27 March 2001 GST/HST Interpretation 34161 - Application of GST to Certain Real Property Transactions

Dear XXXXX:

Thank you for your letter of January 4, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain real property transactions.

All legislative references are to the Excise Tax Act.

We understand that you are concerned with the GST consequences of the following transactions:

1. A developer who is registered for the GST/HST sells a single unit residential complex or residential condominium unit (the property) to an individual who uses the property exclusively for personal purposes. The developer charges, collects and remits the GST/HST payable on the property. The individual is not eligible to claim an input tax credit in respect of the tax paid to the developer.

2. After using the property solely for personal purposes, the individual makes an exempt sale of the property to a particular person who uses the property in the course of a commercial activity, i.e. making taxable supplies of the property by way of lease, licence or similar arrangement on a nightly basis.

3. Subsequently, the particular person makes a taxable sale of the property to another individual who will use the property solely for personal purposes. The particular person charges, collects and remits the GST payable in respect of the sale. The recipient individual is not eligible to claim an input tax credit in respect of the tax paid to the particular person.

Your concern is that the GST has effectively been paid twice on the property, without any legislative provisions for recovery of tax, and that subsequent sales made in the pattern outlined above will lead to further cascading of tax.

Where an individual acquires property on a tax paid basis and the property is solely for the individual's personal use and enjoyment, an input tax credit eligibility does not arise for the individual. (It should be noted that if the property is the primary place of residence of the individual, a rebate may be available under section 254.) A subsequent sale of that property by the individual will generally be exempt from the GST/HST. If that exempt sale of the property is made to a particular person who uses it in the course of a business, it is true that a subsequent sale of the property by the particular person will generally be taxable. If the recipient of the sale by the particular person is an individual who uses the property exclusively for personal use, an input tax credit eligibility does not arise for the individual. (The individual may be eligible for a GST/HST New Housing Rebate under the provisions of subsection 190(1) and section 254, if the property is the primary place of residence of the individual.)

It is the responsibility of the Canada Customs and Revenue Agency to administer the Excise Tax Act as written. Your comments are of a policy nature, which fall within the purview of the Department of Finance. We have forwarded a copy of your correspondence to Mr. Rainer Nowak, Financial Institutions and Real Property, Sales Tax Division, Department of Finance, in order that he will be aware of your comments.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate