25 July 2001 GST/HST Interpretation 34426 - New Housing Rebates in Respect of Upgrades

Dear XXXXX:

Thank you for your letter of January 18, 2001 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to builder upgrades.

All legislative references are to the Excise Tax Act unless otherwise noted. The Canada Customs and Revenue Agency will be referred to as the CCRA.

Interpretations Requested

You describe the following situation. The purchaser of a new single unit residential complex (SURC) completes a New Housing Rebate (NHR) application and gives it to the builder for filing with the builder's GST/HST registrant's return. The builder has credited the amount of the rebate to the purchaser and the builder then claims an offsetting adjustment to net tax on that return.

The builder separately invoices the purchaser of the new home for upgrades, and charges GST/HST on a tax-extra basis. The upgrades are not referenced in the relevant Statement of Adjustments. The purchase price in the Agreement of Purchase and Sale (APS) does not include the cost of the upgrades. The tax paid on upgrades is not included by the purchaser in calculating their rebate, nor is the amount credited to the purchaser by the builder.

You have asked our views on whether the price of such separately-invoiced upgrades form part of the consideration eligible for a section 254 NHR. You have also enquired whether the purchaser may complete an amended NHR application in such cases to include the upgrades, or complete a second application reflecting only the upgrade? You have suggested that the builder could then credit the purchaser for the new amount and forward to the CCRA the amended or subsequent NHR application along with their GST/HST registrant's return.

Finally, you have requested our views on whether the builder is making one supply or two or more separate supplies in such cases. You have asked us to comment on the single/multiple supply analysis you provide in your letter.

Interpretations Given

We are pleased to provide the following comments in response to your queries. We have not provided a ruling due to the general and hypothetical nature of your queries.

Under section 254, a rebate of part of the GST or federal component of the HST is available under particular conditions for individuals who purchase a qualifying unit from a builder, including the land that forms part of the particular residential complex. (The NHR under section 254 applies to the federal portion of the HST in the participating provinces in the same manner as it applies to the GST in the rest of Canada. While eligibility for rebates under the HST follows the rules for rebates under the GST, there are particular considerations that are specific to rebates in the participating provinces. If you require information on NHRs and the HST, please see section 19.3.8, New Housing Rebates and the HST, of the GST/HST Memoranda Series.) For purposes of section 254 and this letter, the qualifying unit may be briefly described as a SURC or as a residential condominium unit.

Enclosed for your reference regarding NHRs are three sections of the GST/HST Memoranda Series. Section 19.2, Residential Real Property, contains explanations of terms relevant to our discussion, such as 'builder', 'residential complex', 'residential unit' and SURC. Section 19.3, Real Property Rebates and section 19.3.1 Rebate for Builder-Built Unit (Land Purchased) include additional information such as an explanation of the term 'qualifying unit' and the various criteria which must be met before an individual is eligible to claim a NHR.

Total Consideration and Elements of the Agreement

To correctly account for tax and the NHR, 'total consideration' must be known.

The total consideration for a qualifying unit is the total of amounts paid or payable, plus the value of things done or given in exchange for the supply by way of sale of the unit or an interest in the unit. The items that were supplied for each of these amounts must have been included as part of the agreement between the builder and the purchaser prior to closing (i.e. transfer of legal ownership). The agreement may consist of the original APS plus amendments to that APS between the builder and the purchaser. Essential elements of an APS include identification of the parties to the agreement, a description of the property and services being supplied (including the nature of any upgrades), and the specifics of the consideration for the supply. One might also expect to see agreement on when the supply is to be made and when the consideration is payable.

It will be a question of fact whether particular items are included as part of the agreement between the parties prior to closing. Factors such as the following are important in determining if the price of the upgrades forms part of the total consideration for the qualifying unit and if the tax paid by the purchaser on upgrades forms part of the tax eligible for a NHR.

•   How does a particular APS treat the subject of upgrades?

•   Is there a separate agreement between the builder and purchaser detailing the nature and cost of upgrades?

•   How closely are the contractual arrangements for the upgrades related to the APS?

•   How closely in time is the supply of the upgrades related to the purchase of the SURC?

Whether upgrades/extras may be included in the NHR calculation under the provisions of section 254 will depend upon whether they can be considered to form part of the supply of the qualifying unit. In general, amounts in respect of extras may be included in the total consideration paid for NHR purposes so long as:

•   the extras can be considered fixtures or appurtenances reasonably necessary for the use and enjoyment of the unit as a place of residence within the subsection 123(1) definition of a 'residential complex'; and

•   the amounts for these extras are paid or payable to the builder before transfer of ownership of the qualifying unit occurs. Amounts in respect of extras that are supplied by the builder do not qualify as part of total consideration for purposes of the NHR where the extras do not form part of the APS before transfer of ownership.

