Administrative Policy
28 February 2019 CBA Roundtable, Q.11
Provided that the designated operator for a joint venture to construct a multiple unit residential complex has a beneficial interest in the project, so that it can qualify as the project “builder,” CRA was generally amenable to the proposition that such operator is the one to claim the new residential rental property rebate under s. 256.2(3) when there is a deemed self-supply by it under s. 191(3) (generally, at the time of first occupancy). As a preliminary matter it stated:
Before determining whether the deeming rules in subsection 191(3) apply to an operator who has made a joint venture election under section 273, the operator must first meet the definition of “builder” in subsection 123(1). Where the operator has a beneficial ownership interest in the real property on which the MURC is constructed, it will likely meet the definition of “builder” if the operator carries on, or engages another person to carry on for the operator, the construction of the MURC. It is important to note that more than one person can meet the definition of “builder” for GST/HST purposes. For example, a co-venturer may have an interest in the real property and also meet the definition of “builder”.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 256.2 - Subsection 256.2(3) | JV operator (with a proprietary interest) of a new apartment project is the one to claim the NRRP rebate | 231 |
23 March 2017 CBA Commodity Taxes Roundtable, Q.20
In an appreciating housing market, an individual purchaser whose plans have changed, assigns his purchase contract back to the builder for an amount based on the appreciation to date.
On the assignment, the purchaser would be considered to be transferring an interest in a residential complex. If the purchaser was not a builder (which generally would be the case if he had entered into the purchase contract for the purpose of using the house for personal use rather than for resale), the general exemption for sales of interests in residential complexes would be available. If the purchaser instead was a builder, the assignment would be taxable - but still no GST/HST would be charged given that the builder/assignee would be registered.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 2 | no GST/HST should be charged on a cancellation fee paid by a new home builder to the purchaser | 298 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Real Property | purchase contract was real property | 106 |
| Tax Topics - Excise Tax Act - Section 221 - Subsection 221(2) | s. 221(2) exclusion can apply to an interest in a purchase agreement | 186 |
23 March 2017 CBA Commodity Taxes Roundtable, Q.9
Under the s. 123(1) “builder” definition, it is possible to have more than one “builder” of a building at the same time. Under s. 191(10), if A is a builder and leases a building to B who is also a builder and who subleases a unit in the building to an individual, then A is deemed to have made the sublease and it has a self-supply. On a literal reading of s. 191(10), however, nothing deems B not to have made the sublease. That could (but should not) mean it also has a self-supply at the same time as A has a self-supply. Note that for s. 191(10) to apply, para. (c) thereof requires A to give possession of the complex to B. A is then deemed to have leased the unit in the complex to the individual at the time it gave possession of the complex to B. Assuming that A gives B possession of the buildings before B subleases any unit to an individual, A will be deemed to have given possession of the unit to the individual before B actually gives possession to that individual, so that B will not be within s. 191(3)(c). Does CRA agree? CRA responded:
Although it may be possible to have more than one builder of a residential complex at the same time, based on the limited information provided, it is not clear how both persons A and B would be considered builders. For example, if person A were the owner of the land on which it constructs or engages another person to construct a residential rental building (we assume a multiple unit residential complex given your reference to subsection 191(3) of the ETA), person A would be a builder under paragraph (a) of the definition of “builder” in subsection 123(1) of the ETA. If subsequent to the construction, person B were to enter into a head lease for the complex with person A for the purpose of subleasing residential units within the complex directly to individuals for use as their place of residence, person B would not be a builder and would not face a self-supply (that is, person B is not a builder under paragraph (d) of the definition of “builder” in subsection 123(1)).
Alternatively, if person A were to have purchased a newly constructed multiple unit residential complex for the primary purpose of entering into a head lease for the complex with person B for the same purpose described above, person A would be a builder under paragraph (d) of the definition of “builder” in subsection 123(1). Again, however, person B would generally not be a builder and would not face a self-supply.
