Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-178

Date of Issue

March 29, 1995

Subject

Adverse Possession of Real Property (Squatter's Rights) in Alberta

Legislative Reference(s):

Excise Tax Act,Subsection 123(1) - definitions of "real property", "sale"; subsection 336(1); Part I of Schedule V to the Excise Tax Act.

National Coding System File Number(s)

11950-1

Effective Date:

January 1, 1991

Notice:

This policy statement discusses the application of the Goods and Services Tax (GST) to transactions between squatters and certified title holders of land in Alberta. This policy statement may not apply in other provinces or the territories unless those jurisdictions have identical legislation governing transfers of title to real property.

Issue and Decision

Persons may obtain adverse possession of real property by meeting limitation periods and other requirements under certain provincial statute. Upon meeting these requirements, the registered owner's rights are extinguished. Legal title, however, is not obtained by the person claiming adverse possession (commonly termed "squatters") until a judgment from the Court is received certifying that the squatter has met the requirements to be granted title to the land and setting out the land to which the claim succeeds. In some cases, rather than obtaining judgment from the Court, the squatter enters into an agreement with the registered owner to transfer legal title to the land to the squatter. The amount paid by the squatter normally relates only to the land and does not include the value of any buildings or improvements to the land constructed by the squatter.

The amount payable by the squatter to the registered owner for the legal title to the land is consideration for a supply of real property by way of sale. Where the squatter has constructed a residential complex on the land in question, the transfer of legal title to the land will be considered a supply of an interest in a residential complex. As a result, the exemptions found in sections 2, 4, 5 or 9 of Part I of Schedule V of the Excise Tax Act("the Act") may apply to exempt the supply. Furthermore, where the registered owner and the squatter enter into the agreement to transfer the title after 1990, subsection 336(1) of the Act will not apply.

ILLUSTRATIVE EXAMPLE

Statement of Facts

Mr. Smith is the registered owner of a parcel of land in Alberta. For the past 30 years, Ms. Young has occupied less than 1 acre of the land owned by Mr. Smith. During that time, Ms. Young built a house on the land and occupied it as her place of residence. Mr. Smith has taken no steps to reclaim the land.

Mr. Smith's title to that part of the land was extinguished prior to 1991 pursuant to sections 18 and 44 of the Alberta Limitation of Actions Act, R.S.A. 1980, c. L-15. Mr. Smith is, however, still the registered owner of the land at the Alberta Land Titles Office.

Mr. Smith and Ms. Young entered into an agreement in 1992 to transfer registered title to Ms. Young of the portion of the land Ms. Young has occupied.

Ruling Requested

1. Is the transfer of title by Mr. Smith to Ms. Young a supply of real property by way of sale?

2. Does subsection 336(1) of the Excise Tax Act apply to the supply?

3. If the supply occurs after 1990, is the supply subject to GST or exempt?

Ruling Given

Based on the above facts, we rule that:

1 The transfer of title by Mr. Smith to Ms. Young is a supply of real property by way of sale.

2. Subsection 336(1) of the Excise Tax Act does not apply since the agreement to transfer ownership of the land was not entered into prior to 1991.

3. The supply is considered exempt under Part I of Schedule V to the Excise Tax Act.