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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 123947
Business Number: [...]
May 18, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Application of the HST to supplies of shared ownership products
Thank you for your fax received in the office of the Canada Revenue Agency on May 7, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by [...] [resort developers].
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia (B.C.). 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.
Our understanding is as follows:
1. [...] resort developers [...] make certain supplies in respect of resort destinations located in and outside Canada. You described the following supplies that are offered by the resort developers: (iFootnote 1)
(a) Right to use memberships (Membership) - A resort developer supplies a Membership that entitles a member with a right to use certain real property at one or more resort destinations. The Membership does not provide the member with either a legal or equitable interest in the resort property, but does provide the member with a right to use a unit of accommodations, which includes for example, a villa, condominium unit or other type of housing unit (Unit) at a resort. You did not indicate whether the Membership provides the member with any other rights in addition to the right to use a Unit at the resort or the nature of such other rights.
(b) Occupancy rights that are marketed as points (Points) - A resort developer supplies a certain number of Points that may be redeemed by the purchaser each year for the use of a Unit. A person acquiring Points does not acquire a legal or beneficial interest in real property.
(c) Fractional ownership - A resort developer constructs a resort and supplies an undivided fractional interest in the real property of the entire resort, e.g., a 1/10th undivided interest in the real property of the resort. The resort normally includes land, buildings containing one or more Units, and other amenities (e.g., a swimming pool). We will assume for purposes of this letter that the resort is located in B.C. or Ontario.
2. In the case of a Membership and Points, the member/points-holder is granted the right to occupy a Unit for a period of time each year and for a term of anywhere from [...] years to [...] years. The consideration payable for the supply of a Membership or of Points is generally composed of the initial purchase price and an ongoing maintenance fee.
3. A person who owns Points may be entitled to acquire additional temporary points (Additional Points) that they can use together with their regular allotment of Points to acquire upscale accommodations on a one-time basis. Additional fees are payable for the acquisition of these temporary Points.
INTERPRETATIONS REQUESTED
1. With respect to Memberships and Points:
(a) You have asked us to provide a definition of "lifetime membership".
(b) You have asked whether the supply of a Membership and the supply of Points is a supply of intangible personal property or a supply of real property by way of lease, licence or similar arrangement. You have also asked at what point the HST should be collected on Memberships and Points during the transition to the HST in Ontario and B.C.
(c) You have asked whether the supply of Additional Points would affect the characterization of the supply of the Points.
(d) You set out a number of different scenarios and asked where the supply is considered to be made, what tax and tax rate would apply, and what percentage of the purchase price would be subject to tax.
2. With respect to fractional ownership, i.e., an undivided interest in the real property of an entire resort, you have stated the following:
Assume that a 1/10th undivided interest in a resort is sold in February 2010. The resort has not yet been constructed at that time and occupancy of a unit at the resort will not occur until after July 1, 2010.
In respect of this hypothetical scenario, you have asked the following:
(a) Is the developer of the resort required to charge the HST on the sale of the fractional interest?
(b) At what point in the transitional phase would HST become applicable?
(c) Is the sale of the undivided interest considered to have taken place at the date of entering into the purchase and sale agreement for the fractional interest or on the date the purchaser of the interest occupies accommodations at a resort?
(d) When is possession considered to occur in the circumstances?
(e) If the fractional interests are sold and construction of the project is complete and available for immediate occupancy such that all purchases are finalized before July 1, 2010, are the supplies subject to only the GST and not the HST?
INTERPRETATIONS GIVEN
1. With respect to Interpretation Request #1, we are not in a position to state whether the supply of a Membership or Points, including Additional Points, is a supply of intangible personal property or a supply of real property. If the supply of Points or Additional Points provides a recipient only with a right to use real property, the supply will be considered as a supply of real property for purposes of the GST/HST. In order to determine whether the supply of a membership or Points, including Additional Points, is a supply of intangible personal property or real property, we would need to review the specific agreements under which a particular [resort developer] makes supplies and any other relevant information. We can, however, offer the following general comments.
GST/HST Info Sheet GI-057, Ontario and British Columbia: Transition to the Harmonized Sales Tax - Memberships, sets out the general rules for supplies of memberships under the GST/HST. You will note that the Canada Revenue Agency considers a lifetime membership to be a membership that entitles a member to rights in a club, organization or association during the member's life. That info sheet also sets out the rules for when the GST or HST is to be collected on supplies of memberships.
GST/HST Information Sheet GI-059, Ontario and British Columbia: Transition to the Harmonized Sales Tax - Intangible Personal Property, sets out the rules for supplies of intangible personal property under the GST/HST. That info sheet also sets out the rules for when the GST or HST is to be collected on supplies of intangible personal property.
GST/HST Information Sheet GI-092, Harmonized Sales Tax: Leases of Real Property in Ontario and British Columbia, sets out the rules for most supplies of real property, (e.g., short term accommodations) under the GST/HST. That info sheet also sets out the rules for when the GST or HST is to be collected on supplies of real property made by way of lease, licence or similar arrangement.
GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax: Place of supply rules for determining whether a supply is made in a province, sets out the place of supply rules for GST/HST purposes.
