Dear XXXXX
This concerns your facsimile message of December 21, 1995, to Mr. John Bain and Mr. Don Dawson, concerning supplies of co-operative housing that the XXXXX is contemplating.
Facts
1. The XXXXX is a non-profit organization which is not incorporated and is not registered for GST.
2. The Society intends to construct a seniors co-operative housing development on vacant, unused land owned by XXXXX XXXXX. Upon commencement of the construction of the project, the City will sell the land to the Society for the sum of XXXXX, on condition that the land only be used for housing seniors.
3. The Society will be purchasing construction materials and contractors' construction services in order to construct the units. Phase I involves the construction of XXXXX duplexes containing a total of XXXXX units, at an approximate total cost of XXXXX[.]
4. Upon completion of the XXXXX duplexes, individual seniors will purchase one share of the project, for an amount equal to the quoted unit price. The unit price includes an appropriate percentage of sight development costs and unit construction costs. The price of some of the units is increased by XXXXX percent, in order to subsidize the price of other units.
5. Each person who purchases a share will receive one vote in the project's operations, and the right to occupy one specific residential unit in the project for the rest of their life, unless evicted for cause. However, the Society will retain title to the real property. The sale of shares does not result in any change of property title.
6. The "sale" of the share will be subject to certain restrictions. Only the individual shareholder will have a right to occupy the unit, and he or she will not be permitted to sublet the unit without the permission of the Society. If a shareholder wishes to sell his or her share at some future date, he or she will be obliged to sell it back to the Society, rather than selling it on the open market. If the occupant wills his or her share to another person, the heir will be required to sell the share back to the Society, rather than having a right to retain the share and occupy the unit.
Issues
1. You asked us to review your draft letter to the Society, and to comment on whether we agreed with its conclusions.
2. You questioned whether individuals who purchase shares in the project can claim rebates of GST pursuant to subsection 255(2) of the Excise Tax Act (ETA), when the co-operative housing society is not incorporated.
Response
1. Since none of the transactions at issue have occurred yet, and remain subject to change, we cannot provide a definite response concerning your draft letter. However, we will try to provide some useful guidelines for the type of situation you are referring to in your letter.
If the taxpayer requests an advance ruling or an application ruling, please refer to GST Memorandum 1.4 in the new Memoranda series for details as to how the issue should be handled.
We agree with the statements in your draft response, to the effect that the sale of vacant, unused land by the City to the Society will be exempt of tax pursuant to section 25 of Part VI of Schedule V to the Excise Tax Act. We also agree that the Society will be required to pay GST on the cost of construction materials and on the cost of construction services acquired from persons who are not employees of the Society.
In the proposed situation under discussion, we agree that the "sale of shares" in the project would appear to be a supply of an interest in a specified piece of real property, rather than a supply of shares by way of sale. However, in cases where an individual pays a single amount for the right to live in a specific residential unit for the rest of his or her life, it is not always a supply of real property by way of sale. In the case at issue, since the title to the real property does not pass from the supplier to the recipient, and the recipient's right to occupy the residential unit is limited to his or her lifetime, the proposed "sales" of the shares appear to be similar to leases of real property, rather than sales of real property.
When supplies of residential units in a new multiple unit residential complex are made by way of lease, licence or similar arrangement, subsection 191(3) of the ETA will apply. It requires the supplier to self-assess on the fair market value of a multiple unit residential complex when the supplier first takes possession of a residential unit for the purpose of its occupancy as a place of residence, provided the complex is substantially completed. The supplier would then be entitled to claim input tax credits in respect of GST paid on inputs relating to the self-supply.
In such circumstances, if the supplier is a public service body, its supply of real property made by way of a lease for at least one month would be tax exempt, pursuant to section 25 of Part III of Schedule V to the ETA. Since this supply is exempt, the supplier would not be entitled to claim input tax credits in respect of additional inputs that pertain to the cost of leasing the residential unit, as distinct from the cost of its construction.
2. The individuals purchasing shares in the co-operative housing association will not be entitled to claim co-operative housing rebates pursuant to subsection 255(2) of the ETA if the association becomes a corporation prior to selling the shares to the individuals. Subsection 255(2) clearly states that individuals can claim co-operative housing rebates only if they receive a supply of a share in a co-operative housing corporation.
If you require any further information concerning this matter, please contact Mr. Don Dawson at (613) 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11870-4
Ref: s. 254
Document #1576
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