In addition to amounts paid or payable in respect of the purchase of the unit (e.g., the housing rebate when the purchaser and builder agree to include it as part of the consideration for the unit), total consideration includes payment to the builder for:

(a) goods and services that form part of the unit, such as built-in appliances, landscaping, a finished basement, wall-to-wall carpeting, in-ground pool or an attached garage;

(b) appurtenances to the home, such as a detached garage, permanently affixed shed or above-ground swimming pool;

(c) other supplies (for example, free-standing appliances) if they:

(i) form part of an all-inclusive single consideration made at the time of signing the agreement of purchase and sale for the unit and for which there is no separate identification in the agreement for the consideration paid or payable for the supplies,

(ii) are of the type normally supplied by the builder for similar residences, that is, they were not custom ordered (as opposed to simple colour changes or normal upgrades), are offered generally by others in the residential construction industry, and relate to the use and enjoyment of the unit by the purchaser, and

(iii) the purchaser did not have a choice of taking a cash discount or other supply instead of the supply in question.

Policy Number P-052, Amounts Eligible for Section 254 GST Housing Rebate for Homes Purchased from a Builder, (enclosed) provides further information on claiming a NHR under section 254 in respect of 'other supplies' provided together with the residential complex for a single consideration.

The enclosed section 19.3.1 of the GST/HST Memoranda Series describes additional items which are included in or excluded from "total consideration".

The following are indicators that particular items may form part of the supply of the qualifying unit which is eligible for the NHR.

•   Has land transfer tax been paid on all amounts being represented by the NHR claimant as part of the 'total consideration' for the qualifying unit?

•   The Statement of Adjustments would normally be expected to reflect all of the dealings in relation to the purchase of a particular qualifying unit.

Subsection 234(1)

In your letter you indicate that to meet the requirements of subsection 234(1), a builder must pay to or credit a purchaser an amount on account of a rebate and transmit the application of the purchaser to the Minister (of National Revenue).

We would like to clarify that the effect of subsections 234(1) and 254(4) is that a builder may pay or credit the amount of the NHR to an eligible individual. If the builder does this, the builder may then deduct the same amount from the supplier's net tax for the reporting period in which the rebate was paid or credited. Paragraph 254(2)(e) indicates that one of the criteria for a NHR is that ownership of the complex has transferred to the purchaser. Similarly, paragraph 254(4)(a) provides that one of the criteria for the builder crediting the amount of the NHR to the purchaser is that the builder has transferred ownership of the unit to the purchaser under the agreement for the supply.

It is correct that the builder in such cases must transmit the application of the eligible individual to the Minister.

One Application

Only one NHR is payable in respect of the qualifying unit and there are generally no future monetary adjustments to a filed claim. Nor will the purchaser be entitled to file future claims in respect of additional amounts of GST incurred. This is pursuant to subsection 262(2) which states that only one application may be made under Division VI (Rebates) with respect to any matter. Section 254 rebates are included within Division VI. Claimants are notified of this restriction in the Canada Customs and Revenue Agency (CCRA) guide GST/HST New Housing Rebate (Revised 2000). Chapter 4 of the guide advises that claimants can only apply for the NHR once, using one application form, for each qualifying new home purchased.

The formulation and application of discretionary measures in reviewing filed New Housing Rebate claims is a function of the CCRA's Compliance Programs Branch. Accordingly, a builder or a claimant who had any questions regarding the processing of a particular claim would need to contact a representative of that branch.

Single/Multiple Supplies

You have requested our comments on the single/multiple supply analysis provided in your letter. The intent of the CCRA Policy Paper P-077R, Single and Multiple Supplies, is to ensure that the constituent elements of a single supply have the same tax status, regardless of whether a separate amount is charged for each element. The constituent elements of a single supply are often but not necessarily provided for a single amount. Thus the fact that there is a separate invoice for the upgrades does not in itself mean that the upgrades are a separate supply.

Whether the upgrades provided to a particular purchaser form part of a single supply of a qualifying unit or represent multiple supplies is a question of fact which requires analyzing the form and substance of a specific transaction, including relevant contracts.

Regarding your analysis, it is necessary to identify whether the key elements of an agreement are present or missing. For example, if an arrangement does not specify the price, or if an arrangement says that the builder may put in unspecified upgrades at some future unspecified date, it is unlikely that such an arrangement would be sufficient to form part of the agreement between the builder and the purchaser for purposes of the NHR.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-3413.

Yours truly,

(Mrs.) S.C. Cahill
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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