XXXXX
This is in response to your letter of August 10, 1994, in which you request our comments regarding the eligibility of XXXXX to claim the Goods and Services Tax (GST) new housing rebate.
Statement of Facts
The facts on which we have been asked to comment are as follows:
1. XXXXX (the "Purchasers") entered into an agreement of purchase and sale with XXXXX (the "Vendor"), on September 10, 1993, for the purchase of property located at XXXXX. The agreed upon purchase price was XXXXX GST inclusive, net of the GST new housing rebate to be credited by the Vendor. The closing date set out in the agreement was December 15, 1993.
2. To secure mortgage financing, the Purchasers took legal title to the land on October 8, 1993. The Purchasers paid the Vendor the sum of XXXXX for the supply of the land who in turn paid the owner of the land, XXXXX (Note that documentation relating to the transfer of the land to the Purchasers has not been provided for our review. As such, there is no indication whether this amount was included in the overall purchase price of XXXXX such that GST was similarly included on this transaction.)
3. The Vendor took draws of funds, paid by the Purchasers, as the construction of the house proceeded. In total, the Purchasers have paid the Vendor XXXXX for work performed. (Again, the documentation provided does not indicate whether GST was charged with respect to these draws.)
4. The house was substantially completed at the beginning of December 1993.
5. The Purchasers were given possession of the house on or about December 15, 1993, and were the first persons to occupy the house. The house is the primary place of residence of the Purchasers.
6. The Vendor declared bankruptcy on January 18, 1994. XXXXX (the "Trustee") was named as trustee of the bankrupt.
7. On February 9, 1994, the Trustee informed the Purchasers that the Vendor will not be completing the construction of the house and will not be proceeding further with the agreement.
8. A number of subtrades placed liens on the house for work completed ranging in amounts from XXXXX (the exact dollar value is dependent on the amount covered by the XXXXX.
9. The Purchasers have indicated that some XXXXX is currently placed in trust to cover the liens. However, depending on the amount covered by the XXXXX, the Purchasers may be liable for as much as an additional XXXXX to clear all liens on the house.
10. On March 2, 1994, a professional appraiser indicated that the home was 95% completed and would require several thousand dollars of finishing work to fulfill the terms of the agreement.
11. The XXXXX covered a significant portion of the costs with the exception of the following: XXXXX for paving the driveway, XXXXX for a garage door and XXXXX for parging.
12. The Trustee is of the opinion that the Vendor is eligible to credit the Purchasers for the amount of the GST new housing rebate as per the original agreement of purchase and sale.
13. The Purchasers contend that the contract, along with the agreement to allow the Vendor to credit the Purchasers for the amount of the GST new housing rebate, has been voided and wish to claim the rebate in their own right for amounts paid to the Vendor and other suppliers directly.
Interpretations Requested
1. Is the Vendor entitled, in accordance with section 254 of the Excise Tax Act (the "Act"), to pay or credit the GST new housing rebate to the Purchasers? If so, on what value should the rebate be calculated?
2. If the Vendor is not entitled to pay or credit the GST new housing rebate to the Purchasers, are the Purchasers entitled to claim the rebate in their own right under section 256 of the Act? If so, on what value would the rebate amount be calculated?
Interpretations Provided
1. The Vendor is not entitled to pay or credit the GST new housing rebate to the Purchasers as the requirements under section 254 of the Act have not been satisfied. As the Vendor is not able to pay or credit the GST new housing rebate to the Purchasers, the determination of a value for rebate for this purpose is irrelevant.
2. As all the conditions pursuant to section 256 of the Act are satisfied, the Purchasers will be able to file a GST new housing rebate with respect to the GST paid on the supply of the land, materials and services acquired in the course of constructing the home. However, the value of the amounts paid to the Vendor is a question of fact that may require verification by an auditor.
Analysis
The following provides the basis for the above conclusions.
1. Section 254 of the Act provides a partial rebate of the GST paid by an individual acquiring a single unit residential complex from a builder. Paragraphs 254(2)(a) to 254(2)(g) outline the conditions which must be satisfied in order for the claimant to be eligible to apply for the GST new housing rebate. Where one of the paragraphs is not satisfied, a GST new housing rebate will not be available under this section.
Paragraph 254(2)(e) of the Act requires that ownership of the complex be transferred to the particular individual after the construction of the complex is substantially complete. (For purposes of this section, as well as subsections 121(2), 168(5) and 336(1), the term ownership is a reference to legal ownership of the underlying property as opposed to equitable ownership.) As indicated in the Statement of Facts, the Purchasers held legal title to the land since October 8, 1993.
While the Vendor would be considered a builder of the house, ownership (the legal title) had been transferred by XXXXX to the Purchasers on October 8, 1993. As paragraph 254(2)(e) of the Act was not satisfied in that ownership was transferred before the construction was substantially complete, the conditions of subsection 254(2) are not satisfied and the Purchasers are thereby precluded from applying for the GST new housing rebate under section 254.
2. Section 256 of the Act provides a partial rebate of the GST paid by an individual who builds or substantially renovates his or her own primary residence or engages another person for that purpose. Paragraphs 256(2)(a) to 256(2)(d) outline the conditions which must be satisfied in order for the claimant to be eligible for the GST new housing rebate. Where one of the paragraphs is not satisfied, a GST new housing rebate will not be available under this section.
While the Purchasers satisfy all paragraphs under subsection 256(2), there may exist some difficulty with respect to paragraph 256(2)(c). This paragraph will be satisfied where:
... the particular individual has paid tax under Division II in respect of the supply by way of sale to the individual of the land that forms part of the complex . . . or in respect of the supply to the individual of any improvement thereto ...
The Purchasers can demonstrate that they have paid GST with respect to the paving of the driveway, the garage door and the parging as the receipts for those supplies disclose the GST application. As well, the liens filed by the subtrades, which must be cleared by the Purchasers, will require the payment of GST. At issue is the amounts paid by the Purchasers to the Vendor; XXXXX for the land and XXXXX for materials and services.
There is no indication whether the amounts in fact paid by the Purchasers to the Vendor included GST since the full amount indicated in the agreement of purchase and sale ( XXXXX GST inclusive, net of the GST new housing rebate) was not paid to the Vendor. Since the Purchasers paid XXXXX to the Vendor, such payment may have included or excluded the GST component. In this regard, the sale of the land for XXXXX on October 8, 1993, should have triggered GST at that time.
A review of submitted documents and a telephone conversation with the Purchasers has so far proved inconclusive in determining whether the payments by the Purchasers to the Vendor included or excluded GST. Whether the Purchasers have in fact paid tax on the land and the material and services acquired during the course of construction is a question of fact that may necessitate verification by audit.
Internal Policy Statement P-118 may prove useful when verifying whether or not GST has been paid by the Purchasers to the Vendor. Briefly, the Policy states that GST must be assessed on the value of the consideration for the supply and the method of calculation, either tax-extra or tax-inclusive, must be disclosed by the supplier. The determination of whether an amount paid by the Purchasers is a tax-extra or tax-included amount is a question of fact that may need to be resolved by a departmental auditor based on the facts and circumstances of the particular situation. Some of the factors that may be considered by an auditor when reviewing the case would include: the amounts used to calculate the vendor's net remittance indicated on the filed GST returns for the applicable periods, the normal invoicing practices of the Vendor, industry practices and the final sales documentation.
We hope the above will be of assistance to you. Should you require clarification of any of the above, please contact John Bain at (613) 954-8852
Stan Farber
Manager, Tax policy
Real Property
Policy and Legislation
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Stan Farber
John Bain
All Regional I&S Managers
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