As such, it is not clear how person B would face a self-supply.
Excise and GST/HST News – No. 91 under "Head leases and subleases of new residential property: who must self-supply and who may be entitled to a rebate?" May 2014
If a person purchases newly constructed or substantially renovated housing for the purpose of leasing or licensing it to an individual as a place of residence, the person will generally not be a builder of the housing for GST/HST purposes, even if the person hires a property manager as agent for the purpose of renting the housing. However:
If a particular person purchases such housing for the purpose of supplying it under a head lease to another person (lessee/sub-lessor) who in turn leases the housing to an individual as a place of residence, the particular person will be a builder for GST/HST purposes and different rules apply. Where such a builder enters into a head lease that is exempt under section 6.1 or 6.11 of Part I of Schedule V to the Act with a lessee/sub-lessor who is acquiring the housing for the purpose of making exempt supplies that include giving possession or use of the housing (e.g., under a sublease that provides for the continuous occupancy of the housing as a place of residence or lodging by an individual for at least one month) and possession of the housing is given to the lessee/sub-lessor, the builder is considered to have made a taxable sale and repurchase (a self-supply) of the housing.
In such case, the builder is considered to have collected and paid the GST/HST on such deemed sale and repurchase on the fair market value of the housing at the time possession of the housing is given to the lessee (or on completion of construction or substantial renovation, if later) - and if a registrant may claim an ITC for the tax paid on the housing purchase.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 191 - Subsection 191(1) | purchase of new housing by head lessor | 284 |
RC4231 "GST/HST New Residential Rental Property Rebate” October 2016
Exclusion for purchasers under purchase agreement
Generally, you are a builder of a residential complex, or an addition to a multiple unit residential complex, if you:
- build or substantially renovate the complex or you build the addition, on land you own or have acquired by way of lease, or you hire someone else to build or substantially renovate the complex, or to build the addition, on land you own or have acquired by way of lease. However, you are not a builder if your only interest in the land is a right to purchase the housing or an interest in the housing from a builder;
- acquire an interest in the housing when it is already under construction or substantial renovation, or when the addition is under construction, except where the interest is only a right to purchase the housing or an interest in the housing from a builder;
- acquire an interest in the housing before anyone has lived in it and your primary purpose in acquiring the interest is to either sell the house, sell the interest, or to lease the house to a person who will not use the house for their own personal use (for example, you lease the house to another landlord); or
- acquire an interest in a residential condominium unit either before the complex is registered as a condominium or before anyone has lived in it, and your primary purpose in acquiring the interest is to either sell the unit, sell the interest, or to lease the unit to a person, such as a landlord, who will not use the unit for their own personal use.
Exception for individual not in business/adventure
You are not a builder if you are an individual whose activities are described by any one of the previous conditions and those activities are not carried out in the course of a business or an adventure in the nature of trade.
Paragraph (a)
See Also
Universo Home Construction Ltd. v. The Queen, 2019 TCC 87 (Informal Procedure)
CRA denied the ability of a home builder (“Universo Home”) to claim a new home rebate purportedly assigned to it pursuant to ETA s. 254(4) on the basis that Universo Home had no interest in the property at the time the home was constructed and, therefore, did not qualify as its “builder.” The difficulty centered on the fact that the 2011 purchase and 2013 sale documentation named the wife (Mrs. Dhesi) of the sole shareholder (Mr. Dhesi) of Universo Home as the purchaser and vendor of the property, and the fact that Declaration of Trust, which named Mrs. Dhesi as the nominee for Universo Homes, was found by Bocock J to have not been signed until sometime before (perhaps, shortly before) the closing of the 2013 sale.
Bocock J nonetheless found that Universo Home was the beneficial owner for some period prior to the sale, partly on the basis that it paid for the construction work and reported the property as an asset for financial statement purposes. Accordingly, it qualified as a builder for rebate purposes.
Bocock J also intimated in obiter that even if Universo Home had not acquired beneficial ownership, it still would have qualified as having an “interest” in the property (which was all that the “builder” definition required) by virtue of potential builder’s liens on the property for the construction work that it had performed.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 254 - Subsection 254(4) | backdated declaration of trust did not preclude a finding that a company was the beneficial owner of a new home construction | 438 |
| Tax Topics - General Concepts - Ownership | construction company qualified as beneficial owner based on bearing costs and late-executed declaration of trust | 176 |
subparagraph (a)(iii)
Cases
1096288 Ontario Limited v. Canada, 2010 FCA 332
The appellant moved existing homes onto lots after putting in foundations, hooked the homes into services and sold the lots. In affirming the finding of Paris J that the appellant was engaged in the “construction or substantial renovation” of residential complexes and, thus, was a builder, Evans JA referenced (at para. 3) the meaning accorded by Paris J to “construction” of “the act of forming something by putting together parts,” and stated (at para. 4):
Counsel says that unless there has been a change to the frame of a residence there has been no “construction” of it. We disagree. The term “construction” in its ordinary sense is not this narrow, but can include, as the Judge found, forming the residential complex by putting the house and the land together.
Paragraph (f)
Cases
Wall v. Canada, 2021 FCA 132
The taxpayer purchased three homes in Vancouver in succession between 2004 and 2009, demolished each one, constructed a new house and sold it less than two years after the purchase date. He appealed the finding in the Tax Court that he had sold the houses as a builder, i.e., the construction had occurred in the course of a business or an adventure in the nature of trade, so that the sales were taxable supplies rather than exempt under Sched. V, Pt. I, s. 2. (He did not appeal the Tax Court finding that his profits were taxable under s. 9.) The taxpayer argued that he acquired the properties for the purpose of constructing homes that he and his son would occupy as a place of residence.
In dismissing the appeal, Webb JA noted (at para. 31) that
[W]ith the guidance of the Supreme Court of Canada [in MacDonald], Mr. Wall’s “ex-post facto testimony regarding his intentions cannot overwhelm the manifestations of a different purpose objectively ascertainable from the record”. …
Evidence contradicting the taxpayer’s arguments included:
- Each house was listed for sale before the occupancy permit was obtained.
- His incurring more debt with each successive purchase contradicted his testimony that he sold to eliminate debt.
- The maximum period that he could have occupied each property before its sale (even assuming he moved in before obtaining the occupancy permit) was a matter of months rather than years.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 191 - Subsection 191(5) | exception in s. 191(5) not established | 250 |
| Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 3 | residential use by the builder not established | 267 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | three successive sales of newly-constructed homes over a period of under 5 years were made in the course of a business or adventures | 223 |
See Also
Wang v. The Queen, 2021 TCC 86 (Informal Procedure)
The taxpayer signed an agreement of purchase and sale (“APS”) on November 13, 2007, with a builder to purchase a townhouse under construction. She took possession of the property on May 19, 2011 along, with a tenant, and lived there for a month. Registered title to the property was conveyed to the taxpayer on December 22, 2011. Meanwhile, she had begun a relationship with a US citizen in 2010, and in early 2012, the taxpayer made plans for her exit from Canada in anticipation of her move to the US to join her then fiancé. She decided to list the property around April 2012, and after selling and vacating the property, the taxpayer lived briefly with a relative in the Toronto area before moving to the US. In 2015, the taxpayer was audited and reassessed by the Minister on account of business income arising from the disposition of the property for the taxation year 2012 under the ITA. That reassessment gave rise to the consequential HST assessment before the court, made on the basis that she was as a “builder” under s. (f)(iii) of the definition thereof, i.e., she had acquired the townhouse in the course of a business or an adventure or concern in the nature of trade.
