12 March 2001 GST/HST Interpretation 33960 - University of

We write in response to your memorandum of January 24, 2001, XXXXX of the University of XXXXX ("the University").

We understand the facts and circumstances to be as follows:

1 The XXXXX of the University own several parcels of real property in XXXXX the City of XXXXX, comprising the lands and premises of the University.

2 The largest such parcel ("the Parcel") is legally described as:

XXXXX

3. Prior to XXXXX, the University constructed the XXXXX ("the Centre") at XXXXX a location within the Parcel.

4. A map of the University lands and premises provided by the University indicates that, in addition to the Centre, the Parcel contains instructional and administrative buildings, a library, a theatre, the student centre, XXXXX, playing fields and parking lots.

5. XXXXX, has calculated that, based on the room-hours booked in the Centre for the first six months of XXXXX, the Centre is used XXXXX % in commercial activities.

6. The University wishes to claim full input tax credits with respect to the construction of the Centre.

Issues

Your memorandum requests the following:

1. Confirmation of our interpretation of the term "real property" in the above context.

2. Advice as to whether the University is entitled to full input tax credits on a particular building used in commercial activity.

Response

1. The "real property" in the given circumstances is the Parcel.

2. The University is not entitled to input tax credits with respect to the construction of the Centre unless it can demonstrate that either

a[)] the Parcel was primarily used in commercial activities at the time tax was payable on the inputs to the construction, or

b[)] the construction of the Centre had the effect of changing the use of the Parcel to being primarily in commercial activities.

Analysis

1. The interpretative position of the CCRA is that, in circumstances in which the Excise Tax Act (ETA) refers to specific real property, the real property to be determined is the smallest parcel encompassing the property in question that has a single legal description.

2. Section 209 of the ETA essentially provides that the capital personal property rules in subsections 199(2) to (4) and 200(2) to (4) apply to the capital real property of registrant public service bodies. As the University is a registrant and a public service body (by definition under subsection 123(1)), this provision applies to capital real property of the University.

The effect of subsection 199(4) of the ETA is that the University will only be able to claim input tax credits with respect to the construction of the Centre if the real property on which the Centre is situated (i.e. to which the Centre is an improvement) was used primarily in commercial activities of the registrant at the time tax was paid or payable on the inputs to the construction.

Paragraph 169(1)(b) of the ETA provides that where property or a service is acquired by a person for use in improving capital property of the person, the input tax credit for that acquisition is based on the extent (expressed as a percentage) to which the person was using the capital property in its commercial activities immediately after the capital property was last acquired by the person. Paragraph 199(2)(b) deems the capital personal property of a general registrant, and, by reference, the capital real property of a registrant public service body, to have been acquired "exclusively" for use in the commercial activities of the registrant if it was acquired primarily for that use. "Exclusively" is defined in subsection 123(1) to mean, other than with respect to a financial institution, "all or substantially all". Subsection 141(2) deems an intended use of "substantially all" to be "all". Accordingly, where capital property is used primarily in commercial activities, the combined effect of subsection 141(2) and paragraph 199(2)(b) is that the extent of use of the capital property in commercial activities for purposes of paragraph 169(1)(b) is 100 per cent.

The result of the above is that if the University were eligible for an input tax credit under subsection 199(4), then that input tax credit would be a full input tax credit.

The effect of the CCRA's interpretative position with respect to "real property" is that the "capital property" referred to in subsections 199(2) to 199(4) of the ETA would be the whole of the Parcel. The consequence is as follows:

a) In order to be eligible for an input tax credit on the construction of the Centre (as an improvement to the Parcel), the University would be required by subsection 199(4) to have been using the entire Parcel primarily in its commercial activities at the time tax was paid or payable on the acquisition of property and services used or consumed in the construction.

b) Alternatively, if the construction of the Centre resulted in the Parcel beginning to be used primarily in commercial activities, then the University would be deemed by subsection 199(3) to have acquired the Parcel at that time and to have paid tax equal to the basic tax content of the Parcel. As defined in subsection 123(1), the basic tax content would include all the GST paid on the acquisition of the Parcel and any improvements to the Parcel (including the Centre) less any rebates to which the University was entitled. As the University would be deemed under subsection 199(2) to have acquired the Parcel exclusively for use in commercial activities, the University would be entitled to a full input tax credit with respect to the deemed tax paid.

In order to determine whether or not the University is entitled to claim input tax credits under either of the above alternatives, it will be necessary to calculate the extent of use of the entire Parcel in commercial activities at the relevant time.

Please note that if the University were to file an election under section 211 of the ETA, it could be in a position to claim partial input tax credits based on the basic tax content of the Parcel. The amount of those credits would be determined by the percentage use of the Parcel in commercial activities, rather than on the primary use rule discussed above. It should be noted, however, that section 141 would have the effect of precluding any input tax credit entitlement if less than ten per cent of the use of the Parcel were in commercial activities. In addition, section 197 provides that any increase in use in commercial activities of less than ten per cent would not give rise to an input tax credit entitlement.

We trust the above is of assistance to you. If you have any questions on this matter, please do not hesitate to call me at (613) 952-9212.

Michael Wolff
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate