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: 246050
Dear [Client]:
Subject: GST/HST INTERPRETATION
Assignment of an interest in real property and direction of title change
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the assignment of an interest in real property and direction of title change. We apologize for the delay in 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.
STATEMENT OF FACTS
We understand the following from the documents you provided and your telephone conversations with […][a CRA official] of our office:
1. You entered into an agreement of purchase and sale for a pre-construction condominium unit (Unit 1), jointly with […][family member 1], in [yyyy]. Unit 1 was intended to be used as your […][family member]’s primary residence after […][graduating] from […][school] in [yyyy]. However, [family member 1] found a job in […][another location], where he is currently working.
2. […][Family member 2], individually, also entered into an agreement of purchase and sale for a pre-construction condominium unit (Unit 2) in [yyyy]. The intended use of Unit 2 is for investment as a rental property, to be used as a place of residence for individuals.
3. The final closing dates for both Unit 1 and Unit 2 were scheduled for the [yyyy], however the final closing dates were postponed.
4. You and [family member 2] would like to make changes so that you will jointly own both Unit 1 and Unit 2, which will be held as rental properties to be used as places of residence for individuals.
5. The builder suggested that you could make changes to jointly own the units by either entering into an assignment agreement or pursuing a letter of direction.
RULINGS REQUESTED
You would like to know:
1. whether a title change by way of letter of direction will result in ineligibility for the new residential rental housing rebate, as the name(s) on the agreement of purchase and sale will not match the title of the property
2. whether an assignment of the interest in the units between […][family members] will be considered to be a sale for GST/HST purposes.
In accordance with GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretation Service, the Canada Revenue Agency (CRA) will not issue a ruling when it is inappropriate to do so, such as where a request contains alternative courses of action on the part of the person requesting the ruling. In this case, we consider that an interpretation is more appropriate.
INTERPRETATION GIVEN
Direction of title change
In the context of real property, a “letter of direction” is typically a document used to authorize or instruct a third party, such as a title company or a lawyer, to initiate a title change or transfer of ownership for a property. A direction of title change is considered to be a supply of real property or an interest in real property.
Supplies of real property situated in Canada, which includes a supply of an interest in real property, are taxable supplies and are subject to the GST/HST, unless they are specifically identified as being exempt. Part I of Schedule V contains provisions that may apply to exempt certain supplies of real property. Generally, there are no exemptions that apply for newly constructed real property.
Assignment Sale
An assignment sale is a situation where a person enters into a purchase and sale agreement with a builder for the construction and sale of a new house, and the person subsequently assigns their rights and obligations under the agreement to another person (an assignee).
Generally, upon entering into an agreement for the construction and sale of a new house, the first purchaser is considered to have acquired an interest in the house. For GST/HST purposes, the assignment of the agreement to the assignee purchaser is normally considered to be a sale of the first purchaser's interest in the new house.
Pursuant to section 192.1, all assignment sales in respect of newly constructed or substantially renovated single unit residential complexes or residential condominium units are taxable, where the assignment of the agreement of purchase and sale was entered into after May 6, 2022.
For more information, refer to GST/HST Info Sheet GI-120, Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit and GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales.
Non-arms length transactions
Section 155 provides that where a supply of property or a service is made, between persons not dealing with each other at arm's length for consideration that is less than the fair market value of the property or service at the time the supply is made or for no consideration and the recipient of the supply is not a registrant who is acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities, then:
(a) if no consideration is paid for the supply, the supply is deemed to be made for consideration, equal to the fair market value of the property or service at that time; and
(b) if consideration is paid for the supply, the value of the consideration is deemed to be equal to the fair market value of the property or service at that time.
"Related persons" are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership, legal adoption or adoption in fact.
Fair market value (FMV) is defined in subsection 123(1) of the Act as meaning the FMV of the property or service without reference to any tax excluded by section 154 of the Act. Generally, the CRA’s position is that FMV represents the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact.
For more information, refer to GST/HST Policy Statement P-165R, Fair Market Value for Purposes of Part IX of the Excise Tax Act.
GST/HST New Residential Rental Property Rebate
Subsection 256.2(3) sets out the conditions for the new residential rental property (NRRP) rebate in respect of the federal part of the GST/HST paid by a person on the taxable purchase (or the deemed self-supply) of a newly constructed residential complex for supply as long-term residential rental accommodation.
The particular person (purchaser/landlord) may qualify for the NRRP rebate where they:
* purchased taxable new housing, such as a residential condominium unit, which was a qualifying residential unit at the time the GST/HST became payable;
* leased the new housing for long-term residential use by individuals as their primary place of residence, and it is reasonable to expect that the housing will be their primary place of residence for at least one year;
* paid the GST/HST on the purchase of the new housing and were not entitled to claim an input tax credit for the GST/HST they paid on their purchase;
* the FMV of the qualifying residential unit at the time tax became payable on the purchase was less than $450,000.
Paragraph (a) of the definition of qualifying residential unit in subsection 256.2(1) requires the person to be the owner, a co-owner, a lessee or a sub-lessee or to have possession as purchaser under an agreement of purchase and sale, or the residential unit must be situated in a residential complex of which the person is, at or immediately before the particular time, a lessee or a sub-lessee.
In a situation where a group of persons is applying for the NRRP rebate, the group would not be treated as the person applying for the NRRP rebate. Each person would be treated separately and would have to meet the eligibility requirements for that person to claim the NRRP rebate. As such, if one person does not meet all the eligibility requirement, it will not preclude the other person(s) from qualifying for the rebate, provided that the other person(s) meet all the eligibility requirements.
A person who qualifies for an NRRP rebate may also be eligible to claim an Ontario NRRP rebate for a portion of the provincial part of the HST, if the subject property is situated in Ontario. The above conditions, except for the $450,000 maximum, also apply for the Ontario NRRP rebate.
For more information on the NRRP rebate or the Ontario NRRP rebate, refer to Guide RC4231, GST/HST New Residential Rental Property Rebate.
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 1-833-451-1587.
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,
Ahmed Msougar, CPA
Rulings Officer
Real Property Unit 2
Financial Institutions and Real Property
GST/HST Rulings Directorate
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