Section 257

Three individuals acquired a lot, engaged a contractor to demolish the existing house, subdivided the lot into two, and engaged another contractor to start building two houses, each of which would be used as a primary place of residence of an owner or owners. However, during the construction of the houses, it was decided that once construction of the houses was completed, each lot with the finished house would instead be sold. After such decision, the property owners registered a partnership for GST/HST purposes with CRA.

CRA ruled that the partnership, if indeed it had been formed, could not claim ITCs respecting various costs and the related acquisitions that had been incurred and occurred prior to the formation of the partnership. CRA indicated that if any transfer of beneficial ownership of the land to such a partnership (albeit, with registered title remaining with the individuals) occurred in the course of a business (rather than in the course of an endeavour of constructing personal residences), the transfer would be a taxable supply, so that the individuals (if not registered) could be entitled to a rebate under s. 257 of the tax previously paid on the acquisitions. If the individuals had retained beneficial ownership, so that the partnership was merely providing construction services to them (which would constitute taxable supplies), and they made a taxable supply of the completed houses in sales to purchasers, and were not registered, again a s. 257 rebate could be available.