Pursuant to subsection 191(3) of the ETA, the builder of a multiple unit residential complex (MURC) is required to self-assess at the later of the time the construction or substantial renovation of the complex is substantially completed and the time possession or use of a unit is given to the first tenant. The term "substantially completed" is not defined in the ETA. In general, a factual test must be applied to make such determination.
Subsection 191(9) provides for a deeming rule in case all or substantially all of the units in a MURC are occupied. This subsection expands the meaning of substantial completion but does not limit or replace the factual test that applies for purposes of 191(3).
In recent files, some auditors are taking the position that 90% of the units in a MURC must be considered inhabitable to consider the MURC to be substantially completed. The auditors seem to rely on the guidelines provided at par. 11 of the GST/HST memorandum 19-2-3 to the effect that for GST/HST purposes, “substantial completion” means that the construction or substantial renovation of the complex is at a stage of completion (generally, 90% or more) so that an individual is able to reasonably inhabit the premises.
Also, in a Quebec court case (9158-9853 Québec inc. c. Agence du revenu du Québec, 2022 QCCQ 9851), Revenu Québec argued that a majority of the units in a MURC must be inhabitable to be considered substantially completed for purposes of section 225 of the Act respecting the Quebec Sales Tax (the equivalent to subsection 191(3) of the ETA).
Question
Can the CRA confirm how the guidelines in par. 11 of the GST/HST memorandum 19-2-3 should be applied to a MURC and whether there is a threshold of units that must be inhabitable to consider the construction or substantial renovation of a MURC to be substantially completed?
CRA Comments
You have asked the CRA to confirm how the guidelines in paragraph 11 of GST/HST Memorandum 19.2.3, Residential Real Property – Deemed Supplies (the Memorandum), should be applied to a multiple unit residential complex (MURC), specifically, whether there is a threshold of units that must be inhabitable to consider the construction or substantial renovation of a MURC to be substantially completed.
There is no threshold number or percentage of residential units that must be inhabitable in order to consider the construction or substantial renovation of a MURC to be substantially completed. Paragraph 11 of the Memorandum, clarifies that substantial completion is deemed to occur no later than the time when 90% of the units in the complex are occupied.
Subsection 191(3) applies where the builder of a MURC gives possession or use of any residential unit in the complex under a lease, licence or similar arrangement entered into for the purpose of the occupancy of the unit by an individual as a place of residence. Paragraph 191(3)(d) sets out the timing for the liability of a self supply to be the later of:
- the time the construction or substantial renovation is substantially completed, and
- the time possession or use of the unit is so given to the particular person (or the unit is so occupied by the builder).
Subsection 191(9) states:
For the purposes of this section, the construction or substantial renovation of a multiple unit residential complex or a condominium complex, or the construction of an addition to a multiple unit residential complex, shall be deemed to be substantially completed not later than the day all or substantially all of the residential units in the complex or addition are occupied after the construction or substantial renovation is begun.
Thus, the time when the construction of a MURC is substantially completed is not based on the time when a unit is inhabitable. Rather, subsection 191(9) deems that substantial completion occurs no later than the time when all or substantially all (90%) of the units in the complex are occupied as a place of residence. The deeming provision ensures that the timing of the self supply cannot extend beyond the time when all or substantially all of the units are occupied. The date when the units are inhabitable is not the determining factor. Even where construction of a MURC is not yet substantially completed, subsection 191(9) will deem construction to be substantially completed when 90% of the units are occupied.
Subsection 191(9) has effect only where a builder gives occupancy prior to substantial completion of the construction; it has no effect where construction of the building is actually completed before occupancy is given.
We note that paragraph 11 in the Memorandum is an interpretation of how subsection 191(9) applies generally to section 191, and is therefore not specific to subsection 191(3).