Sale

ETA s. 254(4)(a) and the Ontario equivalent required that in order for a taxable supply by a builder of a new house or condo unit to generate the new housing rebate, there must inter alia be a “sale” of the home to the purchaser. CRA considers that in this context, “the word ‘ownership’ generally refers to the legal ownership (that is, ‘titled’ ownership in the case of the underlying real property), rather than equitable ownership of the property.”

However, CRA commented favourably on a situation where legal title bypassed the builder. A developer, which was the full legal owner of land, agreed with a builder that the builder would both build new homes and condo units on the land and enter into agreements to sell those houses or units to the individual purchasers. At closing (and registration of the condo units), beneficial ownership of the built lots or units would be transferred from the developer to the builder and, moments later (on the “Subsequent Closing”), from the builder to the individual purchaser. However, at the direction of the builder, registered title was transferred directly from the developer to the individual purchaser.

After indicating that “one could argue that the Developer holds legal ownership for the benefit of the Builder and is required to transfer legal ownership … to any third party at the Builder’s request (for example, to the Home Buyer …),” CRA stated:

[P]rovided that legal ownership is transferred from the Developer, at the Builder’s direction at Subsequent Closing, to the Home Buyer who is the particular individual with whom the Builder has entered into the Home Buyer Agreement, the CRA will … regard the Builder as having transferred ownership of the House or Unit … to the Home Buyer … .

Before going on to find that the assignment by an individual of a sub-leasehold interest in a recreational vehicle site would be exempt under Sched. V, Pt. I, s. 9(2) as a supply by way of sale of real property if the site had only ever been used for personal use (rather than rented out), CRA stated:

For GST/HST purposes, a sub-leasehold interest in real property is considered to be real property, and an assignment of the sub-leasehold interest by a sub-leaseholder is generally considered to be a sale of real property. An assignment of a sub-leasehold interest by a sub-leaseholder in this case is subject to the same provisions that govern a sale of real property for GST/HST purposes.

In order to finance the purchase of a new condo from a builder, an individual (the "Purchaser") enters into a "Declining Partnership Agreement," or Loan Agreement, with FinanceCo which is intended to comply with the Islamic principle of declining Musharaka. Under this arrangement, Purchaser alone obtains legal title to and possession of the condo while FinanceCo obtains an equitable interest in the condo upon contributing money to Purchaser, and agrees to sell its equitable interest in the condo to Purchaser over time on a basis that permits it to earn the 'Profit" described in the Loan Agreement. After noting that s. 183(1) could apply in a default scenario, CRA stated:

If subsection 183(1) does not apply, it is a question of fact whether there would be a supply of the property from the Purchaser to [FinanceCo], whether there is consideration payable for the supply, and the GST status of the supply.

Transfer of ownership need not be pursuant to a sale agreement (e.g., a demise by will)

C. Application of Agreement to Transfer Ownership

For purposes of determining whether a "sale" has occurred, a transfer of ownership need not be made under an agreement to transfer ownership.

Sale includes transfer of an equitable interest, e.g., grant of a right to lease

E. Other application of sale

In the common law provinces, legal and equitable interest[s] in real property [are] specifically considered "real property" within the meaning of paragraph (b) of the definition of real property in subsection 123(1) of the Act. … The grant or transfer of the legal ownership of an equitable interest in real property may, therefore, be considered a "sale" of real property. … Where such grants or transfers are considered a "sale", the self-assessment rules of subsection 221(2) of the Act would apply.

For example, a person may grant another person an option to purchase or lease real property. The granting of such rights gives the grantee an equitable interest in the property. The consideration paid for the actual grant of the interest may be considered as being in respect of the sale of the interest where there is no consideration related to the actual use of the underlying property.

After referring with aproval to Lubbock Fine, CRA stated that "a lease surrender is a sale" so that a lease surrender payment would constitute consideration for a sale of "real property" as defined in s. 123(1). The portion of the surrender price that, in fact, was a return of prepaid rent would not so qualify.

Essentially, an emphyteutic lease is a lease whereby the emphyteutic lessor permits an emphyteutic lessee to use the land (and any immovables on it) for a given period of time (not less than 10 years nor more than 100 years) in return for a consideration.

The consideration has two components: (1) monetary consideration as rent (which does not have to be annual); and (2) consideration from the undertaking of constructions or improvements or both which considerably increase the value of the property. At the end of the lease period, all improvements made to the land by the lessee revert back to the emphyteutic lessor (with or without compensation to the lessee for such constructions).

A supply of real property under an emphyteutic lease is considered a supply of real property by way of lease, licence or similar arrangement for GST purposes. The consideration payable in respect of the arrangement includes both the monetary rent and the value of the constructions and/or improvements to the land, as may be applicable.