Land and Associated Real Property

GST/HST memorandum 19.5
October 2001

Overview

For GST/HST purposes, all supplies of land situated in Canada are taxable, unless explicitly exempted. For a detailed list of issues related to supplies of land that are discussed in this Memorandum, see the Table of Contents.

Disclaimer

The information in this memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation, or contact a Canada Revenue Agency (CRA) GST/HST Rulings Centre for more information. These centres are listed in GST/HST Memorandum 1.2, Canada Revenue Agency GST/HST Rulings Centres. If you wish to make a technical enquiry on the GST/HST by telephone, please call the toll-free number 1-800-959-8287.

If you are located in the Province of Quebec, please contact Revenu Québec by calling the toll-free number 1-800-567-4692 for additional information.

Note
This section of Chapter 19 incorporates the information from and supersedes the following policy statements: P-059, Business vs. Adventure or Concern in the Nature of Trade Relating to Sales of Real Property; P-088 Sale of Single Sites in a Residential Trailer Park; P-109, Transfer of Farmland by a Farmer, Holding Sole Title, to One or More Related Persons and Themselves as Joint Tenants; P- 121, Sale of Land Related to a Residential Complex, P-183 Input Tax Credits on Farmland Acquired in Joint Tenancy.

Table of Contents

Note – This section of Chapter 19 incorporates the information from and supersedes the following policy statements: P-059, Business vs. Adventure or Concern in the Nature of Trade Relating to Sales of Real Property; P-088 Sale of Single Sites in a Residential Trailer Park; P-109, Transfer of Farmland by a Farmer, Holding Sole Title, to One or More Related Persons and Themselves as Joint Tenants; P- 121, Sale of Land Related to a Residential Complex, P-183 Input Tax Credits on Farmland Acquired in Joint Tenancy.

Supplies of land by way of lease, licence or similar arrangement

General rule

55. All supplies of land by way of lease, licence or similar arrangement are taxable unless specifically exempted. Exempt supplies of real property are listed under Part I of Schedule V to the Act. In general, exempt supplies of land by way of lease, licence or similar arrangement are supplies of land destined for long-term use as a place of residence by individuals. The treatment of residential land leases and residential head leases and sub-leases is discussed in GST/HST Memorandum 19.2.2 Residential Real Property – Rentals. For a discussion of the meaning of the terms "lease, licence or similar arrangement", see GST/HST Memorandum 19.1, Real Property and GST/HST. Certain supplies of real property made by a charity or a public service body may be subject to additional exemptions found in Parts V.1 and VI respectively of Schedule V.

Sharecrop agreements
[Sch. VI, Part IV, s 9]

56. A supply made to a registrant of farmland by way of a lease, licence or similar arrangement is zero-rated to the extent that the consideration for the supply is a share of the farmland's production of zero-rated crops. For example, if one farmer rents farmland to another for $1,000 plus one-third of the land's farm production (which is a zero-rated crop), the tax is to be charged only on the $1,000 payment. The value of any other consideration given (other than a share in a crop the supply of which would be zero-rated) would also be taxable at 7% or 15%. For further information on zero-rated crops, see GST/HST Memorandum 4.4, Agriculture and Fishing.

Deemed self-supplies of leased land

57. There are a number of provisions of the Act that deem a self-supply of land to have occurred when the land is supplied by way of lease, licence or similar arrangement. The relevant provisions are:

The self-supply rules and these provisions are discussed in GST/HST Memorandum 19.2.3, Residential Real Property – Deemed Supplies.

Special cases

Land allowance for a residential complex

Land allowance

58. A residential complex, defined in subsection 123(1), includes an amount of land that is reasonably necessary for the residential unit's use and enjoyment as a place of residence for individuals. This reference to land in the definition of "residential complex" is usually considered to be the same area of land as is allowed for the purposes of the principal residence exemption for individuals under the Income Tax Act, that is, generally up to a half hectare.

59. If the amount of land that is part of a residential complex is a half hectare or less, no proof of such use and enjoyment is required normally in respect of this amount of land. (Special considerations may apply with respect to the sale of a condominium unit.)

