CRA states that GST/HST should be backed out of the appraised value of newly constructed residence for GST/HST self-assessment purposes
A recently obtained internal communiqué [footnote 1: CRA internal communiqué dated May 17, 2023 “Updated guidance relating to embedded amount of GST or HST in Fair Market Value (FMV) under the Excise Tax Act (ETA) as it pertains to New Residential Housing”] issued by the Canada Revenue Agency (CRA) to its audit and appeals branches provides guidance on the determination of fair market value (FMV) for purposes of calculating the GST/HST on the deemed sale of new residential housing … [and] states that the appraised value of a newly constructed residential property includes GST/HST, and that this GST/HST should be subtracted from the appraised value before determining the amount of GST/HST that will be payable by a builder in respect of a deemed sale of a newly constructed rental property. …
CRA position avoids double tax
The CRA now accepts the builders’ position that the FMV (or appraised value) of a newly constructed rental property includes GST/HST, as confirmed in the recently obtained CRA internal communiqué, as follows:
“In conclusion, all approaches to value used will have to state a conclusion of value as ‘Inclusive of GST/HST.’ The auditor will then take the reported FMV ‘Inclusive of GST/HST’ estimate and ‘back out’ the appropriate amount of tax to bring it in accordance with the definition of ‘fair market value’ in subsection 123(1) [of the ETA]. This ensures that the CRA does not assess GST/HST on a FMV that already includes GST/HST. (Essentially the ‘backed out’ tax is then the tax that is assessed on the registrant).”
As the GST/HST that is included in the appraised value should be “backed out” before determining the amount of GST/HST payable by a builder, this should immediately result in reducing the FMV and the amount of GST/HST owing for newly constructed rental properties, subject to the GST/HST rental rebates.
ETA s. 191(3) requires the builder of a multiple unit residential complex to self-assess itself for GST/HST on the fair market value of the complex at the later of substantial completion and first occupation by a tenant, and a similar rule applies to other residential complexes. CRA has now accepted that the appraised value in this context should be treated as including GST/HST, and that such GST/HST should be backed out before determining the amount of GST/HST payable by the builder.
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