Taxable Sale of Real Property by a Non-Registrant and Subsection 257 (1) of the Excise Tax Act – Canadian Tax Lawyer GST / HST Guidelines – Tax

Introduction – Section 257 of the Excise Tax Act

Where the sale of an immovable constitutes a taxable sale for the purposes of the Excise Tax Act, the GST / HST should have been collected and remitted on the sale of that immovable. On this basis, a GST / HST registrant would normally be eligible to claim input tax credits (“ITCs”) for the GST / HST portion of construction costs. Section 257 of the Excise Tax Act allows a non-GST / HST registrant, who makes a taxable sale of real property, to claim ITCs by way of a refund on the tax paid on the property. construction before sale. More specifically, this rebate is available when a non-registrant makes a taxable sale of an immovable and the non-registrant has paid the GST / HST on the purchase of this immovable and / or on the improvements (i.e. (i.e. major constructions or renovations) made to the building. but previously, the non-registrant was not able to recover the tax (for example because he requested a different refund). Section 257 of the Excise Tax Act reads as follows:

  • 257 (1) If a person who is not a registrant makes a particular taxable supply of real property by way of sale, the Minister, subject to subsections (1.1) and (2), shall pay the person a refund equal to the lesser of
    • (a) the basic tax content of the property at the particular time, and
    • (b) the tax that is or would be, but for section 167 or 167.11, payable in respect of the particular supply.

Therefore, a non-registrant can request a refund of part of the total tax payable on the purchase and / or improvement made to the immovable. In Grondin v. The Queen, 2015 TCC 169, Judge B. Paris concluded that “it is clear from the wording of this provision that the non-registrant must have made the taxable supply of an immovable to be entitled to the reimbursement provided for in article 257.” In Villa Ste-Rose Inc. v. The Queen, 2019 TCC 60, Justice D’Auray explained that under section 257 of the Excise Tax Act, an unregistered builder can “claim a substantial amount of GST he paid to suppliers during the construction of the building. ” A non-registrant can therefore claim ITCs as a refund under section 257 of the Excise Tax Act.

However, in cases where the non-registrant has the right to recover part or all of the tax he paid on the purchase or improvement of the immovable by requesting another type of reimbursement, the amount of this refund will reduce the amount that the non-registrant is entitled to recover under section 257 of the Excise Tax Act.

The definition of a “builder” under the Excise Tax Act

Subsection 123 (1) of the Excise Tax Act provides that a builder of a residential complex or of an addition to a multiple unit residential complex designates a person who:

  • at a time when the person has an interest in the immovable in which the immovable is located, operates or engages another person to operate for them (i.ii)
    • in any other case, the construction or substantial renovation of the whole
  • . (e)

but don’t understand

  • an individual referred to in paragraph (a), (b) or (d) who
    • continues construction or heavy renovation,
    • engages another person to carry out the construction or substantial renovation for the individual, or
    • acquires the complex or interest in it,

other than in the course of a business or adventure or business of a commercial nature.

Self-sufficiency rules under section 191 of the Excise Tax Act

Subsection 191 (1) of the ETA considers that a builder has made a self-supply at the time of occupancy after major renovations and is required to remit GST / HST to the CRA. However, subsection 191 (5) of the Act contains an “exception” for the personal use of the licensee. Section 191 (5) reads as follows:

  • Exception for personal use
    (5) Subsections (1) to (4) do not apply to the builder of a residential complex or of an addition to a residential complex where:
    1. the builder is an individual;
    2. at any time after the substantial completion of the construction or renovation of the building or addition, the building serves primarily as the place of residence of the individual, an individual related to the individual or a former spouse or common-law partner of the individual;
    3. the complex is not used primarily for other purposes between the time the construction or renovation is largely completed and that time; and
    4. the individual has not claimed an input tax credit in respect of the acquisition or improvement of the immovable.

Subsection 191 (1) will only apply to an individual occupying property that he has constructed if he is the builder of the property within the meaning of subsection 123 (1) “builder” of the Excise Tax Act. An individual who constructs or substantially renovates a property other than as part of a business or project or business of a commercial nature is not a builder.

Who can claim a refund under subsection 257 (1) of the Excise Tax Act?

A claimant may claim a rebate under subsection 257 (1) of the Excise Tax Act if he meets the following requirements: (1) he is a non-registrant for GST / HST; (2) they paid GST / HST on real property, including, but not limited to, land and buildings; and (3) they have made a taxable sale of that property, including a deemed taxable sale under the Excise Tax Act.

Calculation of rebate under subsection 257 (1) of the Excise Tax Act

The amount of the reimbursement is equal to the lesser of the following amounts: 1 ° the tax content of the immovable at the time of the sale; and (2) the GST / HST payable on the sale of the property, or the GST / HST that would have been payable on the sale if the property had not been part of an election to acquire a business or part of a Company.

How do I apply for the refund under subsection 257 (1) of the Excise Tax Act?

To claim a GST / HST rebate on any improvement to property that is included in an applicant’s basic tax content, the applicant must complete Form GST189 General Application for GST / HST Rebate. In addition, claimants are required to provide the Canada Revenue Agency (CRA) with an explanation describing the circumstances surrounding the reimbursement claim and include supporting documentation for renovation costs incurred during construction of the building. as well as a worksheet summarizing these, if only. In particular, claimants must provide the following information to the CRA with their general rebate claim:

  • The address of the property along with a description of the property (i.e. a description of whether the property is vacant land or a substantially renovated house);
  • The applicant’s original intention to purchase the property and whether that intention changed after purchasing that property and a description of subsequent intentions, if any;
  • Use of the property by the applicant (i.e., personal use or rental property); and
  • A list of the GST / HST paid on all improvements to the property along with a description of those improvements.

However, if the property has been sold, applicants must also complete Form GST162 Goods and Services Tax / Harmonized Sales Tax (GST / HST) Return (Non-personalized) and provide the following information with their rebate claim. :

  • A copy of the adjustment statement relating to the sale of the property;
  • The date of sale and the closing date;
  • The name (s) of the buyer (s);
  • An indication as to whether or not the applicant is non-resident in Canada for tax purposes; and
  • Whether, or not, the applicant was responsible for collecting the tax he declares the GST / HST payable, by the purchaser of the property, on the sale of that property.

Professional tax advice – Tax advice and taxable sale of real estate

If you sold a property and the sale of that property constitutes a taxable sale for the purposes of the Excise Tax Act, the GST / HST should have been collected and remitted on the sale of the property. The sale of a building may give you the right to claim ITCs for the GST / HST portion of the construction costs before the final sale. A refund claim under section 257 of the Excise Tax Act is a complex area of ​​tax law that requires detailed analysis and the advice of an experienced Canadian tax professional. If you are deemed to have made a taxable sale and were not a registrant at the time, or if you have questions regarding the refund under subsection 257 (1) of the Excise Tax Act, contact our Canadian GST / HST attorneys for tax advice and determine if you have reasonable circumstances to claim a refund, for the purposes of the Input Tax Credit Regulations

Faq

Accordion Title Example Who can claim a refund under subsection 257 (1) of the Excise Tax Act?

Applicants can claim this rebate if they meet the following requirements: (1) they are non-GST / HST registrants; (2) they paid GST / HST on real property, including, but not limited to, land and buildings; and (3) they have made a taxable sale of that property, including a deemed taxable sale under the Excise Tax Act.

The amount of the reimbursement is equal to the lesser of the following amounts: 1 ° the tax content of the immovable at the time of the sale; and (2) the GST / HST payable on the sale of the property, or the GST / HST that would have been payable on the sale if the property had not been part of an election to acquire a business or part of a Company.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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