29 June 1999 GST/HST Interpretation HQR0001471 - Self-supply Provisions

We are writing at the request of XXXXX in response to an E-mail message dated November 17, 1998 with the attached Case Summary from XXXXX has requested our view as to whether the self-supply provisions of the Excise Tax Act (ETA) apply with respect to certain transactions disclosed in the Case Summary provided.

Statement of Facts

From the Case Summary provided the following are the key facts of the issues for which the interpretation of the ETA is sought.

1. XXXXX is a company incorporated and registered for GST/HST purposes.

2. XXXXX purchased a XXXXX lot in XXXXX which is located at XXXXX[.]

3. Following the purchase of the XXXXX constructed a building containing four residential units for the purpose of supplying these units by way of sale in the course its business.

4. XXXXX of a "multiple unit residential complex" as defined in subsection 123(1), respectively.

5. XXXXX business plan to sell the units was frustrated by the fact that they could not obtain legal consent to further XXXXX[.]

6. As a result the XXXXX which did not designate or describe the building containing the four residential units or any part thereof. Additionally, each of the four residential units could not be sold by way of a transfer of a fee simple interest.

7. Alternatively, XXXXX chose to market the units by:

•   selling shares of the company in proportion to the size of the unit acquired (e.g. XXXXX[).]

•   executing a shareholder agreement with each new shareholder documenting that the person will be given a XXXXX lease granting the shareholder the exclusive right to occupy a particular unit.

8. According to a land title search, the leases of these units were subsequently registered against the title to the land.

9. XXXXX one of the units in the complex was supplied by way of lease to XXXXX[.]

10. During XXXXX occupancy of the unit he was involved in the construction of a residential complex located across the road from the subject complex.

11. Other supplies of each unit occurred as follows:

•   XXXXX

•   Transferred by way of lease to XXXXX

•   Transferred by way of lease to XXXXX

•   XXXXX did not charge or collect GST as XXXXX were registered for GST effective March 25, 1997.

(XXXXX assumed that there was no requirement to collect GST on what was thought to be a sale of real property as purchaser was registered for GST/HST purposes.)

•   GST registration information states that XXXXX intended business activity is commercial rental of the XXXXX Small amounts of GST and ITCs were reported by XXXXX on a GST Return filed for the period ending December 31, 1997.

XXXXX

•   Transferred by way of lease to XXXXX[.]

•   XXXXX collected GST of $ XXXXX and reported it on its GST return for the period ending XXXXX[.]

•   XXXXX led a New Housing rebate application for the GST paid. The rebate was denied by way of assessment on the basis that the property acquired was not subject to GST.

XXXXX

•   Transferred by way of lease to XXXXX[.]

•   XXXXX did not charge GST for the same reasons as stated for XXXXX above.

•   GST was accounted for by XXXXX [i]n the same manner as for XXXXX above.

12. XXXXX [I]n accordance with subsection 191(3) of the ETA as follows:

Issues

At issue is whether the first occupancy of a residential unit in the building triggered self-supply under subsection 191(3) of the ETA. That is whether XXXXX is considered to have obtained possession of a residential unit in the building under a lease, licence or similar arrangement for the purpose of occupying the unit as a place of residence. In addition, whether or not self-supply occurs, the second issue is what are the GST consequences arising from the remaining events and transactions described in the Statement of Facts.

Comments

Place of Residence or Lodging

It is our view that the occupancy of a residential unit in the building by XXXXX was for the purpose of his use of the unit as his place of residence.

The facts support that XXXXX occupied his unit as a place of residence even though individuals other than XXXXX may have occupied units solely as places of lodging.

Policy Paper P-130 (historical) and Memorandum Series 19.2 list factors to be used as a guideline in determining whether the residential unit is a place or residence or lodging. In this case the following factors support that XXXXX occupied the unit as a place of residence:

•   the unit was XXXXX only residence at the time of his occupancy,

•   XXXXX leased the unit, as opposed having occupied it under a licence (such as a hotel room),

•   XXXXX mailing address was general delivery to the area where his rental unit was located, and

•   the telephone listing for the unit was in the name of XXXXX corporation.

Further, it is significant to note that although XXXXX may not have intended to occupy the unit for an indefinite period of time such a factor is not relevant for the purpose of determining whether the unit was his place of residence. Rather the relevant factors in this regard are whether XXXXX occupied the unit and whether he intended to occupy the unit for an appreciable period of time.