60. Where the total area of land exceeds a half hectare, the excess land is not normally considered to be part of the residential complex unless it can be demonstrated that such excess land is reasonably necessary for the unit's use and enjoyment as a place of residence for individuals. In this regard, the excess land must clearly be necessary for the residential unit or building to function properly as a residence and not simply be desirable. This rule also applies to residential complexes situated on farms.

61. The application of this half-hectare rule is discussed in detail in GST/HST Memorandum 19.2.1, Residential Real Property – Sales.

Land formerly part of a residential complex

Sale of land related to a residential complex
[Policy statement P-121]

62. If land is not part of a residential complex, as that term is defined in subsection 123(1) of the Act, immediately prior to the sale of the land, it does not qualify for exemption under those sections of the Act that would otherwise apply to a sale of a residential complex or in interest in one. This may occur, for example, where land has been severed from a residential complex and supplied separately from the land upon which the complex is situated. Consequently, a sale of such land is not exempt under section 2, 3, 4 or 5 of Part I of Schedule V, which exempt, under certain conditions, a sale of a residential complex or an interest in one. The sale of the land would not usually qualify for exemption under section 5.2 of Part I of Schedule V, which exempts the sale of land that forms part of a residential complex. Section 9 of Part I of Schedule V may apply to exempt the sale of land by an individual provided that the sale meets the other requirements of the section.

Example 1

Where a corporation owns a residential complex and a portion of the land that previously formed part of the complex is severed from it, the subsequent sale of the severed land is taxable. None of sections 2, 3, 4, 5, 5.2 and 9 of Part I of Schedule V applies to exempt the sale of the land by the corporation.

Example 2

An individual owns and resides in a residential complex. The individual severs a portion of the land that previously formed part of the complex. The subsequent sale by the individual of that severed land would not be a sale of a residential complex nor of an interest in one. However, the sale may be exempt under section 9 of Part I of Schedule V, provided that the exclusions from the exemption do not apply.

Example 3

An individual, who owns a residential complex, supplies the residential complex by way of lease. The individual severs a portion of the land that previously formed part of the complex. The subsequent sale of the severed land would not be exempt under section 9 of Part I of Schedule V if the severed land is supplied by way of lease immediately before the sale in circumstances where it would be considered capital property used primarily (more than 50%) in a business (within the meaning of subsection 123(1) of the Act) carried on by the individual with a reasonable expectation of profit. Assuming that the severed land was supplied by way of lease immediately prior to the sale, the land would generally be considered to be capital property, the rental of which would constitute a business for GST/HST purposes. It is a question of fact, however, whether or not the rental business in which the property is being used had a reasonable expectation of profit.

Note that for supplies made after October 4, 2000, where the individual is a registrant and the lease of the property is taxable, the supply by way of sale is excluded from the exemption whether or not the rental business had a reasonable expectation of profit.

Options

63. The definition of real property in subsection 123(1) includes, other than in the Province of Québec, "...every estate or interest in real property, whether legal or equitable...". In the common law provinces and territories, an option Footnote 10 in real property normally creates an equitable interest in the property where the grantee has the right to compel the grantor of the option to sell or transfer an ownership interest in the real property to the grantee.

64. An option contract is a form of a choice given to a person to take some specified action under the conditions specified in the option agreement. If the option gives its holder the choice of buying or not buying, i.e., if the holder can compel the grantor to sell, it is known as a "call option". In the granting of a call option, an equitable interest in the property (being "real property") is transferred from the grantor to the grantee. "Sale" is defined in subsection 123(1) to include "any transfer of the ownership of the property...". Accordingly, the grant of a call option normally constitutes a sale of real property and those provisions of the Act affecting sales of real property apply.

65. If the supply of the call option is a taxable supply, the consideration payable for the acquisition of the option is subject to tax. Where the recipient is registered, the supply of the call option is subject to the self-assessment and reporting rules of subsections 221(2) and 228(4)(acquisition of real property). To the extent that consideration paid is in respect of the ongoing right to use the property and not for the supply of the option itself, subsections 221(2) and 228(4) will not apply.

66. For example, a person may grant another person an option to purchase or lease property. The granting of such rights gives the grantee an equitable interest in the property. The consideration paid for the actual grant of the interest may be considered as being in respect of the sale of the interest but only to the extent such consideration is not paid for the actual use of the underlying property.

67. However any consideration that is not reasonably attributable to the granting of the option, such as consideration payable by the recipient of the option for the use of, or right to use, the property until the option is exercised (whether pre-paid or paid by periodic payments), would not be consideration for the granting of the option and, therefore, would not relate to the sale of the equitable interest, but rather to the right to use the property. Such consideration would generally be considered payable for the supply of the property by way of lease, licence or similar arrangement.

68. The determination of whether the consideration is paid for the grant of the option, i.e., the sale, or for the use, i.e., the lease, of the property may be reflected either in the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, or the actual dealings among the parties involved.

Air rights and density rights

Air rights

69. Air rights are part of the bundle of rights that are owned with the land and generally relate to the access to and control of the area above the surface of a property. Rights to the control of and access to the air space above a parcel of real property constitute interests in the underlying real property and therefore, under both the common law and civil law, i.e., in all provinces of Canada, air rights constitute real property for GST/HST purposes. Accordingly, a supply by way of lease, licence or similar arrangement, of the use or right to use these rights also constitutes a supply of real property for GST/HST purposes.

Density rights

70. Density rights, on the other hand, relate to the ability to construct buildings of a particular height or "density" and are matters of municipal regulatory control. A supply of density rights does not constitute a supply of real property.

Land swaps

Sale
[ss 123(1)]

Value of consideration
[ss 153(1)]

71. A "land swap" is a transfer or an exchange of the ownership of land between two parties. Since the definition of "sale" includes "any transfer of the ownership of the property...", the transfers of land ownership occurring in a land swap are sales of land. If the land swap is a straight exchange of Parcel A for Parcel B, the value of consideration for the supply of Parcel A is the fair market value of Parcel B at the time the supply of Parcel A is made, and vice versa. In these situations, a property can be both the consideration for the supply and a supply in itself, i.e., a barter.

Example

Red Developments has four hectares of land. It exchanges these four hectares for two parcels of two hectares each owned by Blue Developments. The fair market value of the four hectares at the time of the supply is $100,000. The fair market value of the two parcels owned by Blue is $50,000 each or $100,000 in total. Thus, the value of consideration for the supply by Red to Blue is $100,000, and the value of consideration for the supply by Blue to Red is $100,000 (subject to subsection 153(3) as discussed in paragraph 73 below).

72. Generally speaking, when parcels of land are exchanged between two persons who are dealing with each other at arm's length, the fair market value of each of these parcels will be equal. In circumstances where the fair market value of one parcel does not equal the fair market value of the other, one of the persons may be making a supply of real property for consideration that is less than fair market value of the property being supplied. In such cases, subsection 155(1) may apply to deem the property to be supplied for consideration equal to its fair market value where the parties to the barter are seen not to be dealing with each other at arm's length.

Swaps between registrants
[ss 153(3)]

73. In the case of an exchange of like property Footnote 11 between two registrants each of which is acquiring the property as inventory for use exclusively in its commercial activities, the value of the consideration for the property is deemed to be nil. Consequently, the registrants do not have to collect GST/HST on the exchange of the property since the value of the consideration for the supply is deemed to be nil. Thus, if the parties to the exchange described in the preceding example are registrants and each of them is acquiring the land, for example, as vacant lots in a residential subdivision as inventory for use exclusively in its commercial activities, then neither of them would have to calculate tax on the value of consideration of the exchanged land.

Swap includes items other than land

74. A land swap may also involve items other than land. In these situations, the value of consideration is composed of the fair market value of the land at the time of the supply and the fair market value of other personal property being exchanged along with the land. Fair market value is determined at the time of the supply.

Swap includes money

75. Under the provisions of subsection 165(1), "every recipient of a taxable supply made in Canada shall pay ... tax in respect of the supply calculated ... on the value of the consideration for the supply." A supply as defined in subsection 123(1) means "... the provision of property or a service..." As the definitions of both "property" and "service" exclude money, money can be consideration for a supply, but money cannot be supplied for GST/HST purposes Footnote 12. Consequently, as illustrated in the following example, in cases where the recipient of a supply of real property also receives money, the recipient must calculate tax only on the value of consideration of the real property being received. The value of any property given up in exchange for the cash is excluded from the calculation.

Example

Property Manager Corporation and Developer Corporation agree to exchange parcels of land. The parcel of land that the Property Manager Corporation agrees to supply to the Developer Corporation (Parcel A) has a fair market value of $5,000. The parcel of land that the Developer Corporation agrees to supply to the Property Manager Corporation (Parcel B) has a fair market value of $15,000. To complete the exchange of these parcels of land, the Property Manager Corporation has agreed to pay the Developer Corporation an additional sum of $10,000 in cash.

Property Manager Corporation and Developer Corporation agree to exchange parcels of land

In this example, assume that neither corporation is acquiring land as inventory for sale in the course of its commercial activities. Consequently, subsection 153(3) does not apply. Also, assume that both corporations are dealing with each other at arm's length.

In this example, liability for tax is as follows:

  • PMC's tax liability: PMC acquires the land in Parcel B. In acquiring this land, PMC is the recipient of a taxable supply, the land in Parcel B. Consequently, PMC is liable to account for tax calculated on the value of consideration of Parcel B. The value of consideration for the land in Parcel B is the fair market value of Parcel A ($5,000) plus the amount of cash ($10,000), for a total of $15,000. Thus, PMC is liable for tax calculated on $15,000.
  • DC's tax liability: DC acquires the land in Parcel A and $10,000 cash. In acquiring the land, DC is the recipient of a taxable supply, the land in Parcel A. Consequently, DC is liable to account for tax calculated on the value of consideration for Parcel A. The value of consideration for the land in Parcel A is the fair market value of that portion of Parcel B that is exchanged for Parcel A, i.e., $5,000 Footnote 13. Thus, DC is liable for tax calculated on $5,000.

Joint tenancy of farmland

Transfer of farmland by a farmer, holding sole title, to one or more related persons and themselves as joint tenants
[Policy statement P-109]

76. Many farmers, who are registered for GST/HST purposes as sole proprietors of a farming business, hold sole title to the farmland. Occasionally, farmers will transfer title to some or all of the farmland from themselves to their spouses and/or other related persons and themselves as joint tenants for nominal or nil consideration. The "non-farming" joint tenant is not directly involved in the farming operations and prior to the acquisition of this interest in the property, the individual is not engaged in commercial activities and accordingly is not registered. This conversion in the holding of the farmland to a joint tenancy is often done solely for estate planning purposes, such as avoiding probate costs, since under a joint tenancy (unlike a tenancy-in-common) the surviving joint tenant automatically receives title to the entire property without the property falling into the deceased joint tenant's estate.

77. The question arises as to whether or not the transfer of the farmland from sole ownership to joint tenancy constitutes a taxable supply made by the farming joint tenant to the non-farming joint tenant. Since the non-farming joint tenant is not registered and does not deal with the farming joint tenant at arm's length, the non-arm's length rule in section 155 of the Act would apply to deem the consideration to be equal to the fair market value of the supply. As a non-registrant, the non-farming joint tenant has no means of claiming an ITC, and no rebate would be available.

78. However, where there is a transfer of farmland in the following circumstances, the CCRA will not apply section 155 of the Act:

79. It is possible that some persons may have registered to avoid the application of subsection 155(1) requiring payment of GST/HST on the fair market value of the interest being transferred to the non-farming joint tenant. To ensure equal treatment between those who registered solely for this purpose and those who did not register, retroactive cancellation of registration in such cases is appropriate.

80. However, under paragraph 171(3)(b) of the Act read together with subsection 207(1), GST/HST would have to be paid equal to the basic tax content of the non-farming joint tenant's interest at the time the registration was cancelled. To avoid the payment of GST/HST when registration is cancelled, the CCRA will not apply subsection 171(3) of the Act in circumstances where the person applied for registration solely to avoid the application of the non-arm's-length rule in section 155.

81. There will be no time limit for registered non-farming joint tenants applying to cancel their registration if they registered solely to avoid the application of the non-arm's-length rule upon the creation of the joint tenancy, and for no other reason.

