2 May 2000 GST/HST Interpretation 8068/HQR0001674 - Sale of Residential Complex

Thank you for your letter of February 26, 1999, your file XXXXX, addressed to XXXXX concerning the sale of a ten acre parcel of real property.

All legislative references are to the Excise Tax Act (the Act).

Statement of Facts

Our understanding of the relevant facts is as follows:

1. XXXXX were the owners in joint tenancy of a XXXXX[.]

2. One ten acre parcel (the Parcel), whose legal description is XXXXX XXXXX was subdivided from the quarter-section in XXXXX. This was the only subdivision that occurred with respect to this quarter-section.

3. Shortly after subdivision, a house was moved from other real property and relocated onto the Parcel. The XXXXX intended to lease the Parcel to persons as a place of residence and the Parcel was subsequently leased to tenants by the XXXXX for that intended purpose. The tenants occupied the house as a place of residence.

4. It is your understanding that the Parcel remained zoned Agricultural Conservation after the subdivision, the same as it was prior to subdivision. You have indicated that the council of the municipality in which the Parcel is situated generally did not allow subdivisions of less than ten acres, unless extenuating circumstances arose where smaller parcels of between eight and ten acres were permitted. Once property is subdivided, there are a number of permitted and discretionary uses allowed as specified in paragraphs 8.2.1 and 8.2.2 on page 69 of the documents you submitted.

5. XXXXX[.] The GST was charged on the consideration for eight of the ten acres sold to the XXXXX.

Issue

You are enquiring as to what portion of the Parcel would be included in the residential complex when sold by the XXXXX.

Response

The GST Implications Relating To The Movement Of A Building That Previously Formed Part Of A Residential Complex

Under policy P-154, "The GST Implications Relating To The Movement Of A Building That Previously Formed Part Of A Residential Complex", where a house (other than a mobile home or floating home) is severed from land and moved from the underlying real property (i.e. relocated to a new legal description), the relocation of the house on to the new lot will be considered to be the construction of a residential complex for purposes of the Act.

Pursuant to subsection 191(1), where a builder constructs a residential complex that is a single unit residential complex, and subsequently supplies the complex by way of lease, licence or similar arrangement for use by an individual as a place of residence, the builder is deemed to have sold and repurchased (i.e., self-supplied) the residential complex at its fair market value, generally when the complex is first rented. (The land included in the residential complex is discussed later in our response).

A "builder" is defined in subsection 123(1) to include, in paragraph (a), a person who, at a time when the person has an interest in the real property on which the complex is situated, carries on or engages another person to carry on for the person the construction or substantial renovation of the complex. The XXXXX are therefore considered to be a builder with respect to the complex. It should be noted that the exclusionary provisions of the term "builder" found in paragraph (f) of the definition, are not met in this case.

Therefore, when the XXXXX made a supply by way of lease of the Parcel to the tenants, who occupied it as their place of residence, subsection 191(1) applies to deem the XXXXX to have made and received a taxable supply by way of sale of the complex. Further, XXXXX are deemed to have paid as recipient and collected as supplier, tax in respect of the sale calculated on the fair market value of the complex. The tax is deemed to have been collected at the later of the time of substantial completion of the complex and the time possession of the complex was given to the tenants.

Land That Is Reasonably Necessary For The Use And Enjoyment Of A Residential Complex As A Place Of Residence For Individuals

Residential complex is defined in subsection 123(1) to include, in paragraph (a) of the definition, "that part of a building in which one or more residential units are located, together with ... the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals ...".

Under policy P-069, "The Amount Of Land Subjacent And Immediately Contiguous To A Residential Complex Which Is Reasonably Necessary For Its Use And Enjoyment As A Place Of Residence For Individuals", a legally imposed minimum lot size, for residential use, exceeding 1/2 hectare that was in effect on the date the property was acquired by the taxpayer, is generally considered to be the minimum amount of land reasonably necessary for the use and enjoyment of the residential building as a residence throughout the period that the property is continuously owned by the taxpayer after that acquisition date. As such, at the time the XXXXX were required to self-supply the residential complex under subsection 191(1), the complex would include all the land included in the Parcel.

The sale of the Parcel by the XXXXX to the XXXXX will be exempt under section 4 of Part I of Schedule V, provided the complex has not been substantially renovated after the XXXXX last acquired it and no ITCs have been claimed in respect of the last acquisition of the complex by the XXXXX or in respect of any improvements made thereto.

If you require further information, or have any questions regarding this matter, please contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions & Real Property Division