Claiming ITCs for Pre-Partnership Construction Work through CRA's Section 257 Rebate
Usually, if the partnership had been formed in the regular manner, it would not be eligible to claim Input Tax Credits (ITCs) for various costs incurred before its formation.
However, CRA clarified that if a transfer of beneficial ownership of the land to the partnership took place during a business activity (as opposed to constructing personal residences) while the registered title remained with the individuals, it would be considered a taxable supply.
Consequently, the individuals (assuming they were not GST registered) could potentially qualify for a rebate under ETA s. 257 for the taxes previously paid on the construction planning and work.
Please review the below case study.
Three individuals purchased a lot and hired a contractor to demolish the existing house. They then subdivided the lot into two and engaged another contractor to build two houses, intending to use each as a primary residence.
However, during construction, they changed their plan and decided to sell each lot with the finished house after completion.
Following this decision, the property owners registered a partnership with CRA for GST/HST purposes.
In summary, if the transfer of beneficial ownership of the land to the partnership occurred within a business context, and not for personal residence construction, it would be considered a taxable supply.
Consequently, the individuals, assuming they were not GST registered, might potentially qualify for a rebate under ETA s. 257 for the taxes previously paid on the construction planning and work.
SUMMARY AND CONCLUSION
The formation of a partnership for selling properties and the nature of the land transfer during a business activity may impact the eligibility of Input Tax Credits, with individuals possibly qualifying for a rebate on taxes paid for construction work under specific circumstances.
Disclaimer: “Please note that the information provided in this article is of a general nature and may not be accurate for your specific situation. The information is current as of the date of posting and is not intended to provide legal advice. It's always recommended that you consult with a professional accountant and lawyer for personalized guidance and advice."
