Builder

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”.

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.

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.

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.

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.