2. With respect to Interpretation Request #2:
(a) The supply of an undivided interest in a resort by a resort developer is a taxable supply of real property by way of sale. Where ownership (i.e., title to an undivided interest in the complex) and possession of the resort transfer on or after July 1, 2010, the HST, rather than the GST, applies to the sale.
If the resort developer is a non-resident, the resort developer is not required to collect the tax payable on the supply. If the resort developer is a resident of Canada, the resort developer will be required to collect the tax payable on the supply unless the recipient of the supply is registered for the GST/HST. Where the resort developer is not required to collect the tax payable on the supply, the recipient is required to remit the tax payable on the supply directly to the Receiver General.
(b) In the circumstances described, the HST will be payable in respect of all supplies of the fractional interests if the recipient of the supply does not obtain titled ownership of their interest in the complex nor possession of the complex until after June 2010.
(c) Under section 133, where an agreement is entered into to provide property, the entering into of the agreement is considered to be a supply of the property made at the time the agreement is entered into. As it applies to this example, section 133 would therefore deem the supply of the fractional interest to be made in February 2010. Nonetheless, under paragraph 49(1)(b) of the New Harmonized Value-added Tax System Regulations, No. 2, the HST applies to any supply by way of sale of real property (other than certain supplies of a residential complex) made in B.C. or Ontario before July 1, 2010, if ownership and possession of the property transfer after June 2010. It is a question of fact whether a particular resort would meet the definition of a residential complex (the definition is set out in the appendix to this letter), but at any rate, the resort developer is only selling a partial interest in a residential complex rather than the whole complex. As such, in the example you provided, the HST will apply to the sale.
While you did not ask about this situation, if a resort developer were to sell all undivided interests in a residential condominium unit or a condominium complex at a resort to the same person, the sale by the developer would be that of a residential condominium unit or condominium complex, as the case may be. (The definitions of residential condominium unit and condominium complex are also set out in the appendix to this letter). The sale of the residential condominium unit or condominium complex in such a case would be grandparented, i.e., subject to the GST rather than the HST, where the following conditions are met:
• the supply of the unit or complex is made under a written agreement entered into on or before
• June 18, 2009 in the case of a unit or complex situated in Ontario, and
• November 18, 2009 in the case of a unit or complex situated in B.C.,
• neither ownership nor possession of the unit or complex is transferred to the person under the agreement before July 1, 2010, and
• in the case of a residential condominium unit, possession of the unit or complex is transferred to the person under the agreement at any time after June 2010 and in the case of a condominium complex, at any time after June 2010 ownership of the complex is transferred to the person under the agreement or the complex is registered as a condominium.
(d) A person may be in possession of real property if that person is entitled to hold, control or occupy the property either with or without the right of ownership to the property. Determining when possession is transferred in the case of real property is a question of fact, dependent on several indicators. Factors such as a recipient's payment of property taxes, control of entry and access (e.g., keys), right to alter the land, planting of crops or trees, collection of rents, repairs to the property, maintenance of the lot, insurance coverage, etc., serve to indicate, although not necessarily conclusively, that possession has been transferred.
(e) If either ownership or possession of the real property in question has been transferred before July 2010 to the purchaser of a fractional ownership interest, the GST rather than the HST will apply.
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 613-954-8852. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
Appendix
"residential complex" means
(a) that part of a building in which one or more residential units are located, together with
(i) that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and
(ii) that proportion of the land subjacent to the building that that part of the building is of the whole building,
(b) that part of a building that is
(i) the whole or part of a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real property owned, or intended to be owned, apart from any other unit in the building, and
(ii) a residential unit,
together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the unit and that is reasonably necessary for its use and enjoyment as a place of residence for individuals,
(c) the whole of a building described in paragraph (a), or the whole of a premises described in subparagraph (b)(i), that is owned by or has been supplied by way of sale to an individual and that is used primarily as a place of residence of the individual, an individual related to the individual or a former spouse or common-law partner of the individual, together with
(i) in the case of a building described in paragraph (a), any appurtenances to the building, the land subjacent to the building and that part of the land immediately contiguous to the building, that are reasonably necessary for the use and enjoyment of the building, and
(ii) in the case of a premises described in subparagraph (b)(i), that part of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the unit and that is reasonably necessary for the use and enjoyment of the unit,
(d) a mobile home, together with any appurtenances to the home and, where the home is affixed to land (other than a site in a residential trailer park) for the purpose of its use and enjoyment as a place of residence for individuals, the land subjacent or immediately contiguous to the home that is attributable to the home and is reasonably necessary for that purpose, and
(e) a floating home,
but does not include a building, or that part of a building, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises, or the land and appurtenances attributable to the building or part, where the building is not described in paragraph (c) and all or substantially all of the leases, licences or similar arrangements, under which residential units in the building or part are supplied, provide, or are expected to provide, for periods of continuous possession or use of less than sixty days;
"residential unit" means
(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,
(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or
(c) any other similar premises,
or that part thereof that
(d) is occupied by an individual as a place of residence or lodging,
(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,
(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or
(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals;
"residential condominium unit" means a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit;
"condominium complex" means a residential complex that contains more than one residential condominium unit;
i 1 [...]
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UNCLASSIFIED
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