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: 92799
April 4, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
GST/HST treatment of sale of shares and associated rights to use land
Thank you for your fax of April 27, 2007 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made under a certain shareholder's agreement. We apologize for the delay in providing you with this response.
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.
We understand the following:
1. [...] (the Corporation), a cooperative corporation, is the beneficial owner of certain lands and waterfront rights that form a recreational vehicle park ("the RV Park" or "the Park") located at [...] Lake, [...] [Province X]. Legal title to the Park is held by [...] [Company A], which is described in certain documents you submitted as nominee and bare trustee of the Park. The Corporation is the legal and beneficial owner of all the issued shares of [Company A]. The Corporation is registered for GST/HST purposes under Business Number [...]. The Corporation is neither a "cooperative housing corporation" nor a "non-profit organization" as those terms are defined in subsection 123(1).
2. The RV Park contains [...] sites, common areas, a dwelling/office that is available for the use of the Corporation's manager, and a garage used for storage of supplies, tools, and equipment. The Park also contains a club house with a games and meeting room, a building containing public washrooms and coinoperated showers and laundry facilities, security entrance and fencing, landscaped grounds, paved roads throughout, recreational areas for activities such as tennis and basketball, a playground, a beach, and limited common area parking. Moorage for [...] boats is also available on [...] Lake. The Corporation earns revenue from supplies of moorage and the shower and laundry facilities.
3. The Corporation controls, manages and administers the RV Park and all other assets of the Corporation for the benefit of "Members", as that term is described below.
4. Zoning for the RV Park permits the sites within to be used for temporary accommodation in trailers or recreational vehicles and is restricted to recreational use. Zoning restrictions do not permit year-round occupancy of a site in the Park. Accordingly, the Park is not a "residential trailer park" as that term is defined in subsection 123(1). The Park is not covered by condominium property legislation in [Province X].
5. [...] [Company B] and [...] [Company C] formed a joint venture called [...] (the Developer). The Developer holds all of the issued and outstanding common shares of the Corporation. The Developer sells blocks of shares in the Corporation, each block containing a different number of shares. The purchaser of a block of shares (Member) receives certain rights with respect to the RV Park as set out in the next paragraph. Generally, the larger or more desirable a site is, the greater the number of shares in the block that must be purchased in order for the Member to use and occupy the site.
6. Paragraph [...] of Schedule [...] (the Purchase and Sale Agreement), provides that certain rights, limitations and obligations respecting the exclusive use and occupation of a designated site in the RV Park attach to a Member's purchase of a block of shares. Such rights, limitations and obligations are as set out in the [...], which includes Schedule [...], [...] (the Licence Agreement). Paragraph [...] of the Licence Agreement provides that the Member shall have "undisturbed use and quiet enjoyment" of a specified site in the Park. Paragraph [...] of the Licence Agreement provides that for the period that a Member's name is entered on the [...], the Member is entitled to the exclusive use and occupation of a designated site in the Park. Paragraph [...] of the Licence Agreement provides that a Member may "sub-lease or rent" their RV site. Based on these provisions, it is our understanding that the right to use the specified site and common areas in the Park is made under a lease, licence or similar arrangement and that ownership of a site or of a partial interest in the RV Park is not transferred to a Member as a result of purchasing a block of shares. That is, ownership of the entire RV Park remains beneficially with the Corporation and nominally with [Company A].
7. A Member has the right to assign or transfer their common shares in the Corporation without prior written consent of the Corporation provided such assignment or transfer is carried out in accordance with the rules and regulations under the Licence Agreement. If a Member assigns or transfers their common shares, they are required to assign or transfer all common shares they hold as a block. The Member making such an assignment or transfer to an assignee relinquishes any right they have to use the Park or occupy a site therein.
8. Each site within the RV Park may be occupied by only one recreational vehicle. For purposes of the Park, a recreational vehicle means a motor vehicle or a vehicle that is at any time drawn on a highway by a motor vehicle, designed or used primarily for accommodation during travel or recreation, that is factory manufactured, licensed for highway use and contains sanitary sewer and water hookups and may include a motor home as defined in the [...] [legislation of Province X], a pickup truck with a factory manufactured camper attached, a camperized van, fifth wheel, and park model recreational vehicle.
9. Alterations, improvements or changes to a Member's site are not allowed unless approved by the Corporation. A Member is responsible for maintenance and repair of any such alteration, improvement or change.
10. Each site in the Park is serviced for telephone and cable TV connection; however, it is at the discretion of a Member as to whether their particular site is hooked up to such services. The Member is responsible for any costs related to the application, hook-up and user charges or fees for these services.
11. The building containing the washrooms, showers and laundry facilities is serviced with natural gas for the purpose of heating the water tanks. The natural gas servicing does not extend to sites within the Park.
12. Members pay the Corporation an assessment (Assessment) to cover expenses (Common Expenses) that the Corporation incurs in operating the Park. Common Expenses include fees payable for supplies of water, electricity and sewage systems to service the Park. There is no indication in the documents you submitted as to how often Members must pay an assessment (e.g., monthly, bi-monthly, annually).
13. If a Member fails to pay an Assessment to the Corporation, the rights and privileges of the Member under the Licence Agreement are suspended until such time as all outstanding amounts have been fully paid.
14. The Corporation operates a rental pool (the Rental Pool) for the convenience of all Members. Participation in the Rental Pool by a Member is voluntary and does not relieve the Member from any of the terms, conditions, covenants and agreements to be performed by the Member under the Licence Agreement, except where relieved under the agreement governing the Rental Pool.
15. You and your husband entered into a Purchase and Sale Agreement on [mm/dd/yyyy], with the Developer to purchase a block of [...] common shares of the Corporation for $[...] plus GST. You paid $[...] at the time of entering the Purchase and Sale Agreement and gave the Developer [...] post-dated cheques, each for $[...], and dated for the first day of each month beginning [mm/dd/yyyy] (i.e., the cheques totalled $[...]). The balance of the purchase price, $[...], was due on [mm/dd/yyyy]. Upon acceptance of the offer by the Developer, you were granted exclusive use and occupancy of site #[...] in the Park. Under paragraph [...] of "Additional Terms and Conditions" in the Purchase and Sale Agreement, your rights in respect of using your site in the Park began on [mm/dd/yyyy].
Interpretation Requested
You would like to know the GST/HST implications of the supplies under the Purchase and Sale Agreement and the Licence Agreement.
Interpretation Given
Under a Purchase and Sale Agreement, the Developer provides a Member with a block of shares that entitle the Member with the exclusive right to use and occupy a designated site in the RV Park as well as the shared right to use certain common areas and facilities of the Park (collectively, "the land use rights"). The shares and the land use rights provided under the Purchase and Sale Agreement and the Licence Agreement are interdependent and each is an integral part of the supply. A Member does not have the option to acquire shares separately from the land use rights.
In applying policy statement P-077R2, Single and Multiple Supplies, we conclude that there is a single supply being made to a Member in respect of the purchaser of a block of shares. While the sale of the shares is considered to be an element of this single supply, if there are no benefits of share ownership other than the benefits set out in the documents you submitted to us, we are of the view that the predominant element of the supply is the provision of the land use rights. As such, our view is that the Developer is making a single supply of the land use rights. The supply of the land use rights is a supply of the right to use real property by way of lease, licence or similar arrangement.
Status of the supply of real property
The supply of real property made in the circumstances described herein is subject to GST/HST where the recreational vehicle situated on the site does not have the same characteristics as a house or a mobile home and is not permanently affixed to the site in the same manner as a house (i.e., installed on a permanent foundation).
In limited circumstances, a recreational vehicle may be considered to be a residential unit and if affixed to land for the purpose of its use and enjoyment as a place of residence, the exemption in subparagraph 7(a)(i) of Part I of Schedule V to the ETA may apply. Policy statement P-104R, Supply of Land for Recreational Units such as Mini-homes, Park Model Trailers, and Travel Trailers, available on the CRA Web site, addresses the possible application of subparagraph 7(a)(i) of Part I of Schedule V to the ETA in respect of certain recreational vehicles. A recreational vehicle is generally not considered to be a residential unit and as such, the exemption in subparagraph 7(a)(i) of Part I of Schedule V to the ETA would not apply.
If the supply of land use rights is not exempt under subparagraph 7(a)(i) of Part I of Schedule V to the ETA, the supply under the Purchase and Sale agreement will be subject to the GST/HST. Since the supply is considered to be made before July 1, 2006, the supply, if subject to tax, is subject to 7% GST.
Status of payments of Assessments to the Corporation
For GST/HST purposes, a "lease interval" is a period of time during which a person has possession or use of property under a lease and to which a payment relates. In the situation you described, a Member has one lease interval that relates to the land use rights granted as a result of the purchase of shares in the Corporation (iFootnote 1) and another series of lease intervals that relate to the payment of Assessments to the Corporation for the Member's ongoing entitlement to maintain their land use rights.
In the documents you submitted, there was no indication as to how frequently the Assessments are required to be made to the Corporation. However, for purposes of this response, we will assume the Assessments are required to be paid on the basis of a calendar month. As such, the lease interval with respect to an Assessment would be the calendar month.
The Assessments paid to the Corporation will be subject to the GST/HST if the supply for any particular lease interval is not exempt under subparagraph 7(a)(i) of Part I of Schedule V to the ETA. For example, if your recreational vehicle was not affixed to the site you occupy, the supply for the lease interval in respect of which you pay the Assessment would not be exempt. However, if at some point in a given month, the recreational vehicle became affixed to your site such that, in accordance with the guidelines in policy statement P-104R, the vehicle was affixed to the site, the payment to the Corporation for the lease intervals following the interval in which the vehicle was affixed would not be subject to the GST/HST as the supply would be exempt.
For example, suppose a payment to the Corporation is due on June 1 and relates to that calendar month. If a recreational vehicle on your site was not affixed as of that day and you could not demonstrate as of that day that you had an intention to affix the vehicle to the site, the payment to the Corporation for that month would be subject to GST/HST. If during the course of that month you affixed the vehicle to the site to a degree that the criteria in policy statement P-104 are met, the payment to the Corporation for the following month would be in respect of an exempt supply and no GST/HST would apply.
Where the supply of real property for a particular monthly lease interval is a taxable supply, the GST rate applicable to that supply will depend on the GST rate in effect at the earlier of the time the monthly lease payment attributable to that lease interval is paid and the time the monthly payment falls due. As you are aware, between July 1, 2006 and January 1, 2008, there were reductions in the rate of the GST. Therefore, when examining a lease interval that relates to a taxable supply of real property by way of lease, licence or similar arrangement, the tax rate will vary, depending on the particular lease interval. When the lease interval in question ends prior to July 1, 2006, the GST applies at a rate of 7%; when the lease interval begins on or after July 1, 2006, but prior to January 1, 2008, the GST applies at a rate of 6%; and, when the lease interval begins on or after January 1, 2008 and prior to July 1, 2010, GST applies at a rate of 5%. The HST at 12% applies where the lease interval begins on or after July 1, 2010 and the consideration for the supply is paid or becomes due on or after that date.
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
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