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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 150985
August 22, 2013
Dear [Client]:
Subject: GST/HST INTERPRETATION
Assignment of long-term leases of recreational vehicle sites
Thank you for your letter of February 5, 2013 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the assignment of long-term sub-leases of recreational vehicle sites (RV Sites) at [...] ([...][the Site]).
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
BACKGROUND
• You referred to our letter of July 6, 2011 (Case Number 101290), which was sent to [...], (Footnote 1) [...] that was provided to one of your former sub-leaseholders during the course of the assignment of the sub-leasehold interest in her RV Site.
• In our letter 101290, we stated that the supply of an RV Site by [...] (the Developer) to sub-lessees (referred to as "leaseholders" in your letter and herein as "sub-leaseholders") was a taxable supply of real property by way of lease, licence or similar arrangement. This finding was based in part on the information provided in [...]'s letter to us of [mm/dd/yyyy], more particularly that the recreational vehicles (RV) located on the RVs Portion of the Land were not modified to such an extent that they would be considered similar to a house, mobile home or other residential unit.
• You stated the following in your letter:
- The assignment of the sub-leasehold interest in an RV Site is conducted as a regular real estate transaction, i.e., with a sales agreement and brokered by a licensed realtor. An assignment can be in respect of an RV Site only or an RV Site on which an RV is situated.
- The sub-leaseholders' personal situations can vary greatly as well: some of them live year round at [the Site]; some live there in the summer and travel during the winter; some keep the RV Site as a holiday destination for personal use, although they may rent it out privately on a short-term or long-term basis the rest of the year; and some participate in the rental pool program described in the next paragraph.
- [...] (the Operator), as authorized agent of the Developer, operates a rental pool program in which a sub-leaseholder may choose to participate. This program runs for [#] months of the year and participants share in a percentage of rental revenue collected. The Operator administers the program, collects the rental income including GST/HST and remits the tax collected. In a typical year, the maximum amount of revenue paid out to a participating sub-leaseholder would not be enough to pay the annual maintenance fee that is charged by the Operator to a sub-leaseholder as set out in the sub-lease agreement.
• We assume that the sub-leaseholders are individuals that are not GST/HST registrants.
Interpretation Requested
You would like to know whether GST/HST is applicable on the assignment of a sub-lease made by a sub-leaseholder. You would like us to provide some examples of situations in which GST/HST may apply, and a Web link to some general guidelines that are applicable to sub-leaseholders, as well as a contact phone number that a sub-leaseholder may call for information on their particular assignment.
Interpretation Given
As discussed in our letter 101290, the sub-leaseholders acquired their RV Sites by way of lease, licence or similar arrangement from the Developer and the sub-leaseholders own a sub-leasehold interest in their RV Site. For GST/HST purposes, a sub-leasehold interest in real property is considered to be real property, and an assignment of the sub-leasehold interest by a sub-leaseholder is generally considered to be a sale of real property. An assignment of a sub-leasehold interest by a sub-leaseholder in this case is subject to the same provisions that govern a sale of real property for GST/HST purposes.
Generally, sales of real property are subject to GST/HST whether or not the vendor is registered or is required to be registered for GST/HST purposes unless there is an exempting provision in Part I of Schedule V to the ETA.
Subsection 9(2) of Part I of Schedule V to the ETA exempts most sales of real property by an individual. However, this general exemption is subject to exceptions listed in paragraphs 9(2)(a) to (f). (Footnote 2) Where any of these exceptions apply, the sale by the individual is generally taxable unless another exempting provision in Part I of Schedule V applies.
The exceptions to exemption in subsection 9(2) that may be relevant for purposes of this response are in subparagraph 9(2)(a)(i) and subparagraph 9(2)(b)(i). Subparagraph 9(2)(a)(i) excludes from exemption a sale of real property made by an individual if, immediately before the sale, the property is capital property used primarily in a business carried on by the individual with a reasonable expectation of profit. Subparagraph 9(2)(b)(i) excludes from exemption a sale of real property made in the course of a business of an individual.
Note: Interpretations #1 to #4 below relate to situations where an RV is not affixed to the RV Site and does not meet the definition of "residential unit".
Based on the above, regarding the sale of a sub-leasehold interest only (i.e., no RV is sold) by a sub-leaseholder who is an individual, our interpretation is as follows:
1. If the sub-leaseholder has only ever used their RV Site for personal use (whether year round or only in the summer) and has never rented it out privately or put it in the rental pool, the sale of the sub-leasehold interest in the RV Site by that individual would generally be exempt.
2. If the sub-leaseholder has never used their RV Site for personal use and instead rented it out privately or through the rental pool, the sale of their sub-leasehold interest in the RV Site by that individual may be excluded from the exemption by virtue of subparagraph 9(2)(a)(i) of Part I of Schedule V to the ETA, as discussed above.
3. If a sub-leaseholder used their RV Site both for personal use and for renting it out privately or through the rental pool, it must be determined whether the RV Site was, immediately before the sale, capital property used primarily in a business carried on by the individual with a reasonable expectation of profit. If it was, the assignment of the sub-leasehold interest would be excluded from the exemption in section 9 and would be a taxable sale. If there was not a reasonable expectation of profit from the business or if the RV Site was not used primarily in such a manner (e.g., if it was used primarily as a place of residence or lodging by the individual), this exception would not apply. Provided the individual is not a registrant, the sale of the sub-leasehold interest would generally be exempt.
