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: 136392
Business Number: [...]
October 31, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of GST/HST to [...] easements
Thank you for your letter of June 8, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a [...] easement.
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.
Statement of Facts
We understand the following from your letter dated June 8, 2011, the [...] ([Act A]) of [...] [Province X], and [...] (the Agreement) between [...] (the Organization) and [...] (the Grantor):
1. The Organization is a [...], as that term is defined in subsection 123(1), which was incorporated in [yyyy] under [...]. The Organization's registration number is [...].
2. The Organization acquires [...] land through a number of ways including by [...] easement. [...].
3. [...] easements are usually made in perpetuity and a single payment is usually made by the grantee to the owner of the land at the time the [...] easement is entered into and registered against the affected land. With respect to [...] easements intended to be made in perpetuity in [Province X], the Organization requires these easements to be made for [#] years. Under [Act A], an easement is only valid for the term specified. If an easement is granted in perpetuity, and no specific term is indicated in the agreement, the easement may not be valid. As well, under [...] [Act B] in [Province X], where no term is fixed for a registered condition, restriction or covenant, the interest expires [#] years after registration and will be deleted from the register.
4. Subsection [...] of [Act A] states [...].
5. The Organization and the Grantor entered into the Agreement on [mm/dd/yyyy]. The relevant provisions of the Agreement are summarized as follows:
a) The Grantor is the registered owner of real property (the Property) with the following legal description: [...]
b) The purchase price shall be $[...]. If the transaction is subject to [...] [GST/HST], then such [GST/HST] shall be in addition to and not included in the purchase price.
c) The purpose and intent of the Agreement, as outlined in Article [...], is [...].
d) Article [...] provides that [...]. In Section [...] of Article [...], "Term" means [...].
e) Article [...] provides that [...]
f) Article [...] states that [...]
Ruling Requested
You would like to know whether the supply of the [...] easement made under the Agreement should be treated as a supply of real property by way of sale or a supply of real property by way of arrangement similar to a lease or licence.
Ruling Given
Based on the facts set out above, we rule that the supply of the [...] easement made under the Agreement is a supply of real property by way of sale.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
An easement generally creates an interest in real property. Therefore, an easement that is an interest in real property is real property for GST/HST purposes.
For the purposes of GST/HST, the supply of an easement could either be considered a supply by way of lease, licence or similar arrangement or, alternatively, as a supply by way of sale. Factors to consider in making this determination are the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, and the actual dealings among the parties involved.
Where the right of way or easement gives the recipient the use or right to use real property without legal ownership in the underlying property over a specified period of time, the supply would normally be considered to be by way of an arrangement similar to a lease or license. Where the consideration for the supply of an easement relates to the actual grant or transfer of the equitable interest in the property and not to the use or right to use the property, the supply would normally be considered as being in respect of the sale of real property. An easement granted in perpetuity for a single consideration or the transfer of the easement by assignment may constitute a single sale.
In this case, the Agreement states [...] [direct quote] for consideration of $[...]. The Agreement provides that [...]. [direct quote]
Based on the substance of the transaction between the Organization and the Grantor, as well as the intention of the two parties, it appears that an easement in perpetuity was the intended purpose of the Agreement. The relevant legislation does not allow easements to be granted in perpetuity and the length of time for which the easement is granted is a significant length of time. The Organization paid one amount to the Grantor at the time the easement was established rather than a series of ongoing payments.
Based on these facts, it is our view that the supply of the easement in this case is a supply by way of sale of real property.
ADDITIONAL INFORMATION
Generally, all supplies of real property are taxable unless a specific exemption applies. It does not appear that there are any provisions in the ETA that would exempt the sale of land by the Grantor in this situation and if that is the case, the sale would be a taxable supply and subject to [GST/HST] at [...]%.
Where a taxable supply of real property is made by way of sale, subsection 221(2) may apply. Under subsection 221(1), every supplier must collect the GST/HST on a taxable supply. However, there is an exception to this requirement under subsection 221(2). Generally, if a supplier makes a taxable supply of real property by way of sale to a recipient who is registered for GST/HST, the supplier is not required to collect the tax payable on the supply. Rather, under subsection 228(4), the recipient is required to remit the tax to the Canada Revenue Agency (CRA).
As the Organization is registered for GST/HST, if the sale of the easement is a taxable supply the Organization would be required to remit the HST directly to the CRA instead of paying the HST to the Grantor. Paragraphs 88 - 89 of GST/HST Memorandum 19.1, Real Property and the GST/HST, provide information on when and how the tax payable is to be reported in such a case.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4393. 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,
Melissa Mercer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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