12 February 2013 GST/HST Interpretation 145624 - Goods and Services Tax(GST)/Harmonized Sales Tax(HST) new residential rental property (NRRP) rebate filed in the name of a bare trustee

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.

This memorandum is in response to your [correspondence] of May 9, 2012 with respect to a particular GST/HST NRRP rebate application received at the […]. The claimant's name on the NRRP rebate application differs from the purchaser named on the agreement of purchase and sale (the Agreement) and the final closing statement of adjustments. You would like our opinion as to the claimant's eligibility for the NRRP rebate in this situation.

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

The following documents were provided for our consideration:

a) A NRRP rebate dated [mm/dd/yyyy], submitted in the name of […] (Holdings) for the purchase of a new residential condominium unit (the Unit) located at […].

b) A letter from Holdings to the Canada Revenue Agency dated [mm/dd/yyyy] with respect to the above mentioned rebate. In this letter, Holdings has indicated that the Agreement in respect of the Unit was executed by […] in trust for […] (Properties) and that Properties is a bare trustee that holds the Unit in trust for Holdings, the beneficial owner of the Unit. (We were not provided with a copy of the trust agreement creating the trust. As such, we cannot comment on whether this is a bare trust. For purposes of this opinion, we will assume the trust is a bare trust in which Properties holds legal title to the Unit on behalf of the beneficial owner, Holdings).

c) The statement of adjustments for the purchase of the Unit by Properties, adjusted as of [mm/dd/yyyy], indicates the following:

* consideration of $[…]

* GST (at […]%) of $[…]

* NRRP rebate of $[…]

It appears that […] (the Vendor) has credited the amount of the NRRP rebate against the amount owing by Properties.

d) A tenancy agreement (the Lease) between Properties and […] (the Tenant) for the rental of the Unit dated [mm/dd/yyyy]. The Lease is for the period [mm/dd/yyyy] to [mm/dd/yyyy].

e) The Agreement, which is dated [mm/dd/yyyy].

ISSUE

The NRRP rebate application has been submitted in the name of Holdings. However, the Agreement and the statement of adjustments indicate that Properties is the purchaser of the Unit. You would like to know if Holdings is eligible to file the NRRP rebate application even though the Agreement and the statement of adjustments appear to indicate that Properties has purchased the Unit.

RESPONSE

If the claimant, Holdings, can substantiate that Properties is holding the Unit as a bare trustee and Holdings is the beneficial owner of the Unit, it is our view that the GST/HST NRRP rebate application should be filed in the name of the beneficial owner of the Unit, Holdings.

Explanation

Bare trusts under the ETA

A bare trust refers to a type of trust where the bare trustee has legal ownership of the property but has no other duties, obligations or responsibilities with respect to the property. The bare trustee does not have any independent power or discretion pertaining to the trust property. The sole duty of the bare trustee is to convey legal title to the trust property on demand of, and according to the instructions of, the beneficial owner as provided for within the trust agreement. The beneficiary, or beneficial owner, is the person who has enjoyment of the property held by the bare trust and retains the right to control and direct the trustee in all matters relating to the trust property, but does not have legal title to the property.

For purposes of the GST/HST, in a bare trust situation, it is the beneficial owner that faces the obligations and entitlements under the ETA. As it applies to this scenario, it is the beneficial owner that may be entitled to the NRRP rebate.

The existence of a trust is generally evidenced in a trust document which sets out the terms of the trust and specifies the obligations and responsibilities of the trustee. As previously noted, we have not been provided with the trust agreement between Properties and Holdings. Properties would be recognized as a bare trustee so long as the duties and powers which it has been granted under the trust instrument are not greater than those set out in GST/HST policy statement P-015, Treatment of Bare Trusts under the Excise Tax Act.

To provide more certainty as to the type of trust you are dealing with in your particular situation, we would suggest you obtain the following documents from the claimant:

1. Any relevant trust agreements that have been entered into between the claimant and other parties;

2. Any relevant agency agreements that may exist between the claimant and other parties;

3. Any documents to support the payment of the rents to third parties other than the beneficiary.

NRRP rebate under subsection 256.2(3)

Subsection 256.2(3) sets out the rules and conditions which must be met with respect to a person's eligibility for the NRRP rebate. This subsection applies to:

i) a person, who is not a builder, and is a recipient of a taxable supply by way of sale of a residential complex; or

ii) a person who is a builder of a residential complex and gives possession or use of a residential unit in the complex under a lease entered into for the purpose of its occupancy as a place of residence that results in a deemed supply under section 191.

Where tax becomes payable by the person in respect of the purchase or deemed supply under section 191, the complex is, or contains, a qualifying residential unit (as defined in subsection 256.2(1)), and the person is not entitled to an input tax credit in respect of the purchase or deemed supply, the person may be entitled to a NRRP rebate in respect of the unit, the amount of which is determined under the appropriate formula in section 256.2.

Although Holdings does not hold legal title to the Unit and is not named in the Agreement or the closing statement of adjustments, if Holdings is the beneficial owner of the Unit, Holdings is the person engaged in the rental of the Unit to the Tenant. As such, Holdings is the person who would be entitled to the NRRP rebate, assuming it meets all the conditions for the rebate as set out in section 256.2.

As noted above, it appears that the Vendor has credited the amount of the NRRP rebate against the amount owing by the purchaser, Properties. A vendor cannot pay or credit the federal or provincial NRRP rebate to the purchaser; instead, the purchaser must apply for the rebate directly with the Canada Revenue Agency. If the Vendor reduced their net tax for a reporting period as a result of crediting the Purchaser with the amount of the NRRP rebate, the Vendor was not entitled to such a reduction.

If you require further clarification with respect to any of the issues addressed in this letter, please call me at 613-954-4393.

Melissa Mercer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate