Dear XXXXX
This is in reply to your letter of April 30, 1996, in which you request an "informal ruling" on the application of the GST on a client of yours that is constructing a retirement residence.
Please note that we do not provide "informal rulings". We do provide application rulings and interpretations, and requests for these should be made to your local tax services office. The address of the XXXXX office is provided below.
Because of the time constraints that your client is facing, as you advised in a recent telephone conversation, and with the concurrence of the XXXXX office, we will provide the following general comments for your assistance.
You should be aware that, generally, a builder of a residential complex is entitled to full input tax credits during construction phase of the complex. However, section 191 of the Excise Tax Act applies to newly constructed or substantially renovated residential complexes once they are rented or otherwise occupied as places of residence before being sold. At that time, the builder must "self supply" on the fair market value of the residential complex (a residential complex includes that part of a building containing residential units), thereby remitting GST based on this amount. These rules ensure that the value-added by the builder is taxed; any subsequent sale may be exempted under Part I of Schedule V of the Act. Builders who are public service bodies may be entitled to a rebate of the tax deemed to have been paid upon the self supply.
During the period that an occupied building is used for making both taxable and exempt supplies, input tax credits may be claimed to the extent that inputs are used to make taxable supplies. However, if the claimant is a public service body, entitlement to real property inputs will be based on how the property is "primarily" used.
The method used to determine the extent to which inputs are used to make taxable supplies must be "fair and reasonable and used consistently ... throughout the year." Generally, in determining the usage of a building, a method based on square footage (i.e. floor area) would be appropriate.
The preceding comments are very general and are not meant to apply to the brief fact situation that you have described. However, we would note that your analysis does not appear to take into account the possible application of section 191.
For your assistance, we are enclosing the information guide "Residential Builders and Land Developers". If you require an application ruling or an interpretation of any of the provisions briefly described above, please contact the XXXXX Tax Services Office at XXXXX.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J. Bain
M. Place
XXXXX |
File #11950-5
Ref. 25/VI/V
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