82. Cases that are similar to those addressed by this administrative position, but which do not precisely fit the criteria set out in paragraph 78, will be dealt with on a case-by-case basis and should be referred to the local tax services office.

Example 1

Mr. Farmer carries on a farming business as a sole proprietor and is registered for the GST/HST. Mr. Farmer holds sole title to the farmland. For estate planning purposes, he transfers the farmland to his spouse, Mrs. Farmer, and himself as joint tenants for $1.00. Mrs. Farmer is not actively involved in the farming operation, does not earn or report any business income from the farming operation on her own account for income tax purposes, and is not registered for the GST/HST since she has no commercial activity of her own. The farmland will continue to be used in the same manner as it was used prior to the creation of the joint tenancy.

As this case satisfies the criteria set out in paragraph 78, section 155 will not be applied and GST/HST will not be payable on the creation of this joint tenancy.

Example 2

Mrs. Acres carries on a farming business as a sole proprietor and is registered for the GST/HST. Mrs. Acres holds sole title to the farmland. For estate planning purposes, Mrs. Acres transfers the farmland to her spouse, Mr. Acres, and herself as joint tenants for $2.00. Mr. Acres is not actively involved in the farming operation and does not earn or report any business income from the farming operation on his own account for income tax purposes. However, Mr. Acres is the sole proprietor of a bookkeeping business and is registered for the GST/HST. The farmland will continue to be used in the same manner as it was used prior to the creation of the joint tenancy.

As this case satisfies the criteria set out in paragraph 78, section 155 will not be applied and GST/HST will not be payable on the creation of this joint tenancy.

Example 3

Mr. Gardener carries on a farming business as a sole proprietor and is registered for the GST/HST. Mr. Gardener holds sole title to the farmland. Mr. Gardener transferred the farmland to his spouse, Mrs. Gardener, and himself as joint tenants for $3.00 for estate planning purposes. Mrs. Gardener is not actively involved in the farming operation, and does not earn or report any business income from the farming operation on her own account for income tax purposes. However, prior to the transfer of the farmland, Mrs. Gardener was advised to register to avoid paying GST/HST on the fair market value of her joint-tenancy interest. The farmland continues to be used in the same manner as it was prior to the creation of the joint tenancy. Mrs. Gardener applies to have her registration cancelled.

Since the transfer was only for estate planning purposes and was to a related person for a nominal consideration with no change occurring in the use of the farmland, and since Mrs. Gardener registered solely to avoid paying GST/HST at fair market value on the creation of the joint tenancy, there will be no payment of GST/HST pursuant to subsection 171(3) when her registration is cancelled.

Input tax credits on farmland acquired in joint tenancy
[Policy statement P-183]

83. A problem arises in regards to claiming ITCs when a farmer who is registered for GST/HST purposes (the "farming joint tenant") purchases farmland for use in the farming business, but title to the farmland is taken in the name of the farmer and a related individual or individuals as joint tenants. The problem is that the second individual (the "non-farming joint tenant", usually a spouse but not necessarily so) is unable to claim ITCs since this individual is not involved in the farming operations and, at the time of the acquisition of the second individual's interest in the property, this individual has no commercial activities and accordingly is not registered.

84. Unless one of the exempting rules in Part I of Schedule V applies, the acquisition of farmland is a taxable supply. In cases where joint tenancy is not an issue, the recipient of the supply (if registered) would self-assess and account for the tax payable pursuant to subsections 221(2) and 228(4). Where the farmland is being acquired for use in a commercial activity that is the business of farming, section 169 allows the recipient to claim an ITC.

85. However, where title is taken in the names of both the farming and non-farming joint tenants, there is a question concerning whether or not the farming joint tenant can claim an ITC for the entire amount of tax paid or payable in respect of the acquisition of the farmland. The question arises because the farming joint tenant has received only a partial interest in the farmland, and therefore may be able to claim only a partial ITC. The ITC the farming joint tenant would be eligible to claim would be equal to the amount of tax that was payable in respect of the farming joint tenant's interest in the farmland only. The result being that while the farmland was acquired exclusively for use in the course of a commercial activity of a registrant, not all of the tax would be recoverable.

86. When farmland is taken in joint tenancy, the agreement of purchase and sale with the vendor may not be signed by all of the joint tenants. Nevertheless, regardless of whether or not all the joint tenants signed the purchase and sale agreement, each joint tenant may hold the registered title under the applicable land laws. Thus, with joint tenancies, one of three situations could arise:

87. Unless Part IX of the Act provides otherwise, the recipient of the supply, that is, the person who is liable to pay the consideration under the agreement for the supply, must normally claim ITCs. With respect to the first two scenarios listed in paragraph 86, it is the CCRA's position that where the four conditions in paragraph 88 are met, the farming joint tenant would be liable to pay the consideration (whether alone or jointly) and therefore is a recipient of the supply. Accordingly, where there is an acquisition of farmland by two or more persons as joint tenants, the registered farming joint tenant may claim ITCs as if the farmland had been registered in the farming joint tenant's name alone.

88. The four conditions that must be satisfied are:

89. In the third scenario given in paragraph 86, where only the non-farming joint tenant signs the agreement of purchase and sale, it is doubtful whether or not the farming joint tenant could be considered to be a recipient and thus eligible to claim ITCs. The eligibility to claim ITCs in such cases will be determined by the CCRA according to the facts of each case.

90. Where both the agreement of purchase and sale and the title to the land are solely in the name of the non-farming individual, this individual is the sole owner of the farmland. If the individual who owns the farmland allows another person to use the land to operate the farm, then it is the CCRA's position that the owner of the farmland is making a supply of a right to use the land to the person operating the farm. This supply by the owner is a commercial activity for GST/HST purposes. The non-farming individual who owns the farmland would be eligible to register and could claim ITCs for the tax paid on the acquisition of the farmland.

91. In any case where all the tax is allowed as ITCs, the farmland is considered to have been used 100% in commercial operations, and therefore excluded from exemption by paragraph 9(2)(a) of Part I of Schedule V (capital property used primarily in a business with a reasonable expectation of profit). A subsequent sale of the farmland by the joint tenants will be subject to GST/HST. If the subsequent sale of the farmland is by the surviving non-farming joint tenant, the sale may be subject to GST/HST depending on the facts of the particular case.

Transitional adjustment

92. Prior to the implementation of Policy Statement P-183, Input Tax Credits On Farmland Acquired In Joint Tenancy, where this administrative position was originally set out, there may have been situations where a non-farming joint tenant registered solely to ensure that the entire amount of tax paid on the acquisition of the farmland could be recovered through ITCs (i.e., each joint tenant claimed an ITC for their portion of the total tax paid) even though the non-farming joint tenant was not engaged in a commercial activity. Where the guidelines given in paragraph 88 are met, cancelling registration of the non-farming joint tenant ensures equal treatment between those who registered and those who did not. Cancelling registration can be initiated either by the non-farming joint tenant or by the CCRA when it is clear that these guidelines apply.

93. Usually, pursuant to paragraph 171(3)(b) read together with subsection 207(1), cancelling registration requires the non-farming joint tenant to pay GST/HST equal to the basic tax content of the non-farming joint tenant's interest in the farm at the time registration is cancelled. However, in the situation outlined above, paragraph 171(3)(b) and subsection 207(1) may not apply because these provisions apply only where the property was used in a commercial activity prior to registration being cancelled. In cases where the non-farming joint tenant did not have a commercial activity, that person was not entitled to register. However, even though paragraph 171(3)(b) and subsection 207(1) would not apply, a person whose registration is retroactively cancelled because the individual was never entitled to register may be assessed by the CCRA for ITCs that the person claimed but was not entitled to claim.

94. In this situation, the CCRA will not insist upon a recapture of the ITCs through a formal notice of assessment if the following conditions are met:

95. Such an agreement should be provided in writing. The farming joint tenant must not make a subsequent claim for the ITCs that had been previously claimed by the non-farming joint tenant and have not been recaptured since this would result in an excess amount of GST/HST being claimed as ITCs.

96. There will be no time limit for non-farming joint tenants seeking to have their registration cancelled where they registered solely for purposes of recovering the tax paid on the acquisition of the farmland as joint tenants, and for no other reason. However, it is to the advantage of such persons to apply promptly to have their registration cancelled and avoid the necessity of filing nil GST/HST returns.

97. Cases that are similar to those addressed by these guidelines, but which do not precisely fit the criteria set out in paragraph 88, such as cases not involving farmland or cases involving the third scenario in paragraph 86, will be dealt with by the CCRA on a case-by-case basis.

Example 1

Mr. Meadows carries on a farming business as a sole proprietor and is registered for the GST/HST. Mr. Meadows will be signing an agreement of purchase and sale to purchase additional farmland. When the sale closes, title to the farmland will be registered in the name of Mr. and Mrs. Meadows as joint tenants solely for estate planning purposes. Mrs. Meadows is not actively involved in the farming operation, does not report any business income from the farming operation on her own account for income tax purposes, and is not registered for the GST/HST because she is not engaged in any business. The farmland will be used exclusively in Mr. Meadows' farming business, which is a commercial activity.

In this case, because the situation satisfies the criteria given in paragraph 88, Mr. Meadows will be entitled to claim an ITC pursuant to section 169 for the full amount of tax paid on the acquisition of the farmland.

Example 2

Mrs. Land carries on a farming business as a sole proprietor and is registered for the GST/HST. Mrs. Land, her husband and their daughter will be signing an agreement of purchase and sale to purchase additional farmland. When the sale closes, title to the farmland will be registered in the name of Mrs. Land, Mr. Land and their daughter as joint tenants. The joint tenancy is created solely for estate planning purposes. Neither Mr. Land nor the daughter is actively involved in the farming operation, and neither of them earns or reports any business income from the farming operation on his or her own account for income tax purposes. However, Mrs. Land pays her husband a salary for the bookkeeping services he provides with respect to the farm. Mr. Land is not registered for the GST/HST as he is a full-time employee at a local factory. However, the daughter is registered for the GST/HST as she operates a separate business on her own. The farmland will be used exclusively in Mrs. Land's farming business, which is a commercial activity.

As this case satisfies the criteria given in paragraph 88, Mrs. Land will be entitled to claim an ITC for the full amount of tax paid on the acquisition of the farmland.

Example 3

Mr. Fields carries on a farming business as a sole proprietor and is registered for the GST/HST. Mr. Fields signed an agreement of purchase and sale to purchase additional farmland. The sale closed and title to the farmland was registered in the name of Mr. and Mrs. Fields as joint tenants solely for estate planning purposes. Mrs. Fields is not actively involved in the farming operation, and does not earn or report any business income from the farming operation on her own account for income tax purposes. However, prior to the acquisition of the farmland, Mrs. Fields registered for GST/HST purposes. Mrs. Fields claimed an ITC for half of the total tax paid on the acquisition of the farmland. The farmland is used exclusively in Mr. Fields' farming business. Mrs. Fields has applied to have her registration cancelled. Mrs. and Mr. Fields have agreed in writing not to claim an additional ITC for the amount of tax originally claimed as an ITC by Mrs. Fields.

Since all four conditions for the application of the CCRA's position on the acquisition of farmland in joint tenancy are met in this case and Mrs. Fields was registered solely to claim an ITC for the tax paid with respect to her joint tenancy interest, her registration will be cancelled. Mrs. Fields will not be required to repay the ITC claimed by her on the acquisition of the farmland, provided Mr. Fields does not claim any additional ITC with respect to the tax paid on the acquisition of the farmland.

Enquiries

If you wish to make a technical enquiry on the GST/HST by telephone, please call one of the following toll-free numbers:

1-800-959-8287 (English service)
1-800-959-8296 (French service)

General enquiries about the GST/HST should be directed to Business Enquiries at one of the following toll-free numbers:

1-800-959-5525 (English service)
1-800-959-7775 (French service)

If you are in the Province of Québec, please call the following toll-free number:

1-800-567-4692 (Ministère du Revenu du Québec)

All GST/HST memoranda and other Canada Customs and Revenue Agency publications are available on Internet at the CCRA site under the heading "Technical Information" in "Tax".

Page details

Date modified: