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.
DATE September 21, 2018
To: [Addressee]
From:
Marjorie Stevens
GST/HST Rulings Officer
Financial Services Unit
Financial Institutions and Real Property
Division
Excise and GST/HST Directorate
320 Queen Street, Tower A, 11th floor
Ottawa ON K1A 0L5
Case Number: 167678
Subject: GST/HST INTERPRETATION
Master Concurrent Lease Agreements - […][the Trust]
This memo is in response to a request made by […](the Representative) regarding their client, […] (the Trust and also the Concurrent Lessee), concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies made under a master concurrent lease agreement. […]
All legislative references are to the Excise Tax Act and the regulations thereunder, unless otherwise specified.
Based on […], and a […] master concurrent lease agreement (the MCLA), our understanding of the key facts is set out below:
Background – the concurrent leases
1. As described in the Representative’s letter of [mm/dd/yyyy], the sequence of events for the concurrent leases may be summarized as follows:
a. The Trust enters into master concurrent lease agreements […] with various originators (for example, […][the Lessor]).
b. [The Lessor enters] […] into various leases of […][Equipment] with third party consumers [the Lessees].
c. [The Lessor] periodically sends a listing of new leases to the Trust and requests that the Trust concurrently lease the underlying [Equipment].
d. Once the Trust approves the request, it advances the funds to [the Lessor].
e. The calculations for the amounts to be advanced are set out in the […][master concurrent lease agreements], and are considered to be prepaid rent.
i. The advance would be […]% of the aggregate net present value based on the discounted cash flow from the lease.
ii. […]% of the aggregate net present value of the lease is held back by the Trust as cash collateral on the lease.
iii. The total of the advance plus the cash collateral is equal to the prepaid rent.
iv. The remainder is the deferred rent.
f. HST is payable on the total prepaid rent paid to [the Lessor].
g. The Trust claims ITCs for the HST paid on the prepaid rent.
h. The third party consumers [the Lessees] leasing [Equipment] pay the lease payments plus HST to [the Lessor].
i. [The Lessor], as agent for the Trust, remits the HST paid by the third party consumers [the Lessees]. [The Lessor] pays to the Trust the full amount of the lease payment collected on behalf of the Trust.
j. From the lease payments paid by third party consumers [the Lessees] and received by the Trust, a portion is applied against the prepaid rent and a portion is paid to […][the Lessor] as deferred rent (as described in (e)(iv) above).
The MCLA
1. The […] MCLA has […][the Trust] as the Concurrent Lessee. […]
2. The Trust is a trust established under the laws of […][Province A] with its head office located in […][Province B]. It is registered for GST/HST purposes.
3. The Trust, as Concurrent Lessee, entered into the MCLA as of [mm/dd/yyyy] with […] (the Lessor) and […] (the Administrative Agent).
4. […][The] MCLA includes the following definitions: […]
5. […][The] MCLA provides that the Lessor will lease to [the Trust as] the Concurrent Lessee, and [the Trust as] the Concurrent Lessee will concurrently lease from the Lessor, the Equipment covered by the Designated Eligible Leases.
6. Under […][the MCLA], the term of the concurrent lease for Equipment covered by each Designated Eligible Lease commences on the Effective Date applicable to such Designated Eligible Lease and terminates on the day following […].
7. The Lessor agrees […] that it will hold in trust for the benefit of [the Trust as] the Concurrent Lessee the interest of the Lessor in […] (collectively the “Lease Rights”) and the parties confirm that beneficial ownership of the Lease Rights shall be vested in [the Trust as] the Concurrent Lessee […]. Also, the Administrative Agent holds all of the Designated Eligible Leases leased by the Concurrent Lessee as trustee for the Concurrent Lessee, unless the Concurrent Lessee instructs otherwise.
8. […][The] MCLA provides that the aggregate rent payable for the Equipment is equal to the Concurrent Lease Rent. The Concurrent Lease Rent is comprised of an amount, calculated separately with respect to each Lease Instalment, which is equal to the aggregate of (i) the Prepaid Rent, and (ii) the Deferred Rent.
9. The Prepaid Rent payable to the Lessor is based on […]. The Lessor remits the GST/HST payable by the Concurrent Lessee.
10. […][The] MCLA provides the calculations used to determine the Deferred Rent, which is […].
11. […], the Lessor is generally appointed as Collection Agent. The [Lessor as] Collection Agent […] services and administers the Designated Eligible Leases and collects rents. […] In summary, the rent collected by the Lessor as Collection Agent is paid to [the Trust as] the Concurrent Lessee.
12. [The Lessor as] […] Collection Agent shall segregate and hold in trust to be paid to the appropriate Person (government), amounts received with respect to the Designated Eligible Leases in respect of GST/HST, […].
13. […][The] parties to the MCLA have made an election pursuant to subsection 177(1.1), which authorizes the Lessor to collect and remit tax on behalf of [the Trust as] the Concurrent Lessee. Consistent with this election and […] the MCLA, discussed above, [the Trust as] the Concurrent Lessee does not remit GST/HST pursuant to the Concurrent Lease.
[INTERPRETATION GIVEN]
In general terms, a lease provides for the right to possess and enjoy property over a specified period of time in return for periodic payments for this right. 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.
The MCLA is structured so that a concurrent lease exists between the Lessor and the [the Trust as] Concurrent Lessee. Under the MCLA, the Equipment that is subject to the Designated Eligible Leases is subsequently concurrently leased by the Lessor to [the Trust as] the Concurrent Lessee. Also, the Lessor holds its interest in the Lease Rights, consisting of […], in trust for the benefit of the [the Trust as] Concurrent Lessee. The Designated Eligible Leases are treated as leases by the Lessor for purposes of the Income Tax Act.
Under the MCLA […], the periodic lease payments made by Lessees [third party consumers] are collected by the Lessor (as Collection Agent), and paid to [the Trust as] the Concurrent Lessee. Periodic payments of Concurrent Lease Rent include Prepaid Rent and Deferred Rent, which are paid to the Lessor [by the Trust as the concurrent Lessee] […].
The MCLA provides that the commencement of the concurrent lease term is linked to the Effective Date of each Designated Eligible Lease, and terminates on the day following […].
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(1.1) 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.
We are not providing any comments regarding Deferred Rent. Although Deferred Rent may be additional consideration and GST/HST may be payable with respect to these amounts, we have not been provided with any information that confirms that the amounts referred to as Deferred Rents are paid to the Lessor and whether GST/HST has been paid.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes or amendments to the Act, if enacted, or to the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.]
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