16 July 2003 GST/HST Interpretation 37088 - FMV and HST on New Apartment

For HST (or GST) purposes the "fair market value" (FMV) of a property (including real property) is the fair market value without reference to any tax excluded from the consideration for the supply, in accordance with section 154 of the Excise Tax Act.

Essentially FMV for purposes of the GST/HST is the same as the commonly accepted meaning of FMV for other purposes (CCRA's policy concerning FMV is set out in Policy Statement P-165R — Fair Market Value for purposes of Part IX of the Excise Tax Act. In that policy statement, the Agency states that "fair market value represents the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact."). However, where the FMV includes any tax amount specifically excluded under section 154 from the consideration of a supply, then for GST/HST purposes that FMV must be adjusted to exclude such an amount of tax.

In the case of HST, both the federal (7%) and provincial (8%) components are taxes imposed by an Act of Parliament. (The federal component is imposed under subsection 165(1) and the provincial component under subsection 165(2) of the Excise Tax Act.) As such, HST that is payable by the recipient of a supply of the real property is excluded from the consideration for that supply of real property.

For example, using the direct comparison approach to arrive at the FMV of a newly constructed residential condominium unit (RCU) for self-supply purposes, comparable properties may consist of the recent sales of similar RCUs. Where, at the time of its sale, one of these comparables was newly constructed and not previously occupied by an individual as a place or residence, the FMV of that comparable would be the consideration payable by the purchaser without reference to the HST. Therefore, if the price disclosed in the land titles office were an HST-included price, the HST would have to be removed from that price to arrive at the FMV. Note, however, in applying a discount factor to remove the HST from the HST-included price of the comparable, it would be necessary to determine whether the HST-included price of the comparable was also net of the New Housing Rebate.

Aside from those adjustments specifically authorized by the definition of FMV for GST/HST purposes, the appropriateness of any other adjustments are solely a matter of valuation principles and practices. In any particular circumstance the CCRA relies upon the appraiser's professional opinion of FMV.

A stated above, there is no legislative authority to exclude or to include any particular amounts in arriving at FMV for HST purposes, other than those that referred to in section 154 of the Excise Tax Act.

For example, where the comparable used in the direct comparison approach is a recent re-sale of a RCU (i.e. an exempt sale of a RCU that was previously occupied as a place of residence or was sold by someone other than a builder) there is no legislative basis for discounting the consideration payable by the purchaser by an amount estimated to be the HST imbedded in that consideration.

Should you have any questions or wish to discuss this matter further, please contact me at 613 954-8852.

Daryl J.A. Hooley
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate