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Fractional equity shares

Expert: Ram Madhavan

David asked:

I am buying a fractional equity share in a not for profit club, owned by the members. (a right to use a specific cottage and facilities in pre determined time intervals). If I buy in my name I am obliged to pay GST UP FRONT. I am told however that I can buy it with an incorporated company with a GST NUMBER and be exempt.

Please advise how this should be structured to ensure exemption indefinitely or maximum deferring it.

Ram Madhavan answered:

In the scenario described, it would appear that the right being acquired is to allow an individual to occupy a residential timeshare property for a specified period each year. In that case, unless the timeshare period allows for at least one month of continuous occupation by the individual, GST will be applicable on the purchase price paid for the right. Where the right is acquired by a corporation and the corporation in turn "subleases" the right to the individual, the corporation would have to collect GST from the individual (again assuming that the time share period allows for less than one month of continuous occupation by the individual). However the corporation (provided it is GST registered) can claim an input tax credit for the GST it paid to acquire the right. The end result is that the individual pays GST in either case.

Note that from an income tax viewpoint, if the corporation allows the individual free use of the right, a benefit may be imputed to the individual for tax purposes.

Please be aware that tax opinions are, generally, extremely "fact-sensitive" and require a thorough analysis and review. Consequently, our views expressed above should not be construed as definitive and are not binding on us in any manner whatever.

About the author

Ram Madhavan is the Senior Tax Manager at Mintz & Partners LLP.

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