18 January 2013 GST/HST Ruling 148702 - Sale of interest in family cottage

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.

Dear [Client]:

Thank you for your letter of October 25, 2012, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of an interest in your real property located at […], Ontario (the Property).

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.  

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

Statement of Facts

Based on your letter and our recent telephone conversations, we understand the facts to be as follows:

1. In [yyyy], you and your spouse, as joint tenants, purchased the Property for your personal use and enjoyment. At the time of purchase, the Property was a vacant lake-front parcel of land, […] feet wide and […] feet deep. You have made no severances to the Property since acquiring it.

2. You took out building permits and built a […] square foot cottage on the Property in [yyyy]. The cottage contains wiring, plumbing and heating, and consists of three bedrooms, a kitchen, bathroom, and living room but no basement. The cottage rests on concrete blocks that you describe as pillars.

3. The cottage is supplied with electricity, cable, internet, and telephone by utility companies. It has a septic system but no well. Instead, non-potable water is pumped from the lake to the cottage for use in the bathroom, kitchen, and clothes washing facilities.

4. The cottage is fully furnished, and you and family members reside in it from May to September each year. You do not stay at the cottage for the other months of the year.

5. You pay property taxes on both the land and improvements and carry insurance on the cottage.

6. You have never derived any revenue from the Property including rental income, and have used the Property, including the cottage, exclusively for your personal use the entire time you have owned it.

7. You have not claimed any input tax credits for improvements to the Property and are not registered for the GST/HST.

8. You wish to sell an interest in the Property to your niece and her husband who will also become joint tenants along with you and your spouse. You will sell this interest for approximately $[…] which is roughly one-half of what you have stated to be the current fair market value of the Property.

Ruling Requested

You would like to know whether the sale of the interest in the Property, as described in Fact #8, is exempt of the HST.

Ruling Given

Based on the facts set out above, we rule that the sale of the interest in the Property is exempt of the HST under section 2 of Part I of Schedule V to the ETA.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 604-658-8544. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Eric Paraskake
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate