CRA confirms the efficacy of a prepaid concurrent lease financing structure for HST purposes

CRA commented on the use of a prepaid concurrent lease structure to finance equipment leases. The Lessor leases equipment to consumers. The Trust, which has raised money from somewhere, is then leased the Lessor’s reversion, so that the Trust is interposed as lessee and sublessor between the Lessor and the consumers. The Trust uses its financing to prepay most of the rent (plus HST thereon) under the concurrent lease between it and the Lessor. An ETA s. 177(1.1) election also is made for the Lessor to collect the HST on the rents from the consumers owing under what now are subleases, as agent for the Trust.

CRA gave interpretations that it would respect the ETA s. 177(1.1) election and the efficacy of the concurrent lease, so that it considers there to be a supply of the equipment by the Lessor to the Trust pursuant to ETA s. 136(1).

Neal Armstrong. Summary of 21 September 2018 Interpretation 167678 under ETA s. 136(1). See also 5 December 2003 Interpretation 44874.