Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 147979
Dear [Client]:
Subject: GST/HST RULING
Recaptured Input Tax Credits (RITCs) on Specified Energy
Thank you for your [correspondence] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the reporting of RITCs on specified energy.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the documents provided, […], and telephone conversations, we understand the facts to be as follows.
1. Your client, […] is the owner (Hotel Component Owner) of [the Hotel Component, which includes] […][a hotel] located at […][Address 1] and a truck receiving facility, freight elevator and a two level above-ground parking structure […] located at […][Address 2].
2. […][You] provided a copy of the Transfer of Easement agreement dated [mm/dd/yyyy] which referred to […][the Hotel Component Owner] and its successors as […][the Transferee] and that the Transferee was a party to the Agreement between […][Party 1], […][Party 2] and […][the Transferee as the Hotel Component Owner].
3. The Hotel Component Owner is a large business for purposes of subsection 236.01 of the ETA and is registered […][for the GST/HST].
4. [Party 1] and [Party 2] are the owners (Office Component Owners) of [the Office Component, which includes] […] [an] office tower located at […][Address 3], […] [an] office tower located at […][Address 4], [and] a commercial/retail/parking sector and a surface parking lot […][located at Address 5].
5. The Hotel Component and Office Component are located adjacent to each other.
6. The Hotel Component Owner and the Office Component Owners signed a Shared Facilities Agreement (the Agreement), dated […][more than 10 years ago] for the operation of the complex. Complex is defined under section […] of the Agreement to mean collectively the Office Component and the Hotel Component. The term of the Agreement is […][more than 20 years].
7. According to Schedule […] of the Agreement, Shared Facilities include:
- a parking facility (the two level underground garage located in the Office Component),
- the truck receiving facility located on the ground/plaza level of the Hotel Component,
- shared electrical equipment as described in Schedule […] of the Agreement,
- shared emergency power equipment as described in Schedule […] of the Agreement,
- shared sanitary and sewage equipment as described in Schedule […] of the Agreement,
- shared sprinkler system equipment as described in Schedule […] of the Agreement,
- shared heating, ventilation and air conditioning (HVAC) system as described in Schedule […] of the Agreement,
- and freight elevator located in the Hotel Component.
8. Section […] defines Shared Facilities Costs as all actual costs incurred from time to time during the term of the Agreement of administering, operating, maintaining, repairing and replacing the Shared Facilities together with all other amounts stated in this Agreement to comprise part of the Shared Facilities Costs including without limitation, the application of any discounts and rebates.
9. Section […] states that there is Steam Supply Agreement dated […][more than 10 Years ago] between […][Party 3] and […][Party 4], the latter acting as agent for the Office Component Owners.
10. Section […] states that the Hotel Component Owner shall pay, in advance, monthly on the first day of each month during the term of the Agreement, installments to the Office Component Owners equal to 1/12th of the Hotel Component Owners’ share of the Shared Facilities Costs for the year in question as set forth in the Approved Budget for such year and if no such budget has been approve on the first day of the month in question, then the Hotel Owner shall pay an amount equal to 1/12th of the Hotel Owner’s proportionate share as estimated in the most recent previous approved budget.
11. Section […] states that as soon as the Hotel Component Owner’s proportionate share of the Shared Facilities Costs for a year has been determined, the installments paid during such year by the Hotel Component Owner shall be credited towards the Hotel Component Owner’s proportionate share of such costs, and the Hotel Component Owner shall pay to the Office Component Owners the amount of any underpayment after application of such credit within fifteen days after delivery of invoice therefor.
12. Section […] states that the cost of the consumption of water, steam and electricity used by the HVAC facilities for the Complex shall be shared by the Hotel Component Owner and Office Component Owners in accordance with Schedule […][1] of the Agreement.
13. Schedule [1] shows four different categories of operating costs. The first three are the subject of this ruling request and are as follows.
a. Gas and water utilities independently metered and paid by the Hotel Component Owner;
b. Schedule [1] states that all electricity used by the Hotel Component is sub-metered by a separate meter located on the substation serving the Hotel Component. Monthly readings are observed jointly by representatives of the Hotel and […][X] on the same day when […][Utility] readings are taken. The monthly bills for the Hotel Component are calculated by applying the appropriate [Utility] rate structure to the sub-meter readings; and
c. HVAC services are supplied from the central plant to the Hotel Component in the form of hot water, chilled water, and pumping power for both liquids. There are estimating procedures for calculating costs for heating, cooling and pumping. These are based on usage as determined by elapsed time recorders installed on each of the air handling units. The Office Component Owners bill the Hotel Component Owner for its share of the utilities used for heating, cooling and pumping. HVAC Facilities are defined in section […] to mean the heating, ventilating, and air-conditioning equipment, pipes, conduits, wires and other facilities installed within the Complex which service either or both the Hotel Component and the Office Component.
