Noteworthy GST/HST Decisions In Real Estate From 2019

CRA's continued focus on the real property sector resulted in significantly more audits and tax assessments in 2019, as well as a few noteworthy court decisions.Participants in the real property sector, as well as tax advisors, may find the following cases to be of interest.

Roofmart - Taxpayer required to disclose information about its biggest customers to the CRA

Roofmart1 demonstrates the breadth of CRA's powers to compel information disclosure.

In Roofmart, the Federal Court ordered the company, a roofing and siding supplier, to comply with the CRA's request for it to identify and disclose customers whose annual purchases exceeded a certain threshold. Roofmart was also required to disclose customers:

contact information; CRA business numbers; itemized transaction details; and bank account information. The CRA uses third-party requests, such as the request in Roofmart, to identify targets for future tax audits. Businesses should be aware of these CRA powers, but should also be aware of the limits to these powers and other important considerations with respect to the CRA's intended use of disclosed information.

Note that Roofmart has been appealed to the Federal Court of Appeal.

Prima Properties – Lessors can face serious GST/HST issues when tenants' activities change

Prima Properties2 highlights the need for lessors to consider the GST/HST implications of their leasing arrangements, and to inquire about their tenants' intended use of a space.

In Prima Properties, the taxpayer purchased the Bosman Hotel in Vancouver and immediately leased it to the previously owner to continue operating as a hotel. The taxpayer subsequently entered into a lease with PHS Community Services Society who would use the property to provide long-term housing support to the homeless instead of operating the property as a hotel. The CRA audited Prima Properties and determined that at the time the original lease ended and the PHS lease began, there was a change of use of the property from commercial to non-commercial (as a residential complex), which would have required the lessor to self-assess and pay GST/HST to the CRA. Fortunately for the appellant, the CRA had reassessed them beyond the normal 4-year reassessment period and the Court held that the CRA's reassessment of the appellant was statue barred. Prima Properties is an important reminder to lessors that the intended use of their property and their tenants' activities (or changes to such activities)...