24 December 1996 GST/HST Interpretation 11950-1[1] - GST Status of Shares Supplied by a Mobile Home Cooperative

Dear XXXXX

I refer to your E-mail message of November 18, 1996 and previous correspondence concerning the GST status of shares supplied by a mobile home cooperative.

Statement of Facts

From the information provided, our understanding of the facts is as follows:

1. XXXXX purchased some land, subdivided into XXXXX lots, with a view to setting up a mobile home cooperative, namely XXXXX ("co-op"), incorporated under XXXXX[.] The land is zoned for residential and/or mobile home use.

2. The land will be sold to the co-op which will eventually turn the sites over to individuals who want to park a mobile home on it. They first have to obtain a share to become a member of the co-op ("member"). The share gives the member the right to hold and use a specific site until the share is redeemed upon his/her death, but the legal title to the site remains with the co-op. When a member dies, the co-op may redeem the member's share by paying the person entitled to the share the amount paid up on the share. However, that person shall not automatically become a member. XXXXX shares are sold in total.

3. Membership in the co-op also allows the members to use the common grounds. The members are required to pay monthly "housing charges" and other additional charges for "taxes, sums in lieu of taxes, licences, assessments, insurance, costs and adequate reserves for repairs, replacements, upkeep, maintenance and operation, and all other fees, costs and expenses incurred in the management of the lands and the development". These charges are determined by the elected Directors of the co-op. There are XXXXX directors elected by the members from their own ranks.

4. The XXXXX lots measure from XXXXX[.]

Issues Raised

1. How does the GST apply to the supply of shares of the co-op?

2. How does the GST apply to the monthly "housing charges"?

3. Is XXXXX required to self-supply? Is it entitled to ITCs?

Analysis

1. Supply of shares

The supply of a share of the co-op is not deemed to be a supply of a membership under section 140 of the Excise Tax Act ("Act"): this section does not apply to "cooperative corporation(s) the main purpose of which is not to provide dining, recreational or sporting facilities", and the co-op's XXXXX main purpose is to provide land for residential use. The supply of shares of XXXXX falls within paragraph (d) of the definition of "financial service" pursuant to subsection 123(1) of the Act, and consequently is exempt from GST under section 1 of Part VII of Schedule V to the Act.

Since it gives the member the right to occupy and use a specific mobile home site until his/her death, the supply made by the co-op is also one by way of lease, licence or similar arrangement. For GST purposes, a supply of the right to use real property under a lease, licence or similar arrangement is a supply of "real property", as defined under subsection 123(1) of the Act, pursuant to subsection 136(1) of the Act.

The supply is not one by way of sale because ownership of the site is not transferred from the supplier to the recipient and the right of the recipient to occupy the site is limited to his/her lifetime. Moreover, to occupy the site and retain his/her membership, the member must pay "housing charges."

As a result, the sites of the co-op are considered to be supplied by way of lease, licence or similar arrangement, and the co-op qualifies as a "residential trailer park" because it is a "trailer park", as defined in subsection 123(1) of the Act, comprised of XXXXX sites (more than two), 90% or more of which are intended to be leased to individuals for occupation with a mobile home for a term of at least one month.

Based on all the above, the supply made by the co-op can be viewed as a supply of real property which would qualify for exemption from GST as a "supply of a site in a residential trailer park by way of lease, ... or similar arrangement for a period of at least one month" made to an owner of a mobile home, under subparagraph 7(b)(i) of Part I of Schedule V to the Act.

2. "Housing charges" and additional charges

The "housing charges" and other additional charges are paid by members under XXXXX[.] They represent many different expenses in the operation of XXXXX, i.e. taxes, insurance, operation and maintenance, etc. and the failure to pay would be cause for eviction from the park and termination of membership. Therefore, the charges are regarded as periodic payments in respect of a lease, licence or similar arrangement, which qualifies for exemption from GST under subparagraph 7(b)(i) of Part I of Schedule V to the Act.

3. Self-supply by XXXXX

Under subsection 190(4) of the Act, the co-op is deemed to have both made and received a taxable supply of the park at the time of the first occupancy of a mobile home site by a member. At that time, the co-op is required to account for tax on this supply based on the fair market value of the entire "residential trailer park". Before that time, XXXXX, if a GST registrant, is entitled to claim eligible ITCs for tax paid on the preparation of the park, including the purchase of the park from XXXXX.

After that time, the co-op will be considered to be providing exempt long-term residential rent and will not be entitled to claim ITCs for any GST paid on operating expenses.

I hope the above information is helpful. If you have any further questions, please contact me at (613) 952-9587.

Yours truly,

Bao Tran
Policy Officer
Financial Institutions & Real Property
GST Rulings & Interpretations