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: 224829
Dear [Client]:
Subject: GST/HST interpretation
GST/HST reporting related to a deemed supply of a multiple unit residential complex by a selected listed financial institution
Thank you for your [correspondence] requesting an interpretation with respect to reporting the goods and services tax/harmonized sales tax (GST/HST) related to a deemed supply of a multiple unit residential complex (MURC) by a selected listed financial institution (SLFI). We apologize for the delay in providing our 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.
We understand the following:
A person that is an SLFI is the builder of a MURC situated in a participating province (Ontario) and a MURC situated in a non-participating province, which we will refer to as the SLFI Builder. Under subsection 191(3), the SLFI Builder is deemed to have made and received a taxable supply by way of sale of these MURCs (self-supply) and to have paid and collected GST/HST in respect of the self-supply, as applicable.
INTERPRETATION REQUESTED
You would like to know the following:
1. With respect to the MURC situated in a non-participating province, is the SLFI Builder required to include the GST payable under subsection 191(3) in Element A of its special attribution method (SAM) formula in subsection 225.2(2)?
2. With respect to a MURC situated in a participating province (Ontario), is the SLFI Builder required to include the federal part of the HST payable under subsection 191(3) in Element A and the provincial part of the HST payable under subsection 191(3) in Element F of its SAM formula calculation in subsection 225.2(2)?
3. Where the SLFI Builder received an amount that is the federal new residential rental property (NRRP) rebate pursuant to section 256.2 in relation to the GST or the federal part of the HST, is the SLFI Builder required to include the federal NRRP rebate as an adjustment to its SAM formula calculation in subparagraph (iii) of the description of G2 in paragraph 46(a) of the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (SLFI Regulations)?
4. With respect to the MURC situated in Ontario, is the SLFI Builder not entitled to the NRRP rebate provided for in section 256.21 and subsection 47(3) the New Harmonized Value-added Tax System Regulations, No.2 because of the application of subsection 263.01? If this is not the case, is the SLFI Builder required to include the provincial NRRP rebate as an adjustment to its SAM formula calculation in subparagraph (iii) of the description of G1 in paragraph 46(a) of the SLFI Regulations?
INTERPRETATION GIVEN
New Residential Rental Property Rebates
NRRP rebate provided under subsection 256.2(3)
The tax that is deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax imposed under subsection 165(1), and where the MURC is situated in a participating province, is also tax imposed under subsection 165(2).
With respect to the supply of a MURC that is deemed to have been received under paragraph 191(3)(d), the NRRP rebate provided for under subsection 256.2(3) is calculated as a percentage of the total tax imposed under subsection 165(1) that is deemed to have been paid in respect of the supply.
Where the eligibility conditions in subsection 256.2(3) are met, the rebate is determined by the formula in that subsection which states, in part:
A x ($450,000 – B)/$100,000
where
A is the lesser of $6,300 and the amount determined by the formula
A1 x A2
where
A1 is 36% of the total tax under subsection 165(1) that is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and
A2 is
(i) if the unit is a single unit residential complex or a residential condominium unit, 1, and
(ii) in any other case, the unit's percentage of total floor space, and
B […]
Element A1 in the formula recognizes the two scenarios, as set out in subparagraphs 256.2(3)(a)(i) and (ii), under which tax may arise for purposes of the NRRP rebate. Where a builder is deemed under paragraph 191(3)(d) to have made and received a taxable supply by way of sale of a MURC, Element A1 is calculated as 36% of the total tax under subsection 165(1) that is deemed to have been paid in respect of the “deemed purchase.”
The “deemed purchase” in the formula is the taxable supply by way of sale of the MURC (as referenced in subparagraph 256.2(3)(a)(ii)) that the builder is deemed to have made and received under paragraph 191(3)(d). As explained earlier, the tax that is deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax that is imposed under subsection 165(1), and where the MURC is situated in a participating province, is also tax that is imposed under subsection 165(2). However, Element A1 in the formula for the NRRP rebate under subsection 256.2(3) is a reference specifically to tax under subsection 165(1) (that is, the GST or the federal part of the HST).
Thus, the NRRP rebate is an amount in respect of tax under subsection 165(1).
Ontario NRRP rebate provided for under subsection 256.21(1)
The tax deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax that is imposed under subsection 165(1), and where the MURC is situated in a participating province, is also tax imposed under subsection 165(2).
A participating province may choose to provide rebates in respect of the provincial part of the HST imposed on the sale or the self-supply of a MURC in the participating province. Currently, Ontario is the only participating province that provides a provincial NRRP rebate.
Subsection 256.21(1), in combination with subsection 47(3) of the New Harmonized Value-Added Tax System Regulations, No. 2, provides a partial rebate of the provincial part of the HST that is imposed on the sale or the deemed sale of a MURC that is situated in Ontario.
The eligibility conditions for the Ontario NRRP rebate are the same as those set out for the NRRP rebate under subsection 256.2(3), with the exception that the Ontario NRRP rebate may be available where the fair market value of the MURC exceeds $450,000.