The CRA has published guidelines for determining if capital real property is used primarily in a business and for determining if there is a reasonable expectation of profit in the context of paragraph 9(2)(a) of Part I of Schedule V to the ETA. Please refer to GST/HST Memorandum Series Chapter 19.5, Land and Associated Real Property, Appendix A, "Guidelines for determining if capital real property is used primarily in a business" and Appendix B, "Determining if there is a reasonable expectation of profit in the context of paragraph 9(2)(a) of Part I of Schedule V". A copy of this publication can be found on the CRA website http://www.cra-arc.gc.ca/E/pub/gm/19-5/README.html.
Regarding the sale of a sub-leasehold interest in an RV Site together with an RV (where the RV is not affixed to the site) in one transaction, we provide the following information:
4. Where an agreement provides for the provision of more than one property or service, it must be determined whether the supplier is making a single supply or multiple supplies. This determination is necessary in cases where a combination of two or more services and/or property is supplied by a person under an agreement, some of which would be taxable and some of which would be not taxable if supplied separately. In this type of situation it is a question of fact whether the person is making a single supply or multiple supplies. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides information on determining whether a single supply or multiple supplies are being provided. A copy of this publication can be found on the CRA website http://www.cra-arc.gc.ca/E/pub/gl/p-077r2/README.html.
If it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature and the tax status of the supply. For example, if the supply were characterized as a single supply of a sub-leasehold interest in an RV site, the tax status would be determined in accordance with the information set out in Interpretations #1 to #3, above.
If it is determined that multiple supplies are being provided, the possible application of section 138 must be considered. Section 138 provides that where a particular property or service is supplied together with any other property or service for a single consideration, and it may reasonably be regarded that the provision of the other property or service is incidental to the provision of the particular property or service, the other property or service is deemed to form part of the particular property or service so supplied. For more information on the application of section 138, refer to GST/HST Policy Statements P-159R-1 Meaning of the Phrase "Reasonably regarded as incidental" and P-160R Meaning of the Phrase "Where a particular property or service is supplied together with any other property or service" on the CRA website http://www.cra-arc.gc.ca/E/pub/gl/p-159r-1/README.html and http://www.cra-arc.gc.ca/E/pub/gl/p-160r/README.html
If it is determined that multiple supplies are being provided and that section 138 does not apply, then there would be a sale of a sub-leasehold interest in the RV Site and a supply of an RV, which is tangible personal property. The tax status of the sale of the sub-leasehold interest in the RV Site would be determined in accordance with the information set out in Interpretations 1 to 3, above. Generally, the sale of tangible personal property made by a GST/HST non-registrant is not subject to the GST/HST.
5. Supply of an RV Site on which an RV is attached
Generally, RVs such as mini-homes, park model trailers, and travel trailers are not residential units as defined in subsection 123(1) of the ETA. However, under limited circumstances, an RV may be considered a residential unit. For more information, please refer to GST/HST Policy Statement P-104, Supply of Land for Recreational Units Such as Mini-Homes, Park Model Trailers, and Travel Trailers. A copy of this publication can be found on the CRA website http://www.cra-arc.gc.ca/E/pub/gl/p-104/README.html.
If it is determined that an RV has been sufficiently modified and is affixed to an RV Site as determined by the guidelines set out in Policy Statement P-104, it would be necessary to examine the particular agreement for the assignment of the sub-leasehold interest and the sale of the RV before determining the GST/HST status of such a supply (or supplies).
Should you or any of your sub-leaseholders have additional questions on the interpretation and application of GST/HST on the assignment of a sub-leasehold interest or other issues, please contact a GST/HST Rulings officer at 1-800-959-8287. If a sub-leaseholder wants to submit a written request with respect to the application of tax on the assignment of a particular sub-leasehold interest in an RV Site, they may contact a GST/HST Rulings office at the address provided in Appendix A of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. A copy of this publication can be found on the CRA website http://www.cra-arc.gc.ca/E/pub/gm/1-4/README.html.
ADDITIONAL INFORMATION
Regarding the lease of the RV Sites by sub-leaseholders through the rental pool administered by the Operator, your letter states that the Operator collects the rental income including GST/HST, and remits the tax collected. We would like to point out that where the Operator leases an RV Site as an agent of a sub-leaseholder, the supply is considered to be made by the sub-leaseholder and GST/HST on the rent of the RV Site should generally be charged only if the sub-leaseholder is a registrant. For more information, please refer to GST/HST Policy Statement P-
182R, Agency on the CRA website http://www.cra-arc.gc.ca/E/pub/gl/p-182r/README.html.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9587.
Yours truly,
Béatrice Mulinda
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
Footnotes:
1. We will not repeat the Statement of Facts set out in that letter, although our understanding of the facts as set out in that letter is relevant to this current response and some of the phraseology used in that letter applies in this response as well.
2. The provisions of subsection 9(2), with the exception of paragraph 9(2)(e), are discussed in GST/HST Memoranda Series, 19.5, Land and Associated Real Property, at paragraphs 3 to 19. Paragraph 9(2)(e) of Part I of Schedule V excludes from exemption the sale of a residential complex or an interest in a residential complex. While excluded from exemption in subsection 9(2), such a sale may be exempt under section 2 of Part I of Schedule V.
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