CRA indicates that a direction letter to change how title is conveyed at closing gives rise to a real estate supply for GST/HST purposes

An individual agreed to purchase a pre-construction condominium unit for personal purposes, and a related individual agreed to purchase a second such unit for rental as a residence. Now, before the closing of the purchases, the two individuals would like to jointly own both units for rental as places of residence for individuals. This would be done by entering into agreements to assign rights and obligations respecting their purchase agreements, or issuing a letter of direction for title to be transferred on this basis.

CRA indicated that:

• a direction of title change is considered to be a supply of real property or an interest in real property and that, generally, there are no exemptions that apply for newly constructed real property;
• the assignment by the purchaser of the agreement is normally considered to be a sale of that first purchaser's interest in the new unit which, pursuant to s. 192.1, would be deemed to be a taxable supply; and
• pursuant to s. 155, there would be deemed FMV consideration for such taxable supplies if the recipient in each case was not a registrant who acquired the property for consumption, use or supply exclusively in the course of commercial activities.

CRA did not discuss what this meant. For instance, it might mean that an amount equal to ½ the value of any embedded deposit plus ½ of any appreciation in the underlying property at the time of the direction or assignment would in each case be subject to GST/HST that would not be creditable to the recipient.

Neal Armstrong. Summaries of 2 May 2024 GST/HST Interpretation 246050 under ETA s. 123(1) – supply and s. 256.2(3).