Policy Paper P-130 states that:

"The reasons for residing in a certain place, as well as leaving, may be important in determining whether an individual's abode is that individual's "place of residence".

For example, when a person is temporarily relocated for work purposes, (and possibly staying in hotel type premises) or where there is a sudden unforeseen departure, the abode may still be considered a person's place of residence, even though the other factors may not be present."

In this case XXXXX purpose for occupying the unit was to reside across the road from the location where he was building a residential complex. Consequently, it is reasonable to conclude that XXXXX intended to occupy the unit for a period of time commensurate with the time required to complete these work activities.

Also, XXXXX actual term of occupancy was for period in excess of six months, which is an appreciable period of time.

Even though such factors as:

•   the unit was furnished by the owner and not the tenant, and

•   the lease intervals were short term (i.e. a month-to-month tenancy),

suggest that the unit was something other than XXXXX place of residence, when considering all of the relevant factor XXXXX occupied the unit as a place of residence and not as his place of lodging.

Self-supply

Since XXXXX was the first individual to occupy a unit in the complex as place of residence and since construction of the complex was substantially completed prior to XXXXX occupancy, all of the conditions of self-supply under subsection 191(3) of the ETA were met. As a result XXXXX was deemed to have made and received a taxable supply by way of sale of the entire complex at the time that Mr. XXXXX received possession of the unit he so occupied.

Input Tax Credit Entitlements

Since subsection 191(3) of the ETA applies to the entire multiple unit residential complex, the builder would be entitled to claim input tax credits (ITCs) on goods and services acquired for the purpose of constructing the complex prior to the deemed sale under self-supply.

ITC entitlements with respect to the tax deemed paid on self-supply (noted above) as well as with respect to ongoing operating costs incurred by XXXXX in relation to the use of the complex will depend upon the extent to which the long-term leases of the units are, or are not, taxable supplies.

Long-Term Leases Subsequent to Self-Supply

Subsequent to self-supply of the entire complex the four residential units were supplied by way of lease for periods of XXXXX, with XXXXX unit having been so supplied following his term of occupancy. The supply of these units are taxable supplies of real property in accordance with paragraph (c) of the definition of commercial activity in subsection 123(1), unless an exemption applies.

With respect to exemptions, paragraph 6(a) of Part I of Schedule V would only apply to exempt such a long-term lease of a residential unit where the purpose of the lease is to enable an individual to continuous occupancy the unit for as period of one month or more.

Also, paragraph 6(b) of Part I of Schedule V would only apply in this case where:

•   the purpose of the supply described in paragraph 6(b) is for the individual, as lessee, to occupy the unit as a place of residence or lodging as opposed to re-supplying the unit in the course of a business, and

•   the consideration for the supply described in 6(b) does not exceed $20 for each day of occupancy.

Therefore, based upon the facts noted above, it would appear that the supply by way of lease of XXXXX are not exempted by either paragraphs 6(a) or 6(b) of Part I of Schedule V, since the lessees appear to have acquired these units for the purpose of re-supplying them by way of lease, licence, or similar arrangement, on a taxable basis.

In addition, it is for this same reason that section 6.1 will not apply to exempt the supplies made by XXXXX by way of lease.

The tax status of the leases of XXXXX however is not certain due to the insufficiency of facts. For example, if one assumes that the lessees' intend to use their respective units as their own places of residence or lodging (as would appear to be the case for XXXXX then the supplies made by XXXXX. would likely be exempt in accordance with paragraph 6(b) of Part I of Schedule V on the basis that the consideration for these supplies would not likely exceed $20 for each day of occupancy.

Although the lease of the unit made by XXXXX would be exempt in accordance with paragraph 6(a) of Part I of Schedule V, the subsequent supply of this same unit by way of lease for a term of XXXXX may be exempt or taxable depending upon the analysis noted above for Units XXXXX[.]

Change-in-Use

Should the long-term lease of XXXXX unit subsequent to his lease be taxable, there would be GST consequences arising from the change-in-use rules with respect to the entire complex.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Mr. Daryl Hooley at (613) 954-8852.

J. Sitka
Director
Financial Institutions
and Real Property
GST/HST Rulings and Interpretations

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