Taxable sale of real property by a non-registrant and subsection 257(1) of the Excise Tax Act – Canadian Tax Lawyer

Introduction – Section 257 of the Excise Tax Act

Where the sale of real 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 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 purposes, who makes a taxable sale of real property, to claim ITCs in the form of a refund on the tax paid on the construction prior to sale. Specifically, this rebate is available when a non-registrant makes a taxable sale of real property and the non-registrant has paid the GST/HST on the purchase of that real property and/or improvements (i.e. i.e. construction or major renovations) made to the building. but previously, the non-registrant was unable to recover the tax (eg because the non-registrant 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 shall, subject to subsections (1.1) and (2), pay the person a rebate 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.

Consequently, a non-registrant can request a refund of part of the total tax payable on the purchase and/or improvement made to the building. In Grondin v. La Reine, 2015 CCI 169, Judge B. Paris held that “it is clear from the wording of this provision that the non-registrant must have made the taxable supply of the immovable to be entitled to the refund provided for 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, an unregistered builder may “claim a substantial amount of the GST he paid to suppliers during the construction of the building.” A non-registrant can therefore claim the ITCs as a refund in accordance with section 257 of the Excise Tax Act.

However, in cases where the non-registrant is entitled to recover part or all of the tax he paid on the purchase or improvement of the building by claiming another type of refund, 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 “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 immovable property on which the immovable is situated, operates or engages another person to operate for the person (i.ii)

    • in any other case, the construction or substantial renovation of the whole


  • . (e)

but does not include

  • a person described in paragraphs (a), (b) or (d) who

    • continues construction or substantial renovation,

    • hires another person to do the construction or major renovations for the individual, or

    • acquires the complex or an interest in it,

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

The self-supply rules under section 191 of the Excise Tax Act

Under subsection 191(1) of the ETA, a builder is deemed to have made a self-supply upon 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 personal use by the holder. Subsection 191(5) reads as follows:

  • 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:

    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 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;

    3. the building is not used primarily for other purposes between the time the construction or renovation is substantially completed and that time; and

    4. the individual did not claim an input tax credit in respect of the acquisition or improvement of the building.

Subsection 191(1) will only apply to an individual occupying property that he has constructed unless 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 property other than as part of a business, risky 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?

An applicant may claim a refund pursuant to subsection 257(1) of the Excise Tax Act if they meet the following requirements: (1) they are 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 made a taxable sale of that property, including a deemed taxable sale under the Excise Tax Act.

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

The amount of the refund is equal to the lesser of the following amounts: 1° the basic tax content of the immovable 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 real property not been the subject of an election for the acquisition of a business or part of a business.

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

To claim a GST/HST rebate on any improvement made to a 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 outlining the circumstances surrounding the claim for reimbursement and include supporting documentation relating to renovation costs incurred during construction of the building. as well as a worksheet summarizing these. , if only. In particular, claimants must provide the CRA with the following information with their general refund request:

  • The address of the property along with a description of it (i.e., a description of whether the property is vacant land or a house that has undergone major renovations);

  • The applicant’s original intention to purchase the property and whether this intention has changed after the purchase of this property and a description of subsequent intentions, if any;

  • The applicant’s use of the property (i.e. personal use or rental property); and

  • A listing of the GST/HST paid on all improvements made to the property along with a description of those improvements.

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

  • A copy of the statement of adjustment relating to the sale of the property;

  • The date of sale and the closing date;

  • The name(s) of the buyer(s);

  • An indication of whether or not the applicant is a non-resident of Canada for tax purposes; and

  • Whether or not the plaintiff was responsible for collecting the tax he claims, the GST/HST payable, by the purchaser of the property, on the sale of that property.

Pro 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 real property may entitle you 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 advice from an experienced Canadian tax lawyer. If you are deemed to have made a taxable sale and you were a non-registrant at the time or if you have questions regarding the refund under subsection 257(1) of the Excise Tax Act, contact with our Canadian GST/HST lawyers for the proper information. tax advice and determine if you have reasonable circumstances to claim a refund, for the purposes of the Input Tax Credit Regulations

FAQs

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

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

The amount of the refund is equal to the lesser of the following amounts: 1° the basic tax content of the immovable 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 real property not been the subject of an election for the acquisition of a business or part of a business.

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