14. Schedule […] of the Agreement allows for common area expenses to be billed by the suppliers to the Office Component Owners and a partial rebilling of these expenses to the Hotel Component Owner based on the agreed on formulae. Under the terms as specified in this schedule, the Hotel Component Owner will be invoiced by the Office Component Owners for gas and diesel oil at […][Y and Z] percent, respectively, of the total budget for the Complex. These allocated factors are based on load factors and calculations contained in Appendix […] which was not provided.
15. Schedule […] states that the Hotel Component Owner will be invoiced by the Office Component Owners for electricity based on usage as determined by a check meter located in the substation at the Hotel Component.
16. Your [correspondence] regarding electricity invoices states the following:
a. The Office Component Owners is the entity who receives the utility invoices which is in its name only and it is liable for payment for payment under the contract with the utility company;
b. The Office Component Owners re-bill the Hotel Component Owner for a portion of the utility costs;
c. HST is usually charged by the Office Component Owners on the invoices to the Hotel Component Owner but this is not consistent.
d. There is no landlord – tenant relationship between the Hotel Component Owner and the Office Component Owners.
17. […][In your correspondence, you indicate] the following:
a. The gas that is used by the Hotel Component is independently metered and paid for by the Hotel Component Owner;
b. The gas that is used in common power sources and the common area is metered and paid by the Office Component Owners;
c. Hydro is metered and paid by the Office Component Owners. There is a substation for the Hotel Component where the Hotel Component’s direct use can be measured (see 12(b) above) but the billing still goes directly to the Office Component Owners;
d. There are common area expenses which are billed to the Office Component Owners and then partially re-billed by the Office Component Owners to the Hotel Component Owners;
e. Section […] states that both parties acknowledge that all electrical power is provided by a main substation located in the Office Component. The Hotel Component only received a right to “hook” up to the substation and will be billed for that right. Paragraph […] confirms that Office Component is required to be the provider of the power.
18. Section […] states that the parties acknowledge that all electrical power required for the operation of the Office Component and the Hotel Component is provided by way of a primary and standby main electrical power entry located in the main electrical substation designated as […] which forms part of the Project Plans and which substation is in the Office Component (the “Main Electrical Substation) (The said entry and all ancillary equipment located with the Main Electrical Substation or outside which serve both the Hotel Component and the Office Component including, without limitation, the electrical equipment itemized in Schedule […] hereto referred to as the “shared Electrical Equipment”).
19. Section […] states the Office Component Owners hereby transfer and grant to the Hotel Owner for its benefit and the benefit of its lessees and sublessees and their respective customers, invitees, licensees and employees in common with all others now or hereafter entitled thereto, an irrevocable licence in order to permit the connection to the Shared Electrical Equipment of such equipment ( including wires and conduits) as is reasonably required for the electrical power system located in or serving the Hotel Component.
20. Section […] states that the Office Component Owners, with the intent and for the purpose of benefitting the Hotel Component with the easement thereafter set forth and burdening the Parking Facility, hereby grant and transfer to the Hotel Owner for its benefit and the benefit of its lessees and sublessees and their respective customers, invitees, licensees and employees in common with all others now or hereafter entitled thereto and easement or right in the nature of an easement over, through, and within the Parking Facility for the purpose of the Hotel Owner operating, maintaining, repairing, and servicing in their present location the electrical conduits located in the parking slab required for the supply of electricity to the Hotel Component (the “Hotel Electrical Conduits”), together with access in the Office Public Areas for purposes or maintenance, repair, replacements, alterations or improvements thereto by the Hotel Owner, its employees, agents and contractors authorized so to do by the Hotel Owner subject to the conditions restrictions and provisos set forth in Subsection […] and Subsections […].
21. [Section] […] states that the Office Component Owners shall use reasonable efforts to make electrical power available to the Hotel Component is such manner and on such basis as electrical power is supplied to the Office Component, without preference being given to either party, but taking into consideration the operational needs and occupancy of each party. The Office Component Owners shall not have any liability for not furnishing such service except in the event where such interruption or cessation of services is due to their intentional misconduct, wilful refusal or gross negligence.
