13 June 2001 GST/HST Interpretation 34564 - Rebate to Owner of Land Leased for Residential Purposes

Thank you for your E-mail message of November 16, 2000 and subsequent telephone conversations and messages all concerning the subject rebate of Goods and Services Tax (GST) under section 256.1 (All legislative references refer to the Excise Tax Act (ETA)) in the context of XXXXX XXXXX (the Trust). Your query is a follow-up question to your E-mail query of July 6, 2000 that I answered in my message of November 14, 2000 to the effect that input tax credits (ITCs) were not available to the Trust.

Background

Although the consultant for the Trust, XXXXX, has obtained the advance ruling XXXXX from our office, you have indicated that XXXXX the transactions carried out by the Trust and other concerned parties differ from the ones indicated in the advance ruling request. In particular, the Partnership has not sold the residential portion of the building, as contemplated in the initial ruling request, but has been leasing the units in that portion on a long-term basis. From the information, which you provided, our understanding of relevant events is as follows:

1. XXXXX is the registered owner of the property located at XXXXX ("the Property"). It holds title as bare trustee for the Trust, which is a true trust and the beneficial owner of the Property.

2. In XXXXX, the Trust leased the Property for XXXXX years to a partnership (the Partnership) of which it owns XXXXX. The annual rent of XXXXX is payable in equal monthly instalments. (XXXXX The Trust underwent a change-in-use (commercial to exempt use) pursuant to section 206 with respect to the portion of the Property allocated to the multiple unit residential complex (MURC) part of the building to be constructed by the Partnership. It remitted GST of XXXXX as a result of this change-in-use.

3. Under the Agreement XXXXX agreed to sell to XXXXX the MURC part of the property. This Agreement was part of the scenario on which our ruling of XXXXX was based upon. However, it was not implemented and became null and void, according to XXXXX, who is an officer of the Partnership.

4. The Partnership completed its construction of a XXXXX on the land (XXXXX. In XXXXX, the Partnership leased one or more residential units directly to the public and it self-supplied and remitted GST of XXXXX under section 191, based on a XXXXX % residential - XXXXX % commercial division of the entire Property (i.e. land and improvements).

5. XXXXX in respect of the portion of the land allocated to the MURC (XXXXX).

Question

Is the Trust entitled to a rebate of XXXXX under section 256.1 of the GST paid in XXXXX on the MURC portion of the land?

Response

After the self-supply by the Partnership in XXXXX, the Trust qualified for a rebate of GST under section 256.1, as the requirements of this provision were met:

•   The XXXXX lease of the residential portion of land from the Trust ("the owner of the land") to the Partnership ("the particular lessee") qualifies for exemption under section 6.1 of  Part I of Schedule V at some point after XXXXX In the advance ruling cited above, this lease was ruled to be exempt under subparagraph 7(a)(ii) of the same Part and Schedule. However, the scenario for the advance ruling was different, as noted in Background section (3).).

•   The exemption under section 6.1 of  Part I of Schedule V applies to each monthly lease interval rather than the full XXXXX -year lease because of the definition of lease interval in section 136.1 and the amendment in Bill C-112 to section 6.1 of the same Part and Schedule, effective January 1, 1993. In this case, in XXXXX, the Trust supplies the property to the Partnership by way of lease for a monthly lease interval during which the Partnership in turn supplies the property, or one or more parts of it, by way of lease, and all or substantially all of the Partnership supplies are exempt from GST under section 6 of Part I of Schedule V. As a result, the section 6.1 requirement in section 256.1 is met.

•   The Partnership's supply of an apartment by way of lease for long-term residential use is exempt from GST under paragraph 6(a) of Part I of Schedule V. The Partnership's supply of the related land by lease qualifies for exemption from GST under paragraph 7(a) of Part I of Schedule V.

•   The Partnership self-supplied and remitted GST of XXXXX under section 191 in respect of the MURC part of the property, as indicated in the above cited Fact (4).

•   Pursuant to subsection 256.1(2), an application for rebate must be made by the Trust within two years from the "particular day" when the Partnership was required to self-supply under subsection 191(3). If this statutory time limit has expired, we refer you to subsection 296(2.1).

Should you have further questions on the foregoing, please contact me at (613) 954-1433.

Bao Tran
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate