XXXXX
As per your E-mail request of August 17, 1994, we have reviewed the draft response concerning the application of the GST New Housing Rebate with respect to the case at hand and provide the following comments for your consideration. We apologize for the delay in our response.
Statement of Facts
Our understanding of the facts are as follows:
1. A builder, who is a GST registrant had begun constructing a single unit residential complex as a spec home.
2. Before the home was totally completed, the builder went into receivership and abandoned the job. At this time, the home was 80 % complete.
3. The home was taken over by a credit union which had a first mortgage on the property. The credit union disposed of the property in question for XXXXX plus GST under a Power of Sale provision contained in the first mortgage.
4. You have advised that the intention of the individual purchasers is to complete the construction of the residential complex for use as their primary place of residence.
Interpretation Requested
You wish to know whether the individuals who purchased the partially completed residential complex are entitled to a GST new housing rebate pursuant to section 256 of the Excise Tax Act (the "Act") and, if so, whether they are entitled to claim a rebate on the GST paid on the acquisition of the partially completed residential complex or merely on the additional costs incurred to complete the home (i.e. 20%) or both.
Interpretation Provided
As all the conditions outlined in subsection 256(2) of the Act appear to be satisfied, one of the individuals may apply for the GST new housing rebate with respect to a portion of the GST paid to both the credit union on the acquisition of the partially completed residential complex and to others on the expenditures necessary to complete the construction of the complex.
Comments
It should be noted that a GST new housing rebate under section 254 of the Act is not available because ownership of the complex was transferred to the individuals before the construction of the complex was substantially completed. Therefore, eligibility for the GST new housing rebate must be considered under section 256 of the Act.
Four conditions must be satisfied under section 256 of the Act in order for a GST new housing rebate to be paid in respect of a newly constructed residential complex:
1) an individual must construct, or engage someone to construct, a single unit residential complex for use as a primary place of residence of the individual or a qualifying relative;
2) the fair market value of the complex (house and land) must be less than $450,000;
3) GST must have been paid on the land and/or construction materials and contracting services; and
4) either the individual or a qualifying relative must be the first occupant of the complex, or if the individual makes an exempt sale of the complex, ownership must be transferred before it is occupied as a place of residence.
The main issue with respect to the scenario discussed in this letter is the first condition outlined above: Did the individuals construct, or engage someone to construct, a single unit residential complex?
Given the particular circumstances of this case, the purchase of a residential complex before it is substantially completed will administratively be considered part of the construction of a new residential complex by the individuals, along with the necessary goods and services to complete the residential complex. Therefore, assuming the individuals satisfy all of the remaining conditions outlined in subsection 256(2) of the Act, one of the qualifying individuals may apply for a GST new housing rebate in respect of a portion of the tax paid to both the credit union and the suppliers of the goods and services necessary to complete the construction of the home. A policy paper will be forthcoming on this subject.
If ownership of the residential complex was acquired from the credit union after it was substantially complete (currently considered to be 90% or more) as opposed to 80% complete, section 256 of the Act would generally not allow a GST new housing rebate to the individuals. Where all of the conditions of subsection 254(2) of the Act were satisfied, a GST new housing rebate under section 254 would be available. Ordinarily, where individuals acquire a substantially completed residential complex from a builder, it can not be said that the individual constructed or engaged another person to construct a residential complex which is a requirement of subsection 256(2)(a) of the Act. An exception may arise where an individual enters into an agreement of purchase and sale with a "builder" for a residential complex which did not already exist; in such a case, the individual may be considered to have engaged the "builder" to construct the house and, therefore, qualify for a GST new housing rebate under section 254 or 256 of the Act. If the builder paid or credited a rebate to the purchaser, the rebate would only be available under section 254 assuming the conditions thereof are satisfied.
Should you require further information, or have any questions regarding this matter, please contact John Bain at (613) 954-8852.
Stanley Farber
Manager
Real Property Tax Policy
Special Sectors
GST Policy and Legislation
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Chantal Quesnel
Stan Farber
John Bain |
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