22. Section […] states that notwithstanding any other terms hereof, the Office Component Owners and the Hotel Component Owners hereby agree that the cost of all utilities comprising a Shared Facilities cost shall be equal to the exact amount charged by the third party service provider which supplies such utility and which cost shall include the application of any rebates or discounts available to the in respect of the provision of such utility.
23. Section […] states that the Agreement does not create a partnership, joint venture, trusteeship or any other type of relationship nor does it constitute either owner as agent of the other owner.
24. […][In your correspondence, you indicate] the following:
(a) The reference to [X] on page 2 of Schedule “[1]” Allocation of Operation Costs of the Shared Services Agreement refers to […] excluding the Hotel.
(b) No natural gas is used at the hotel, The only gas we use is the diesel fuel used in the emergency generator.
25. […][In your correspondence, you indicate] the following:
(a) […][Based on the information provided, we understand] that separate metering for gas is available for the hotel and can be billed directly but it is not actually being used as a utility. The agreement is just indicating that it is available and would be separate, if used.
(b) The primary utility source is electricity, not gas and this is the primary area of concern for RITC responsibility since it appears to meet the conditions for being treated as additional rent.
(c) The common areas are the parking facility, freight elevators, receiving docks and general public access zones. […][The CRA was advised] that no gas is used in these areas, but rather it is hydro. […][The CRA was also advised] that there are general common expenses, of all types, that are on-billed to the hotel, not just specifically gas.
RULING REQUESTED
You asked us to provide a ruling as to who is the recipient of the supplies of gas and the supplies of electricity and as such, who is required to account for the respective RITCs.
RULING GIVEN
We rule that the Hotel Component Owner is the recipient of the supply of gas used directly by the Hotel Component. As such, the Hotel Component Owner is subject to the RITC requirement in respect of this supply.
We rule that the Hotel Component Owner is not the recipient of the supply of electricity used by the Office Component, the Hotel Component, and by the Shared Facilities. The Hotel Component Owner is not subject to the RITC requirement in respect of this supply.
We rule that the Hotel Component Owner is not the recipient of the gas used directly by the Office Component and by the Shared Facilities. The Hotel Component Owner is not subject to the RITC requirement in respect of this supply.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
Subsection 165(1) is the basic charging provision that imposes GST, or the federal component of the HST in participating provinces, on the recipient of a taxable supply made in Canada. Subsection 165(2) imposes the provincial component of the HST on supplies made in a participating province, also on the recipient of the supply.
According to the general rule for input tax credits in subsection 169(1), where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.
From July 1, 2010 until June 30, 2018, with the introduction of the HST in Ontario, large businesses were subject to recapture of the portion of any available input tax credits that are attributable to the provincial part of the HST that becomes payable, or is paid without having become payable, in respect of a specified property or service that is acquired, or brought into Ontario, by a large business for consumption or use by that business in Ontario.
To be eligible to claim input tax credits a person must be the recipient of a supply. To be required to report recaptured input tax credits, a person must be the recipient of a supply of specified property or services.
Paragraph (a) of the definition of recipient in section 123 of the ETA describes a recipient as, where consideration for a supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration.
[…][In your correspondence,] you state that the Office Component Owners receive the electricity invoices which are in their name only and they also hold the contract with the utility company. As such, the Hotel Component Owner is not the recipient of the supply of electricity.
Paragraph […] of the Agreement states that the supply of steam is on the account of the [Party 4] as agent for the Office Component Owners. As such, the Hotel Component Owner is not the recipient of the supply of steam.
[…][In your correspondence,] you state that supply of gas used directly by the Hotel Component Owner is independently metered and paid by the Hotel Component Owner. As such, the Hotel Component Owner is the recipient of that supply
You also stated that supply of gas used directly by the Office Component Owners is billed to the Office Component Owners on their account as is the supply of gas used by the Shared Facilities. As such, the Hotel Component Owner is not the recipient of these supplies.
It was held in Telus Communications (Edmonton) Inc., vs The Queen, 2008 TCC 5, paragraph 13, that the "recipient" was by definition the person liable to pay the consideration under the agreement for the supply. It also held that the recipient of a supply is not a person required to pay the supplier an amount equal to the consideration payable under the agreement on account of a liability of that person which arose as a consequence of a separate supply or agreement between that person and that recipient.
If you require clarification with respect to any of the issues discussed in this letter, please call me at 613-670-9882. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
D. Campbell
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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