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: 142112
December 12, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Place of supply of leasing services
Thank you for your letter of February 8, 2012, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to leasing services provided to […]([…][the Company]). We apologize for the delay in replying to your inquiry.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Based on the information provided, we understand that [the Company] is […] with its head office in Nova Scotia and […] in Nova Scotia, New Brunswick and Newfoundland and Labrador. Recently, a real estate broker based in Nova Scotia was hired by [the Company] to lease real property in New Brunswick to a tenant.
INTERPRETATION REQUESTED
You would like to know in which province the supply is made under the GST/HST place of supply rules.
INTERPRETATION GIVEN
A taxable (other than zero-rated) supply of property or a service that is made in Canada is subject to GST at a rate of 5% if it is made in a non-participating province and is subject to HST at the applicable rate if made in a participating province. A zero-rated supply is subject to tax of 0%.
Under paragraph 142(1)(d) of the ETA, a service in relation to real property is deemed to be made in Canada if the real property is in Canada. In the case of a supply of a service other than a service in relation to real property, paragraph 142(1)(g) of the ETA deems the supply to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Conversely, under paragraph 142(2)(d), a service in relation to real property is deemed to be made outside Canada if the real property is outside Canada, while in the case of a supply of a service other than a service in relation to real property, paragraph 142(2)(g) deems a supply of the service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.
Section 144.1 of the ETA provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Further, under section 144.1, a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province. Pursuant to section 3 of Part IX of Schedule IX, notwithstanding the place of supply rules in any other Part of Schedule IX, a supply of property or a service is made in a province if it is prescribed to be made in the province by Part 1 of the New Harmonized Value-added Tax System Regulations (the Regulations).
The place of supply rules for determining the province in which a service is supplied are different depending on the type of service being supplied. Because there are specific place of supply rules that apply in respect of certain types of services, these rules must be considered before the application of the general place of supply rule for services is considered.
As indicated in GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province (available on the CRA website at http://www.cra-arc.gc.ca/E/pub/gm/b-103/b-103-e.pdf), whether a service is considered to be in relation to real property depends on whether there is a direct connection between the service and the particular circumstances of each case. The facts in each particular case should be reviewed, as should the terms of any contracts and other documents relevant to a specific transaction.
There are several guidelines that are used to determine whether there is a direct connection between a service and real property. It must first be determined whether the service is designed, developed or undertaken to fulfill or serve a particular need or requirement arising from or relating to the real property, which involves determining the purpose or objective of the service. The purpose or objective of the service may often be determined by examining a written contractual agreement for the supply between the supplier and the recipient of the service. If there is no formal written agreement, other documentation, such as purchase orders, correspondence between the parties or invoices or receipts may be useful in establishing the purpose or objective of the service.
It must then be determined whether the relationship between the purpose or objective of the service and the real property is direct rather than merely indirect. If something else comes between the service and the property, the connection will not be considered to be direct.
A service and real property would generally be regarded as being in relation to each other pursuant to the above guidelines if the purpose of the service is to:
• physically count the property;
• appraise or value the property;
• physically protect or secure the property; or
• enhance the value of the property.
Similarly, if the service is aimed at effecting or dealing with the transfer of ownership of, claims on or rights to the real property, or determining title to the property, the service will generally be regarded as being in relation to the property.
Also, in order for a service to be considered a service in relation to particular real property that is situated at a particular location, and in order to apply the place of supply rules for these types of services, the service must relate to specific property that can be determined to be situated at a particular location at a particular time.
Pursuant to section 14 of the Regulations, the place of supply of a service in relation to real property is made:
(a) in a participating province if the real property that is situated in Canada is situated primarily in participating provinces and
(i) an equal or greater proportion of the real property is not situated in another participating province, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the real property is situated in another participating province; and
(b) in a non-participating province if the real property that is situated in Canada is not situated primarily in participating provinces.
As a result, if based on the facts in a particular case it is established that a real estate broker, such as the broker hired by [the Company], has been hired to lease real property that is situated in New Brunswick, the supply would be a supply of a service in relation to real property that would be made in New Brunswick and subject to HST at a rate of 13%.
If it is determined, based on the facts, that a service is not a service in relation to real property, then the supply would generally be characterized as a supply of a service to which the general place of supply rule for services under section 13 of the Regulations would apply.
Pursuant to subsection 13(1) of the Regulations, and subject to sections 14 to 17 of the Regulations, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is:
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier;
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply; or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
Where multiple business addresses of the recipient are obtained by the supplier in the ordinary course of its business, the business address of the recipient from which the supplier is hired pursuant to the agreement for the supply (the "contracting address") will generally be the address that is most closely connected with the supply.
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.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4291. 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,
Geoff Macmillan
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Enc.: GST/HST Memoranda Series Chapter 1.4 Excise and GST/HST Rulings and Interpretations Service
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