With respect to a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), the Ontario NRRP rebate provided for under subsection 256.21(1) and subsection 47(3) of the New Harmonized Value-Added Tax System Regulations, No. 2 is calculated as a percentage of the total tax imposed under subsection 165(2) that is deemed to have been paid in respect of the deemed purchase.
Subsection 47(3) of the New Harmonized Value-Added Tax System Regulations, No. 2 sets out the eligibility conditions for the Ontario NRRP rebate. Where the eligibility conditions are met, the amount of the rebate is determined by the formula in that subsection which states, in part:
A x B
where
A is 75% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase of the complex or addition; and
B […]
Element A in the formula recognizes the two scenarios, as set out in subparagraphs 256.2(3)(a)(i) and (ii), under which tax may arise for purposes of the Ontario NRRP rebate. Where a builder is deemed under paragraph 191(3)(d) to have made and received a taxable supply by way of sale of a MURC, Element A is calculated as 75% of the total tax under subsection 165(2) that is deemed to have been paid in respect of the “deemed purchase.”
The “deemed purchase” in the formula is the taxable supply by way of sale of the MURC (as referenced in subparagraph 256.2(3)(a)(ii)) that the builder is deemed to have made and received under paragraph 191(3)(d). As explained earlier, the tax that is deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax that is imposed under subsection 165(1), and where the MURC is situated in a participating province, is also tax that is imposed under subsection 165(2). However, element A in the formula for the Ontario NRRP rebate is a reference specifically to tax under subsection 165(2) (that is, the provincial part of the HST).
Thus, the Ontario NRRP rebate is an amount in respect of tax under subsection 165(2).
NRRP rebate restrictions
Section 263
Section 263 provides that a person may not be entitled to be paid a rebate under certain provisions, which include the federal NRRP rebate under subsection 256.2(3) and the provincial NRRP rebate under subsection 256.21(1). A person who may otherwise be eligible to be paid either or both of the NRRP rebates must determine whether any of the conditions described below apply to restrict payment of the applicable rebate:
(a) the amount has previously been rebated, refunded or remitted to that person under the ETA or any other Act of Parliament;
(b) the person has claimed or is entitled to claim an input tax credit in respect of the amount;
(c) the person has obtained or is entitled to obtain a rebate, refund or remission of the amount under any other section of the ETA or under any other Act of Parliament; or
(d) a credit note referred to in subsection 232(3) has been received by the person, or a debit note referred to in that subsection has been issued by the person, for an adjustment, refund or credit that includes the amount.
Section 263.01
In addition to the general rebate restrictions in section 263, there is a special restriction for SLFIs in subsection 263.01(1).
Subsection 263.01(1) provides that a rebate of an amount under any provision of the ETA (other than sections 252.4 and 252.41) or a refund or abatement of an amount that, because of subsection 215.1(3) or 216(7), may be granted under section 69, 73, 74 or 76 of the Customs Act will not be paid to a person to the extent that it can reasonably be regarded that the amount is in respect of tax under subsection 165(2) or section 212.1 that became payable by the person at a time when the person was an SLFI, or that was paid by the SLFI at that time without having become payable, in respect of property or a service acquired or imported by the person for consumption, use or supply in the course of a business of the person or an adventure or concern in the nature of trade of the person.
As explained earlier, the tax deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax imposed under subsection 165(1), and where the MURC is situated in a participating province, is also tax imposed under subsection 165(2).
Where the provincial part of the HST is deemed to have been paid under paragraph 191(3)(e) on the self-supply of a MURC, and where an SLFI has met all of the eligibility conditions for a provincial NRRP rebate, the amount of the provincial NRRP rebate would be an amount in respect of tax under subsection 165(2) for purposes of subsection 263.01(1).
Therefore, the SLFI Builder is not entitled to the NRRP rebate provided under subsection 256.21(1), in combination with subsection 47(3) of the New Harmonized Value-Added Tax System Regulations, No. 2 in respect of the tax on the purchase or the self-supply of the MURC that is situated in Ontario.
Special attribution formula
When determining its net tax for a reporting period, an SLFI is required to make an adjustment to its net tax calculation related to its liability for the provincial part of the HST by using the SAM formula. The SAM formula in subsection 225.2(2) is:
[(A - B) x C x (D / E)] - F + G
Element A
Paragraph (a) of the description of Element A of the SAM formula includes all amounts of the GST plus the federal part of the HST (other than a prescribed amount of tax) under subsection 165(1) and sections 212, 218 and 218.01 that became payable or were paid without having become payable by the SLFI during the particular reporting period.
A "prescribed amount of tax" for purposes of paragraph (a) of the description of Element A is an amount described in section 40 and in paragraphs 55(2)(a), 60(a) and 63(a) of the SLFI Regulations.
As explained earlier, the tax deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax imposed under subsection 165(1), whether the MURC is situated in a non-participating or a participating province.
