17 November 2004 GST/HST Interpretation 39987 - Temporary Importation of Amusement Rides

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX and subsequent E-mail messages and telephone conversations, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. I apologize for the delay taken to answer your letter.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. Your company XXXXX provides management and consulting services to clients XXXXX. XXXXX has its headquarters in XXXXX and its employees have permanent residences in that city.

2. XXXXX engaged in a series of contracts in the XXXXX area. This necessitated having some of its personnel occasionally spend time in XXXXX. XXXXX is obligated to cover the accommodation costs of its personnel while they are working temporarily away from their permanent residences in XXXXX. XXXXX purchased a newly built condominium in downtown XXXXX ("the Condominium") where its employees could stay temporarily at no charge. The purchase price of the Condominium included 7% GST.

3. The sole use of the Condominium is to provide temporary accommodation for XXXXX personnel engaged in generating income for the company in the XXXXX area. The Condominium remains vacant when not occupied for this specific purpose. In all cases, the permanent residences of the XXXXX personnel are not within daily commuting distance of the XXXXX area.

4. In your letter, you have stated that according to Interpretation Bulletin IT-91 -"Employment at Special Work Sites or Remote Work Locations," it is your view that, for income tax purposes, the XXXXX location for XXXXX employees is a special work site and the supply of this type of temporary accommodation to employees by XXXXX does not constitute a taxable benefit to the employees.

Ruling Requested

XXXXX is entitled to claim full input tax credits ("ITCs") in respect of the GST paid upon the purchase XXXXX of the Condominium on the basis that it is a property acquired for consumption, use or supply by XXXXX in the course of its income generating activities, i.e. its commercial activities of providing management and consulting services.

Ruling Given

Based on the facts set out above, we rule that XXXXX is not entitled to claim ITCs in respect of GST paid upon its purchase XXXXX of the Condominium.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act ("the Act"), or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The GST is payable by the recipient of a "taxable supply". ^[i]1

The term "commercial activity" is also defined in subsection 123(1) of the Act. The relevant parts of that definition read as follows (emphasis added):

"commercial activity" of a person means

(a) a business carried on by the person (other than a business carried on by an individual or a partnership, all of the members of which are individuals, without a reasonable expectation of profit), except to the extent to which the business involves the making of exempt supplies^[ii]2 by the person,

(b) an adventure or concern of the person in the nature of trade (other than an adventure or concern engaged in by an individual or a partnership, all of the members of which are individuals, without a reasonable expectation of profit), except to the extent to which the adventure or concern involves the making of exempt supplies by the person, and

(c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply;

Part I of Schedule V to the Act lists a number of exempt supplies relating to real property. Paragraph 6(b) of Part I of Schedule V reads as follows:

A supply

...

(b) of a residential unit ^[iii]3 by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the consideration for the supply does not exceed $20 for each day of occupancy.

From the provision described in paragraph 6(b) of Part I of Schedule V in conjunction with the definition of residential unit, it would follow that XXXXX provision of temporary lodging to its employees in the Condominium at no charge is an exempt supply. Consequently, this undertaking would fall outside the definition of "commercial activity".

A person whose business consists of providing taxable supplies may claim a refund of GST (referred to as ITCs) it has paid on goods acquired and services obtained for its business. The statutory basis for a claim for an ITC is subsection 169(1), the relevant parts of which read as follows (emphasis added):

169(1) Subject to this Part, where property or a service is supplied to or imported by a person and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply or importation becomes payable by the person or is paid by the person without having become payable, the input tax credit of the person in respect of the property or service for the period is the amount determined by the formula

A x B

Where

A is the total of all tax in respect of the supply or importation that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and

B is [...]

(c) in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service for consumption, use or supply in the course of commercial activities of the person.

Based on the formula in subsection 169(1) for ITCs, a person making supplies of a residential unit as a place of lodging for under $20 per day (which as explained above falls outside the definition of "commercial activity") would find that, with respect to any GST it must pay on taxable supplies acquired in the course of providing this lodging (such as the GST paid on the Condominium purchase), the amount in paragraph (c) would be zero. Thus, there would be no entitlement to ITCs in respect of the GST paid for the purchase of the Condominium.

We appreciate your representation that the Condominium was used to generate income for XXXXX, which may be the commercial reality of XXXXX situation. However, the existence of an inextricable tie between the lodging provided to employees through the use of the Condominium and XXXXX management and consulting services business does not satisfy the conditions for ITC entitlement found in subsection 169(1) and in particular the definition of "commercial activity" as that term is used in subsection 169(1) of the Act.

In The Queen v. 398722 Alberta Ltd. (2000) 2880 ETC, the Federal Court of Appeal stated (at paragraph 22):

Any business may consist of a number of components, each of which is integral to the business as a whole. The definition of "commercial activity" recognizes that possibility but requires, for GST purposes, that any part of the business that consists of making exempt supplies be notionally severed.

The statutory definition indicates that XXXXX business is not a "commercial activity" in so far as it consists of providing temporary lodging to its employees in the Condominium at no charge. On that basis XXXXX is not entitled to ITCs to offset the GST payable on the purchase of the Condominium.

Additional Information

In your letter, you have stated that according to Interpretation Bulletin IT-91 Employment at Special Work Sites or Remote Work Locations, it is your view that, for income tax purposes, the XXXXX location for XXXXX employees is a special work site.

While the Act provides for the treatment of what is referred to as remote work sites for GST purposes under subsection 191(7) of the Act, ^[iv]4 there is no similar treatment provided for special work site under the Act for GST purposes. This matter has been brought to the attention of officials of the Department of Finance.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-1433.

Yours truly,

Bao Tran
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/11/12 — RITS 42944 — Section 180 - Entitlement to Input Tax Credit