14 February 2008 GST/HST Ruling 101936 - XXXXX Shake XXXXX

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.

Dear XXXXX:

This is in response to your XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of new townhouses to be used for rental purposes by the purchaser. This letter will also address your inquiry concerning the GST/HST new residential rental property (NRRP) rebate and a builder's ability to pay or credit this rebate to the purchaser.

All legislative references are to the Excise Tax Act (ETA) and the regulations there under, unless otherwise specified.

We understand that a builder has entered into an agreement with a purchaser to supply townhouses (building and land) located in a participating province. The agreement provides that the GST/HST new housing rebate is to be assigned to the builder. Upon the acquisition of the townhouses, the purchaser intends to lease these townhouses to the general public for the purpose of their occupancy as a place of residence by an individual where the individual will continuously occupy the townhouse for a period of at least one month. Based on the limited information available, we are providing the following interpretation and suggest that the builder contact their local GST/HST Rulings Centre for a more definitive response that would be based on all of the facts of the particular situation.

Interpretation Requested

You would like to know: the tax status of the sale of new townhouses; whether the purchaser may claim an input tax credit (ITC); and whether the purchaser can self-assess based on the value of the townhouses. Your inquiry also addresses the availability of the NRRP rebate and the builder's ability to pay or credit this rebate to the purchaser.

Interpretation Given

Generally, a supply of real property made in Canada, including a supply of a new residential complex made by a builder is subject to GST/HST unless the supply is exempt. Part I of Schedule V to the ETA sets out certain exempting provisions for supplies of real property.

A "residential complex" is defined in subsection 123(1) to include:

•   a building or that part of a building in which one or more residential units are located, along with certain other areas such as common areas of the building, appurtenances to, and land subjacent and immediately contiguous to the building that are reasonably necessary for the use and enjoyment of the building as a place of residence for individuals.

Since the place of supply is in a participating province, the builder is required to collect HST from the purchaser in respect of a sale of a residential complex unless the sale is exempt. Based on the information provided, it is unlikely that the supply of the residential complex made by the builder would be exempt. If the purchaser is not an individual and the purchaser is registered for GST/HST purposes, subsection 221(2) provides that the builder will not be required to collect the GST/HST in respect of the sale of the residential complex. In this case, the purchaser is required to pay the tax owing on the sale directly to the Receiver General and report that tax in a return to be filed with the CRA.

With respect to the claiming of ITCs, the purchaser is not entitled to claim ITCs for the HST paid or payable in respect of the purchase of the residential complex, as the complex will be used in exempt activities. The lease of a residential complex is exempt under section 6 of Part I of Schedule V to the ETA where the complex is leased for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex is given to that individual under the lease is at least one month. Although the purchaser is not entitled to claim an ITC, the purchaser may be entitled to claim the NRRP rebate under section 256.2 to recover part of the GST/HST paid on the purchase of the residential complex. The purchaser can refer to the guide GST/HST New Residential Rental Property Rebate (RC4231) available on the CRA Web site for detailed information on the conditions for claiming this rebate.

XXXXX the agreement between the builder and the purchaser provides that the GST/HST new housing rebate is to be assigned to the builder. Please note that the GST/HST new housing rebate can never be assigned to the builder. The ETA provides a mechanism where in certain cases, a purchaser who is an individual can give their GST/HST new housing rebate application (e.g., a rebate application for the purchase of a single unit residential complex by an individual for that individual's use as their primary place of residence made under section 254) to the builder and the builder can pay or credit the amount of the rebate to the purchaser. The builder will then submit the rebate application to the CRA in accordance with subsection 234(1) and deduct an amount equal to the rebate amount paid or credited to the purchaser in determining the builder's net tax. This is not an "assignment" of the rebate.

In this case, the purchaser may be entitled to claim the NRRP rebate. There is no mechanism in the ETA to allow the builder to pay or credit this rebate to the purchaser. The purchaser must file the NRRP rebate application directly with the CRA and the rebate amount will be paid to the purchaser by the CRA.

The foregoing comments represent our general views with respect to the subject matter of your request. 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.

If you require clarification with respect to any of the issues discussed in this letter, please call me at (613) 952-1512 or Marcel Boivin at (613) 954-3772.

Yours truly,

Doretta Guoti-Thomas
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2008/03/06 — RITS 102760 — Temporary Importation of XXXXX Equipment