Therefore, the GST or the federal part of the HST that the SLFI Builder is deemed to have paid and collected during the reporting period under subsection 191(3) for the reporting period in which the self-supply of a MURC occurred, would be included in Element A of the SLFI Builder’s SAM formula calculation in subsection 225.2(2).
Element F
Paragraph (a) of the description of Element F of the SAM formula includes all amounts of tax (other than a prescribed amount of tax) under subsection 165(2) for the provincial part of the HST in respect of supplies made in the participating province to the SLFI, or under section 212.1 calculated at the tax rate for the participating province, that:
(i) became payable, or were paid without having become payable, by the SLFI during either of the following:
(A) the particular reporting period
(B) any other reporting period that precedes the particular reporting period, where the particular reporting period ends within two years after the end of the SLFI’s fiscal year that includes the other reporting period; and it was an SLFI throughout the other reporting period
(ii) were not included in determining the positive or negative amounts that the SLFI is required to add, or may deduct, under subsection 225.2(2) in determining its net tax for any reporting period other than the particular reporting period
(iii) are claimed by the SLFI in a return under Division V of Part IX for the particular reporting period.
A "prescribed amount of tax" for purposes of paragraph (a) of the description of Element F is an amount described in section 40 and in paragraph 55(2)(a) of the SLFI Regulations.
As explained earlier, the tax deemed to have been paid under paragraph 191(3)(e), in respect of a supply of a MURC that is deemed to have been received under paragraph 191(3)(d), is tax imposed under subsection 165(2) where the MURC is situated in a participating province.
Therefore, the provincial part of the HST that the SLFI Builder is deemed to have paid and collected under subsection 191(3) for the reporting period in which the self-supply of a MURC occurred, would be included in Element F of the SLFI Builder’s SAM formula calculation in subsection 225.2(2).
Element G adjustments related to amounts in respect of GST/HST rebated, refunded or remitted during the reporting period
Element G of the SAM formula is the total of all amounts, each of which is a positive or negative "prescribed amount". For the purpose of the description of Element G of the SAM formula in subsection 225.2(2), a "prescribed amount" is an amount described in paragraphs 46(a) to (j) and amounts determined in paragraphs 55(2)(b) and (c), 60(b) and 63(b) and subparagraphs 59(d)(iii) and 62(d)(iii) of the SLFI Regulations.
Section 46 of the SLFI Regulations describes amounts that are included in the calculation of prescribed amounts for a particular reporting period in a fiscal year that ends in a taxation year of an SLFI and for a participating province.
Paragraph 46(a) describes a prescribed amount as the positive or negative amount determined by the formula:
G1 – [(G2 – G3) x G4 x (G5/G6)]
Adjustments related to the federal NRRP rebate
Subparagraph (iii) of the description of G2 in paragraph 46(a) of the SLFI Regulations includes all amounts each of which is an amount (other than an amount included under subparagraph (i) of the description of G2) that, during the particular reporting period, was rebated, refunded or remitted to the SLFI under any Act of Parliament, to the extent that the amount is in respect of tax under any of subsection 165(1) and sections 212, 218 and 218.01 and was included in the total Element A amounts or in the total for subparagraph (iv) of the description of G7 in paragraph 46(b) of the SLFI Regulations for any reporting period, including the particular reporting period, of the SLFI.
As the amount of the GST or the federal part of the HST that the SLFI Builder is deemed to have paid and collected under subsection 191(3) that is rebated under section 256.2 is an amount that is respect of tax under subsection 165(1) and would be included in Element A of the SLFI Builder’s SAM formula calculation in subsection 225.2(2), the SLFI Builder would make an adjustment to include the amount of the federal NRRP rebate of the GST or the federal part of the HST it received in subparagraph (iii) of the description of G2 in paragraph 46(a) of the SLFI Regulations in the particular reporting period the amount was rebated.
Adjustments related to the provincial NRRP rebate
Subparagraph (iii) of the description of G1 in paragraph 46(a) of the SLFI Regulations includes all amounts each of which is an amount that, during the particular reporting period, was rebated, refunded or remitted to the SLFI under any Act of Parliament (other than the ETA), to the extent that the amount is in respect of tax under subsection 165(2) or section 212.1 and was included in the total Element F amounts for any reporting period, including the particular reporting period, of the SLFI.
Therefore, in the situation described the SLFI Builder would not be required to include any amount in subparagraph (iii) of the description of G1 in paragraph 46(a) of the SLFI Regulations in the particular reporting period as no amount was rebated, refunded or remitted to the SLFI Builder under any Act of Parliament (other than the ETA) with respect to tax under subsection 165(2) that the SLFI Builder is deemed to have paid and collected under subsection 191(3) and that was included in Element F for the reporting period in which the self-supply of a MURC occurred.
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 interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (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.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 902-943-9381.
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 or by fax to 1-418-566-0319.
Yours truly,
Shaun Mutua
Listed Financial Institutions Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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