Section 136

Subsection 136(1) - Lease Etc. Of Property

See Also

Université Laval v. The Queen, 2016 TCC 17

s. 136 applied to agreement to offer, at a distant date, to license sports complex to unidentified individuals

Tardif J found that two agreements under which Quebec City agreed to pay a $10M grant to Laval University for the expansion of its sports complex and the University agreed that the City populace would have access to the complex for 70% of its operating hours constituted a supply by the University in consideration for the $10M.

Respecting the characterization of the supply, Tardif J found (at para. 73) that “the agreements were clear that this is the case of a right of access to the installation, for the [complex] immovable” and (at para. 74) that “in this case, the service is the right to utilize an immovable to be constructed.” Accordingly, under subsection 136(1) “the service in question is deemed to be a taxable supply” which was of an immovable (para. 74). Accordingly, the supply was not exempted as a supply of personal property or a service under Sched. V, Pt VI, s. 2. Furthermore, the exemption in Sched. V, Pt VI, s. 25 did not apply as it was acknowledged that over 50% of the complex was used in commercial activity.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration subsidy paid in consideration for future access rights 131
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 25 agreement to licence complex in future was not exempted becasue complex primarily used in commercial activity 136
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 2 agreement to licence sports complex in futre to City inhabitants was a real property supply 149

Administrative Policy

21 September 2018 Interpretation 167678

prepaid concurrent lease structure respected

The Lessor, who has leased Equipment to third-party consumers (the “Lessees”), periodically requests that the Trust concurrently lease the Equipment. When this occurs, the Trust makes a prepaid rent payment (equaling XX% of the aggregate net present value of the discounted cash flow from the lease) which is partly advance to the Lessor and partly held back by the Trust as cash collateral. The remainder is the deferred rent. The Trust claims ITCs for the HST paid on the prepaid rent. The Lessor, as agent for the Trust, remits the HST paid by the Lessees and pays to the Trust the full amount of the lease payment collected on behalf of the Trust – a portion of which is then paid by the Trust to the Lessor as deferred rent.

A master concurrent lease agreement (the MCLA) between the Trust, as Concurrent Lessee, the Lessor and the Administrative Agent covers the lease by the Lessor to the Trust, as the Concurrent Lessee, of Equipment covered by the Designated Eligible Leases. The Lessor and the Trust made an election pursuant to ETA s. 177(1.1).

After noting that

A concurrent lease is a lease of the reversion, that is, a lease of the lessor's interest in a property that is already subject to a lease. In effect, under a concurrent lease, a concurrent lessee is interposed between the lessor and lessees of the underlying lease.

CRA stated:

Pursuant to subsection 136(1) a supply of the use or right to use tangible personal property by way of lease, license or similar arrangement is deemed to be a supply of tangible personal property. As the MCLA provides for the Equipment covered by the Designated Eligible Leases to be concurrently leased by the Lessor to [the Trust as] the Concurrent Lessee, the supplies by the Lessor to [the Trust as] the Concurrent Lessee under the MCLA are taxable supplies of tangible personal property.

The HST collected on the taxable supply made to the Lessee is accounted for by the Lessor as agent for the Trust (Concurrent Lessee) by virtue of the election under subsection 177(1) between the Trust (Concurrent Lessee) and the Lessor, and […] the MCLA.

The Lessor also remits the HST payable by the Trust (Concurrent Lessee) with respect to the Prepaid Rent.

Words and Phrases
concurrent lease
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 177 - Subsection 177(1.1) election made by headlessor in concurrent lease structure re rents collected from sublessees 147

5 December 2003 Interpretation 44874

concurrent lease qualified as lease

Lessor enters into equipment leases (the "Asset Leases") with users of the equipment (the "Asset Lessees"), who also have options to purchase the equipment. The Lessor then assigns each Asset Lease to a securitization trust (the "Lessee"), giving rise to a "Concurrent Lease" that commences on the lease date set out in the Asset Lease and ends XX months after the termination of the Asset Lease. The Lessee appoints the Lessor as the servicer. The Concurrent Lease also gives the Lessee the option to prepay rent under the Concurrent Lease for XX% of the net present value of the Asset Lease. The Concurrent Lessee is registered for GST and satisfies its obligations relating to GST on Prepaid Rent and Deferred Rent by providing the Lessor with a promissory note.

In connection with an interpretation that the Concurrent Leases would constitute an arrangement similar to a lease for purposes of s. 136(1) and the definition of "debt security" in s. 123(1), CRA stated "the form of the lease agreement should be respected where the Lessor has title to the underlying property," and that "the option to purchase granted by the Lessor does not necessarily result in a change in the characterization of the Concurrent Lease."

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security concurrent lease qualified as lease 202

Subsection 136(2) - Combined Supply of Real Property

Administrative Policy

31 March 2009 Ruling 103912 [sublease of portion of nursing home to shop]

sublease of portion of nursing home to shop

OPCO constructed long-term care facilities comprising nursing homes and assisted-living facilities (collectively, the "Facilities") and sold them to LESSOR, which completed construction, and leased them back to OPCO.

CRA noted that the lease by LESSOR to OPCO of any part of a Facility which was subleased to a third party, e.g., a barber shop or hair saloon, would not form part of the residential complex and such lease would not be exempt under s. 6.1 or 6.11 of Part I of Sched. V.