Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
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Case Number: 77041
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XXXXX
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March 06, 2007
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Subject:
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GST/HST RULING
Sale of Real Property XXXXX
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Dear XXXXX:
Thank you for your correspondence XXXXX and our several telephone conversations concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a sale of real property by XXXXX to XXXXX.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
Statement of Facts
We understand from this correspondence and our telephone conversations that:
1. Individuals A & B XXXXX purchased a commercial rental building prior to the implementation of GST/HST.
2. The building is rented to commercial tenants.
3. The tenants on the property do their own leasehold improvements.
4. The tenants are XXXXX and XXXXX.
5. Individuals A and B look after maintenance and repairs to the building.
6. They registered for HST XXXXX when rental income surpassed $30,000.
7. Individuals A and B have registered for the HST as a partnership XXXXX.
8. They have been collecting HST and claiming input tax credits (ITCs) for HST paid on expenses related to the building.
9. There is no written partnership agreement.
10. The individuals have not registered as a partnership under the Partnerships and Business Names Registration Act of XXXXX.
11. Individuals A and B do not file a partnership information return concerning income from the property for income tax purposes.
12. They treat expenses XXXXX and split the income XXXXX.
13. Income and expenses for the building are recorded on the personal tax returns of individuals A and B, e.g., each takes CCA on his own share of the building.
14. The bank statement for the joint bank account and a void cheque for that account display no trading name other than the names of individuals A and B.
15. There are no leases.
16. There are no mortgages and thus, no mortgage documents.
17. Individual A sold his XXXXX% of the building to individuals C & D XXXXX.
18. Individuals C and D XXXXX will hold their portion of the property as joint tenants.
19. They will hold title to their XXXXX of the property as tenants in common with individual B.
20. Individual D is XXXXX.
21. Individual A is XXXXX.
22. Individual D owns a corporation that is registered but she personally is not.
23. The building will continue as a commercial rental building.
Ruling Requested
You would like to know if the vendor (individual A) collects HST from the purchasers (individuals C and D).
Ruling Given
Based on the facts set out above, if the purchasers are registered for the HST, they would report the HST. If the purchasers are not registered for the HST, the vendor collects HST from the purchasers.
Explanation
Given the facts listed above regarding the interactions of XXXXX and XXXXX in respect of their common property, it is our view that the relation between XXXXX and XXXXX is that of co-owners looking after their interests as tenants in common and the sale of the real property is a sale of a real property by the individual, XXXXX.
However, XXXXX and XXXXX have registered with the HST as a partnership instead of as individual co-owners and therefore some straightening out will need to take place with the local tax services office. We recommend that you contact XXXXX.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect their validity, and all relevant facts and transactions have been fully disclosed.
Interpretation Requested
You would like to know if the purchasers are able to claim an ITC for the HST paid or payable to acquire the property.
Interpretation Given
If purchasers of real property are registered for the HST and are using the real property exclusively in their commercial activity, they claim the ITC for the HST paid or payable to acquire the real property, provided the other requirements for claiming an ITC are met. If purchasers are not registered but are going to do so, they may be entitled to claim ITCs for the HST on the real property when they become registrants. Where purchasers are small suppliers, they are not required to register for the HST, however, only persons who are registrants are entitled to claim ITCs.
A person is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person at the beginning of the particular calendar quarter) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000 or, where the person is a public service body, $50,000.
When a person who is a small supplier becomes a registrant, the person is deemed to have acquired all property used in his/her commercial activities immediately after that time and to have paid GST/HST on such property. The amount of tax deemed paid is equal to the basic tax content of the property [xxiii]footnote 1.
Where a person acquires (or is deemed to have a acquired) property and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property is paid by the person (which includes amounts deemed to have been paid by the person), that person may be eligible to claim an ITC in respect of the GST/HST to the extent (expressed as a percentage) the property was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities, provided the other requirements for claiming an ITC are also met.
These comments represent our general views with respect to the subject matter of the requested interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4394.
Yours truly,
Doris McMullan
Corporate Reorganizations Unit
Financial institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2007/03/21 — RITS 77999 — Definition of "Practitioner" in Part II of Schedule V to the Excise Tax Act
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