GST/HST Memorandum 19.5 "Land and Associated Real Property" October 2001

Reconfiguration of lots engages the s. 9(2)(c) exclusion because this requires 2 steps (a consolidation and subdivision into 3 lots)

Example 2

Ms. Fields purchased three separately titled properties that she holds primarily for personal use and enjoyment. The properties are contiguous to one another and share common boundaries as shown in Diagram 1.

Diagram 1

Ms. Fields decides to sell the three properties, but would first like to reconfigure these three pieces of land into three rectangular lots of the same shape and size with each having a separate legal description. She expects this will make them easier to sell. She ultimately ends up with the three properties regrouped as in Diagram 2:

Diagram 2

Would the supply of one of the lots shown in Diagram 2 be an exempt supply of land by an individual or does paragraph 9(2)(c) of Part I of Schedule V apply in this situation?

Generally, in order to give rise to the reconfigured lots as shown in Diagram 2, Ms. Fields would have had to combine the three lots shown in Diagram 1 into a single lot, lot D, with a single legal title (Diagram 1A ) ^{Footnote 2}.

Diagram 1A

Lot D is considered to be one parcel of land. D is then subdivided or severed into three parts described as lots E, F and G. Thus, paragraph 9(2)(c) of Part I of Schedule V applies, and the sale of lots E, F and G would be taxable unless the lot is sold to a former spouse or former common-law partner of Ms. Fields or an individual related to her and the lot is for that individual's personal use and enjoyment.

Overview and example

41. Section 5.2 of Part I of Schedule V to the Act exempts the sale of land (as well as an interest in the land) that forms part of a residential complex where the land is sold without the building. This exemption is provided under the following conditions:

• immediately before the land is sold, the land was being leased on an exempt basis as described by paragraph 7(a) of Part I of Schedule V to the Act, i.e., the land was leased for at least one month to an owner or occupant of a residential unit affixed to the land for use by an individual as a place of residence; and
• if the building and the land were sold together at that time, the sale would have been an exempt sale of a residential complex under any of sections 2 to 5 of Part I of Schedule V.

Example

Several years ago, the Martin family built their family's cottage on land they leased from a property development company for use as a summer residence. The company now sells the half hectare on which the cottage stands to the Martins. This sale of the half hectare is an exempt supply under the terms of section 5.2 of Part I of Schedule V.

Appendix C …

General distinction between a regular business and an adventure

General approach

3. Generally, a sale made in the course of a business may be distinguished from a sale that constitutes an adventure or concern in the nature of trade by the amount of time, attention and resources devoted to the transaction or by the frequency or regularity of similar transactions. In this regard, a sale made as an adventure or concern in the nature of trade usually involves acquiring property on an isolated basis with the primary or secondary intention of resale at a profit and only passive or limited activities related to the resale (i.e., those necessary to facilitate the resale). Regular sales of property or sales made in a business-like manner as demonstrated by extensive marketing and advertising, or the devotion of extensive time, attention and resources to the sale of the property, would normally be considered as sales made in the course of a business. Only in circumstances where the supplier changes or abandons the primary and, where applicable, the secondary intention of resale, would the eventual resale be made neither in the course of a business nor as an adventure or concern in the nature of trade.

Test of whether the sales preparation efforts are the minimum necessary

Acquired without the intention of resale

• Real property that was originally acquired without a primary or secondary intention of resale and that is subsequently sold by an individual or a personal trust, with only passive or limited activities involved in the sale of the property, would be considered as having been made neither in the course of a business nor as an adventure or concern in the nature of trade. A sale of such real property would be exempt under section 9 of Part I of Schedule V, unless one of the other exclusions to the exemption in section 9 applied.
• Where real property that was originally acquired without a primary or secondary intention of resale is subsequently sold by an individual or a personal trust, and there are activities undertaken with respect to the sale of the property, then, depending on the extent of the activities undertaken, the sale may be considered as having been made in the course of a business or on account of capital. Such a sale would not normally be considered as having been made as an adventure or concern in the nature of trade.

  If the activities involved in the sale are minimal, the sale will generally be considered as having been made on account of capital. An example of such minimal activities would be filing a simple subdivision plan for the property in question creating lots similar in size to other lots in the area. If the activities undertaken are required solely for purposes of facilitating the sale, such as providing the minimum amount of services required by existing law, the activities would be considered minimal. If services were installed at a time when the property was intended to be for personal use, they would also be regarded as minimal activities. With such minimal activities, the sale is exempt from GST/HST unless one of the other exclusions to the exemption in section 9 applies, e.g., paragraph 9(2)(c), in spite of the fact that such simple subdivision or minimal services may enhance the value of the land.

Option grant a sale of real property

66. …[A] person may grant another person an option to purchase or lease property. The granting of such rights gives the grantee an equitable interest in the property. The consideration paid for the actual grant of the interest may be considered as being in respect of the sale of the interest but only to the extent such consideration is not paid for the actual use of the underlying property.

Real estate options and air rights are real property, whereas supplies of density rights are not supplies of real property.

Air rights

69. Air rights are part of the bundle of rights that are owned with the land and generally relate to the access to and control of the area above the surface of a property. Rights to the control of and access to the air space above a parcel of real property constitute interests in the underlying real property and therefore, under both the common law and civil law, i.e., in all provinces of Canada, air rights constitute real property for GST/HST purposes. Accordingly, a supply by way of lease, licence or similar arrangement, of the use or right to use these rights also constitutes a supply of real property for GST/HST purposes.

Density rights

70. Density rights, on the other hand, relate to the ability to construct buildings of a particular height or "density" and are matters of municipal regulatory control. A supply of density rights does not constitute a supply of real property.