Bocock J concluded that the taxpayer was not a “builder.” The taxpayer conducted herself more in keeping with the townhouse being an investment and/or residence of an owner-occupier having regard to a number of Happy Valley Farms factors: she held the “equitable title” to the property for 5 years (counting from the date of the purchase agreement); she moved into the property; she took on a conventional mortgage; and she took on a co-habiting tenant (para. 35). There was no apparent business plan nor was the effort to sell the property done rapidly, competitively or in a business like fashion. (para. 36) Most compellingly, her change in personal circumstances from being a single person at the time of committing to buy the property in 2007 to leaving for the US to become married in 2012 outweighed other factors and was given determinative weight (para. 37).
Swift v. The Queen, 2020 TCC 115
Over a 23-year period, the appellant, who through a wholly-owned company (“TSC”) carried on a small construction business, bought and sold five homes in the Victoria, B.C. area. The fourth (“JDF”) property was bought as a vacant lot in October 2009, he and his wife and children, during construction of a home thereon with the assistance of TSC, moved into the basement and then the main floor in August and November 2010, respectively – but the house was sold in June 2013 (with an October closing) due to financial pressure on the taxpayer resulting from a business downturn.
Sommerfeldt J found that the appellant had not constructed the JDF Property as a builder and, in particular, not as part of an adventure in the nature of trade or in the course of a business, so that he was not required to self-assess under s. 191(1) upon substantial completion and occupancy.
In applying the various indicia listed in Happy Valley Farms, Sommerfeldt J noted that the appellant (as contrasted to TSC) did not carry on a development and construction business, accepted (at para. 38) that the property “was… intended to be occupied as a residence, i.e., for personal enjoyment” and “as his dream home” and thus was custom-built accordingly to “the needs of their family,” that the “the frequency of sales in this Appeal is significantly less than the frequency in many other appeals” (para. 40) and that “the reason for selling the JDF Property was the difficult financial circumstances in which TSC and they found themselves as a result of the downturn in the construction industry in Victoria in 2012 and 2013.” He also accepted the “explanations given for the sales of the other residential properties owned by Mr. Swift and Ms. Kirkby” (para. 45).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 191 - Subsection 191(5) | application of the Coates test that a builder is not required to self-assess on building a home for his own occupation even where there may be a secondary resale intent | 400 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Business | “business” likely does not include an adventure | 176 |
Administrative Policy
1 June 2021 GST/HST Ruling 192033r2 - Assignment of an agreement of purchase and sale of a condominium unit
A non-resident individual (the “Assignor”) entered into an agreement to purchase a condo to be constructed in Canada by the vendor for occupancy by the Assignor’s daughter while she attended a post-secondary institution, which had granted a conditional acceptance. However, the exam results of the daughter at the secondary school she was attending did not meet the standards of the post-secondary institution, and it revoked its conditional acceptance. This resulted in the Assignor assigning her purchase agreement to another purchaser at a gain.
The Directorate noted that “[u]pon entering into an agreement for the purchase and sale of a new residential condominium unit that has yet to be constructed, the purchaser is considered to have acquired an interest in the residential condominium unit.”
It found that the Assignor was not excluded from being a “builder” under para. (d) of the definition by the exclusion in subpara. (f)(iii) of the definition, which provided that a person is not a builder of a residential complex if the person acquires an interest in it, otherwise than in the course of a business or an adventure or concern in the nature of trade. The Directorate indicated that “practically” to come within this exclusion, the individual must “prove two things:”
First, the individual must prove that the primary purpose for which they assert that they acquired the interest in the residential complex was a firm, fixed and settled intention that was not likely to change. Put differently, the asserted primary purpose of using the complex as a place of residence either for the individual or a relation must have been more than a tentative, provisional or exploratory contemplation and must not have been conditional or dependent on future events occurring.
Second, the individual must prove that, objectively, they had reasonable prospects of bringing the primary purpose for which they assert that they acquired the interest in the residential complex to fruition or fulfillment within a reasonable time.
