Introduction – Section 257 of the Excise Tax Act
Where the sale of a real property constitutes a taxable sale for the purposes of the Excise Tax Act, the GST/HST ought to have been collected and remitted on the sale of that real property. On this basis, a GST/HST Registrant would normally be entitled to claim Input Tax Credits (“ITCs”) for the GST/HST portion of the construction costs. Section 257 of the Excise Tax Act allows a non-Registrant for GST/HST, who makes a taxable sale of real property, to claim ITCs by way of rebate on the tax paid on construction preceding the sale. Specifically, this rebate is available where a non-registrant makes a taxable sale of real property and the non-registrant paid GST/HST on the purchase of that property and/or on improvements (i.e., constructions or major renovations) made to the property but previously the non-registrant was unable to recover the tax (for example because the non-registrant claimed a different rebate). Section 257 of the Excise Tax Act reads:
- 257 (1) If a person who is not a registrant makes a particular taxable supply of real property by way of sale, the Minister shall, subject to subsections (1.1) and (2), pay a rebate to the person 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, in the absence of section 167 or 167.11, be payable in respect of the particular supply.
Accordingly, a non-registrant may claim the rebate for some of all of the tax payable on the purchase and/or improvement made to the real property. In Grondin v. The Queen, 2015 TCC 169, Justice B. Paris held that “it is clear from the wording of this provision that the non-registrant must have made the taxable supply of real property to be entitled to the rebate set out in section 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 a non-registrant builder can “claim a substantial amount of the GST that it paid to suppliers during construction of the building.” A non-Registrant therefore can claim the ITCs as a rebate pursuant to section 257 of the Excise Tax Act.
However, in circumstances where the non-registrant is entitled to recover some or all of the tax that the non-registrant paid on the purchase or improvement of the real property by claiming another type of rebate, the amount of that rebate 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 means a person who
- at a time when the person has an interest in the real property on which the complex is situated, carries on or engages another person to carry on for the person (i…ii)
- in any other case, the construction or substantial renovation of the complex
- … (e)
but does not include
- an individual described in paragraph (a), (b) or (d) who
- carries on the construction or substantial renovation,
- engages another person to carry on the construction or substantial renovation for the individual, or
- acquires the complex or interest in it,
otherwise than in the course of a business or an adventure or concern in the nature of trade.
The Self Supply Rules Under Section 191 of the Excise Tax Act
Subsection 191(1) of the ETA deems a builder to have made a self-supply upon occupancy after a substantial renovation and liable to remit GST/HST to the CRA. However, subsection 191(5) of the act contains an “exception” for personal use by the Registrant. Subsection 191(5) reads:
- Exception for personal use
(5) Subsections (1) to (4) do not apply to a builder of a residential complex or an addition to a residential complex where
- (a) the builder is an individual;
- (b) at any time after the construction or renovation of the complex or addition is substantially completed, the complex is used primarily as a place of residence for the individual, an individual related to the individual or a former spouse or common-law partner of the individual;
- (c) the complex is not used primarily for any other purpose between the time the construction or renovation is substantially completed and that time; and
- (d) the individual has not claimed an input tax credit in respect of the acquisition of or an improvement to the complex.
Subsection 191(1) will only apply to an individual occupying a property he or she constructed if he or she 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 otherwise than in the course of a business or an adventure or concern in the nature of trade is not a builder.
Who Can Apply for a Rebate Pursuant to Subsection 257(1) of the Excise Tax Act?
A Claimant can apply for a rebate pursuant to subsection 257(1) of the Excise Tax Act if they meet the following requirements: (1) they are a GST/HST non-registrant; (2) they paid the GST/HST on real property including, but not limited to, land and building; and (3) they made a taxable sale of such property including a deemed taxable sale pursuant to the Excise Tax Act.
Calculating the Rebate Under Subsection 257(1) of the Excise Tax Act
The amount of the rebate is equal to the lesser of (1) the basic tax content of the real property at the time of the sale; and (2) the GST/HST payable on the sale of the real property, or the GST/HST that would have been payable on the sale had the property not been a party of an election concerning the acquisition of a business or part of a business.
How to Apply for the Rebate Pursuant to Subsection 257(1) of the Excise Tax Act?
To apply for a rebate of GST/HST on any improvements made to a property that is included in a Claimant’s basic tax content, the Claimant must complete Form GST189 General Application for GST/HST Rebates. In addition, Claimants are required to provide the Canada Revenue Agency (CRA) with an explanation describing the circumstances surrounding the rebate claim and include supporting documentation relating to the renovation costs that incurred during the construction of the real property as well as a worksheet summarizing same, if any. In particular, Claimants must provide the CRA with following information along with their General Application for Rebate:
- The address of the property along with a description of the same (i.e., description of whether the property is a vacant land or a substantially renovated home);
- The Claimant’s initial intent for purchasing the property and whether such intent changed subsequent the purchase of that property and a description of later intentions, if any;
- The Claimant’s use of the property (i.e., personal use or rental property); and
- A list of the GST/HST paid on any improvements made to the property along with a description of those improvements.
However, if the property was sold, Claimants are also required to complete Form GST162 Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non-Personalized) and provide the following information along with their rebate application:
- A copy of the statement of adjustment pertaining to the sale of the property;
- The sale date and the closing date;
- The name(s) of the purchaser(s);
- An indication as to whether, or not, the Claimant is non-resident in Canada for tax purposes; and
- Whether, or not, the Claimant was responsible for collecting the tax which the Claimant is reporting the GST/HST payable, by the recipient of the property, on the sale of that property.
Pro Tax Tips – Tax Guidance and Taxable Sale of Real Property
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 ought to have been collected and remitted on the sale of the Property. The sale of a real property may entitle you to claim ITCs for the GST/HST portion of the construction costs prior to the ultimate sale. A rebate request under section 257 of the Excise Tax Act is a complex area of tax law that requires detailed analysis and advice from an experienced Canadian tax lawyer. If you are deemed to have a taxable sale and you were a non-registrant at the time or if you have any questions relating to the rebate under subsection 257(1) of the Excise Tax Act, contact our Canadian GST/HST lawyers for appropriate tax guidance and determine whether you have reasonable circumstances for a rebate claim, for the purposes of the Input Tax Credit Regulations