c.n. 2430(JB)
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Subject:
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Application of GST to a Supply of Real Property
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This is in response to your facsimile of November 24, 1995, to the Office of the Minister of National Revenue, and further to your November 27, 1995, telephone conversation with John Bain of the Real Property Unit, in which you request our assistance in determining whether a particular supply of real property by way of sale is subject to GST.
Statement of Facts
1. A company owns a small island, XXXXX acres in size, which is part of the XXXXX. The company is not registered for GST purposes.
2. The island, which the company has owned for approximately XXXXX years, is capital property of the company.
3. In early 1991, the shareholder of the company entered into a lease agreement with the company to lease the entire island for personal recreational use. The payments arising in respect of the lease agreement are made for consideration equal to their fair market value.
4. The shareholder constructed a residence on the island. The construction of the residence was paid for by the shareholder and the shareholder is responsible for the ongoing maintenance of the residence.
5. No input tax credits were claimed with respect to the construction of the residence.
6. The shareholder has occupied the residence for recreational purposes from time to time since 1991.
7. Neither the island nor the residence have been used in a business by the shareholder; that is, the property has never been rented to other persons.
8. The company now wishes to sell the island. As such, the shareholder is required to surrender his lease agreement in exchange for a payment of funds equal to moneys expended by the shareholder for construction of the residence.
Interpretation Requested
Is the sale of the island and the residence by the company to an arms-length third person subject to GST?
Interpretation Given
The island and the residence together constitute a "residential complex" as defined for GST purposes under subsection 123(1) of the Excise Tax Act (the "Act"). Furthermore, the company is not considered to be a "builder" as defined under that same subsection. As such, the sale of the island and the residence by the company to an arms-length third person would be exempt from GST by virtue of section 2 of Part I of Schedule V to the Act. This section exempts from GST the sale of a "residential complex" by a person other than a "builder" provided no input tax credits in respect of the acquisition or improvements thereto have been claimed by the person.
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced, proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in the GST Memoranda Series, Chapter 1, Section 1.4, do not bind the Department with respect to a particular situation.
Should you have questions or require clarification of any of the above, please contact John Bain at (613) 954-8852.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
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John Bain
W. McCloskey
Director General
GST Rulings and Interpretations
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File: 11740-1; 11755-1(lhk)
Leg. Ref: ss.152, 168, s. 123(1) - supply, consideration
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