The Directorate went on to find that the first test above was not satisfied since it viewed the stated primary intention of the Assignor to acquire the condo unit as “a tentative, provisional or exploratory contemplation that was conditional or dependent on future events occurring (that is, the Assignor’s daughter being accepted and attending [the post-secondary institution])” and further indicated that the following position also applied:
Generally, if an individual acquires an interest in a residential complex (that is, acquires the interest in the complex before it has been occupied by an individual as a place of residence or lodging) and sells the interest before or while the complex is under construction, then the action of selling the interest is viewed strongly as evidence that the individual acquired the interest in the complex for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | presumption that the flip of a new condo purchase agreement is a taxable supply | 319 |
10 January 2020 GST/HST Ruling 190414r - Assignment of a right to purchase a residential unit
A non-resident (the “Assignor”) entered into a purchase agreement for a to-be-constructed condo unit (the “Strata Lot”) with the asserted intention of moving into the unit with her family when it was completed. At around the same time, she purchased a townhouse in the same province with the stated intention of having her extended family move there and with the Assignor and her family living in that townhouse while the condo was being constructed - and with it being further asserted that, in the meantime, the Assignor’s extended family had decided to postpone their move to the Province. The Assignor then listed her purchase interest for sale and assigned it to a purchaser at a gain. The Assignor also entered into an agreement to purchase a further new condo unit.
In ruling that the Assignor was a builder under the exclusion in para. (f), so that her assignment of the purchase contract was a taxable supply, CRA stated:
[Y]ou have not proved that the primary purpose for which the Assignor asserts that they acquired the interest in the Strata Lot was a firm, fixed and settled intention that was not likely to change. To be clear, the CRA is of the view that your assertion … about the primary purpose for which the Assignor acquired the interest in the Strata Lot is a tentative, provisional or exploratory contemplation that is conditional or dependent on future events occurring. Also, the CRA is of the view that you have not proved that, objectively, the Assignor had the means and resources necessary to acquire the complex for use as a place of residence either for themselves or a relation.
In the absence of any outward indicators to support your assertion …the CRA views the Assignor’s action of selling the interest in the Strata Lot as evidence that the Assignor acquired the interest in the Strata Lot for the primary purpose of selling the interest in the course of a business or an adventure or concern in the nature of trade. Consequently, the Assignor is a builder of the Strata Lot … .
3 December 2021 GST/HST Ruling 193347r - Assignment of an agreement of purchase and sale of a condominium
A couple who had been unsuccessful in having a family notwithstanding aggressive fertility treatments decided to sell their current home with a view to early retirement and to downsize. Accordingly, they entered into an agreement to purchase a residential condo unit, which was to be constructed. They then pursued an alternative fertility treatment , and became parents to multiple children. They concluded that the condo unit would be too small for their family and preferred staying in their [significantly larger] current home, and also concluded that their plans for an early retirement were no longer possible with the financial burden of the children.
Accordingly, they assigned their purchase contract to an assignee at a gain (with the assignee also paying an assignment fee to the builder of the condo unit).
In ruling that the assignors were not engaged in an adventure in the nature of trade, so that they were not deemed to be builders under para. (d) of the definition, CRA stated:
Based on the information that you have presented … you have proved that the primary purpose … for which the Assignors assert that they acquired the interest in the Strata Lot was a firm, fixed and settled intention that was not likely to change.
The CRA views the birth of the Assignors’ […][multiple children] as an unforeseen event, given the highly unlikelihood of it occurring given their ages, past fertility treatment results as well as the fertility doctor’s views in [yyyy] that future fertility treatments would be unsuccessful.
Consequently, the Assignors are not builders of the Strata Lot under paragraph (d) … [and] the … exemption in Section 2 of Part I of Schedule V applies to make the Assignors’ sale of the interest in the Strata Lot an exempt supply … .
Neal Armstrong. Summary of 3 December 2021 GST/HST Ruling 193347r under ETA s. 123(1) – builder – para. (d).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 2 | an assignment of a condo purchase agreement did not occur as part of an adventure in the nature of trade | 158 |