the Agreement. It also indicated that a new mortgage interest in the Lands was registered for […] with a value of $[…].
9. You continued to live on the Lands in the existing laneway dwelling, have use of the Lands for enjoyment, control access to the land (outside of the area of construction), and may plant crops and trees, and shall provide maintenance of the lot and associated public sidewalks and medians. You would also be responsible for paying all property taxes for the Lands and utilities on the Lands. You would also be responsible for paying the property insurance on the Lands, with the exclusion of construction insurance for the building, which is to be provided by [ACo]. (Footnote 5)
10. Upon the completion of the Agreement, the payment of the Construction Contract Price, and the repayment of the mortgage balance of $[…], the title of the Lands will be returned to you. All fees related to the return of the Lands to you shall be paid by you. (Footnote 6)
11. As indicated by the Province [A] […] Land Titles Registry Title dated [mm/dd/yyyy], you are registered owners, as joint tenants, of the Lands. It also indicated that the […] has a mortgage interest in the Lands with a value of $[…].
12. You agree to pay [ACo] the Contract Price as set out in Schedule […] of the Agreement. (Footnote 7) […]
13. In our telephone conversation on [mm/dd/yyyy], we understand that in [mm/dd/yyyy], you paid the GST on the entire Contract price, which included the portion representing the retransfer to you of the title of the Lands.
RULING REQUESTED
You would like to know whether the GST applies on the transfer of the title of the Lands to [ACo] and the retransfer of the title of the Lands to you.
RULING GIVEN
Based on the facts set out above, we rule that the GST does not apply on the transfer of the title of the Lands to [ACo] and on the retransfer of the title of the Lands to you because the transfer and the retransfer are deemed not to be a supply under section 134. As such the transfer and retransfer of the title of the Lands are not subject to the GST under section 165.
EXPLANATION
Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay GST on the value of the consideration for the supply pursuant to subsection 165(1). An exempt supply is not subject to GST and is included in Schedule V.
However, section 134 states that where, under an agreement entered into in respect of a debt or obligation, a person transfers property or an interest in property for the purpose of securing payment of the debt or performance of the obligation, the transfer shall be deemed not to be a supply, and where, on payment of the debt or performance of the obligation or the forgiveness of the debt or obligation, the property or interest is retransferred, the retransfer of the property or interest shall be deemed not to be a supply.
We have determined that the conditions under section 134 apply in your case. As such, section 134 deems the transfer of the title of the Lands to [ACo] and the retransfer of the title of the Lands to you not to be supplies for the purposes of the GST. Thus, the transfer and the retransfer would not be subject to the GST under section 165.
You stated that you have paid GST in [mm/dd/yyyy] on the entire Contract price when the Lands were retransferred to you upon the completion of the construction of the new residence. As the transfer of the Lands in this situation is deemed to not be a supply for the purposes of the GST, you have paid tax in error for the portion of the tax that relates to the transfer of the Lands. There are two options for you to recover this portion of the tax. Under subsection 232(1), [ACo] may refund, adjust or credit the portion of tax that was charged to or collected from you within two years after the day the tax was charged or collected. Therefore, you may request a refund from [ACo] of that amount. Alternatively, if [ACo] does not refund this amount, under section 261 you may apply for a rebate for the amount of tax that you paid in error by using the form GST189, General Application for GST/HST Rebates.
Please note, if [ACo] gives you a refund, you are no longer eligible for a rebate because the tax you paid in error has already been refunded or credited to you. Also you have two years to file your application for a rebate after the day that you paid the amount of tax in error. For more information, refer to GST/HST Memorandum 12-2, Refund, Adjustment or Credit of the GST/HST under Section 232 of the Excise Tax Act and guide RC4033, General Application for GST/HST Rebates.
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 Canada Revenue Agency (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 613-292-0461.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 or by fax to 1-418-566-0319.
Sincerely,
Mathieu Purney
Senior Rulings Officer
Financial Services Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
FOOTNOTES
1 Section [#] of the Agreement
2 Preamble and section [#] of the Agreement
3 Paragraph [#] of the Agreement as amended by section [#] of the Amendment
4 Paragraph [#] of the Agreement as amended by section [#] of the Amendment
5 Paragraph [#] of the Agreement as amended by section [#] of the Amendment
6 Paragraph [#] of the Agreement as amended by section [#] of the Amendment
7 Paragraph [#] of the Agreement and Schedule […] as amended by section [#] of the Amendment.
Email this Content