New Home Purchase Agreements in Alberta

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-083

Date of Issue

September 17, 1998

Subject

New Home Purchase Agreements in Alberta

Legislative Reference(s)

Subsections 121(2), 123(1) definitions of "builder", "real property", "residential complex", "sale"; sections 133, 168, 254, 336, 337, and 339 of the Excise Tax Act.(ETA)

National Coding System File Number(s)

11870-1; 11870-4-1; 11870-4-2

Effective Date

January 1, 1991

Text

Notice:

This policy statement will discuss the application of the Goods and Services Tax ("GST") to transactions for the purchase of a residential complex from a home builder in the Province of Alberta, where the land is transferred to the purchaser prior to completion of the residential complex. Transactions of a similar nature in other provinces will be determined on a case by case basis, depending upon provincial legislation.

Issue and Decision:

Some home builders in Alberta are entering into real property transactions that can be summarized as follows:

• The builder advertises new houses for sale. The houses are not yet built.
• The customer responds to the advertisements, and the builder and purchaser enter into a "purchase agreement" for the land and a house that the builder will construct on the lot by the date specified in the agreement. It is not a custom-built home.
• The purchase agreement requires the purchaser to make instalment/progress payments, according to a schedule set out in the agreement.
• Because the purchaser may have to seek mortgage financing to make the instalment payments, the builder transfers title to the land, which may also carry with it title to whatever portion of the construction has been completed to that date, at or immediately before the initial instalment payment is due.
• The home builder retains a real property interest in the real property, in the nature of a vendor's lien, until the final closing. The purchaser does not obtain possession or occupancy of the home and land until closing.

Real property transactions as described above may have implications with respect to the following issues:

1. The availability of the FST new housing rebate.

2. The ability of the customer to transfer the GST new housing rebate to the home builder.

3. The timing of liability for payment of the GST.

4. The application of the GST during the transitional period.

The application of the GST with respect to these issues will be dependent upon the facts of the particular transaction. The terms of the agreement between the parties and the surrounding circumstances should enable the transaction to be characterized either as a purchase of a residential complex or a purchase of land and construction services. This policy addresses those situations where the purchaser acquires a completed house from a builder who supplies both the land and building. The GST implications may differ where the agreement between builder and purchaser is primarily in the nature of a construction contract.

Based on the fact scenario set out above, it is the Department's view that transactions for the purchase of home and land from a builder in the Province of Alberta should be treated as follows:

1. The purchaser will generally be entitled to claim the FST new housing rebate provided GST was paid on the full value of the residential complex (including land and other taxable supplies provided by the builder before 1991) and all other conditions set out in subsection 121(2) are satisfied.

2. The purchaser will generally be entitled to claim the GST new housing rebate for builder-built homes under section 254 where the criteria set out in that provision are satisfied. Accordingly, the rebate can be transferred by the customer to the developer in accordance with the requirements of subsections 254(4) and 254(5). The timing of entitlement to the GST new housing rebate is only after occupation of the complex by the purchaser.

3. The GST will generally be payable at the final closing, when possession of the complex is transferred to the customer. GST remittance by the builder remains at the earlier of when the GST is paid or payable.

4. In the case of a transaction of this nature straddling the date of implementation of the GST, the GST will generally be payable on the full consideration for the complex (notwithstanding that part of the consideration was with respect to the real property transferred prior to 1991) where the parties agree that it is a supply of a residential complex such that the FST new housing rebate is available and the GST new housing rebate may be transferred from the purchaser to the builder.

SAMPLE RULINGS

Statement of Facts

1. ABC Homes Ltd. ("ABC Ltd. ") is a company that is involved in the home building business in the province of Alberta.

2. ABC Ltd. advertises new houses for sale. The houses are not yet built.

3. On November 15, 1990, a purchase agreement in entered into with ABC Ltd. for the land and a house that ABC Ltd. will construct on the lot by February 1, 1991. It is not a custom-built home.

4. The purchase agreement requires the purchaser to make instalment/progress payments, according to a schedule set out in the agreement.

5. For purposes of obtaining mortgage financing, in order to make the instalment payments, the home builder arranges to transfer title to the land to the purchaser at or before the time of one of the early instalment payments.

6. ABC Ltd. retains a real property interest in the property, in the nature of a vendor's lien, until the final closing. The purchaser obtains possession and occupancy of the home and land at the time of closing.

Rulings requested

1. Is the purchaser eligible to claim the FST new housing rebate?

2. Is the purchaser entitled to transfer his/her entitlement to the GST new housing rebate to the home builder?

3. When does the purchaser become liable for the payment of the GST?

4. How does the GST apply during the transitional period?

Rulings Given

Based on the foregoing circumstances, it is the Department's view that such transactions in Alberta should substantively be treated as a sale of a newly constructed home by a builder. As a result:

1. The purchaser will be entitled to claim the FST new housing rebate where GST was paid on the full value of the complex and all other conditions of subsection 121(2) are satisfied.

2. The purchaser will be entitled to claim the GST new housing rebate for builder-built homes under section 254 where the criteria set out in that provision are satisfied. Accordingly, the rebate can be transferred by the purchaser to the home builder in accordance with the requirements of subsection 254(4) and (5). The GST new housing rebate is payable only after occupancy of the complex by the purchaser.

3. GST will be payable at the final closing, when possession of the complex is transferred to the purchaser and the vendor's lien is extinguished. GST remittance by the builder remains at the earlier of when the GST is paid or payable.

4. If the FST new housing rebate is claimed and/or the GST new housing rebate is transferred to the builder in accordance with section 254, the GST will be payable on the full consideration for the residential complex (notwithstanding that part of the consideration may have been with respect to the real property transferred prior to 1991).

(Note that this ruling may differ if the substance of the agreement provides that the customer was contracting for separate supplies rather than a residential complex from the builder. In addition, the builder must have owned the land which was transferred to the customer. It would not apply if the builder transferred the land from another party based on an option or similar arrangement that the developer held on the land.)