3 March 2005 GST/HST Interpretation 49634 - Joint Venture Arrangements Between XXXXX and XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your enquiry concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transfers of interests in a trust holding an undivided interest in a freehold mineral title. You submitted a trust certificate for our review.

As we discussed in our telephone conversation XXXXX, since we have not been provided with the facts and supporting documentation (for example, the trust agreement) and letters of authorization, we regrettably cannot issue a ruling in the matter at hand. However, we would like to provide you with the following comments that are based on the trust certificate you submitted and information you provided in our conversation.

A trust certificate was issued by a company (the "Company"). The trust certificate indicates that the Company holds in trust for a number of individuals (referred to collectively as the "Trust Member") an undivided XXXXX (the "property"). Essentially, the property is an undivided interest in a freehold mineral title. The Company leases the land and holds all rents, profits and advantages arising from the property in trust for the Trust Member, and shall deal with the property in the manner as the Trust Member shall from time to time direct, subject to the terms of the Application for Membership between the Trust Member and the Company. The Trust Member, as a result of the interest in the trust (which you referred to as a mineral trust), is entitled to receive a percentage of income from the trust.

XXXXX of the individuals listed on the certificate are deceased. The property held in trust, the undivided interest in a freehold mineral title, is not distributed by the trust to the estates of the deceased individuals, and rather remains in the trust such that the interest in the trust has not terminated upon the deaths of the individuals. Accordingly, the deceased individuals' shares of the interest in the trust are being held by the executors of their estates. The executors of the estates of the deceased individuals are distributing the shares of the interest in the trust to specific beneficiaries of the estates of the deceased individuals. XXXXX of the names on the trust certificate will be changed from the names of the individuals who are deceased to the names of the individuals to whom the shares of the interest in the trust are being distributed.

Interpretation Requested

When the executors of the estates of the deceased individuals distribute the shares of the interest in the trust to the beneficiaries of the estates of the deceased individuals and the names on the certificate are changed to reflect the addition of the new owners of the shares of the interest, whether the distribution is a taxable supply and subject to GST.

Interpretation Given

"Person" in subsection 123(1) of the Excise Tax Act (the "ETA") means "an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind." Therefore, a trust is a separate person and so is a trustee. The estate of a deceased individual is a separate person and so is the personal representative (e.g., the executor, administrator) of the estate.

However, by virtue of section 267.1 of the ETA, anything done by a trustee of a trust in the capacity of trustee of the trust, and by the personal representative of a deceased individual in the capacity of personal representative of the estate of the deceased individual, is deemed to have been done by the trust and estate respectively. Pursuant to section 269 of the ETA, a distribution of property by a trust or an estate of a deceased individual to a person(s) is deemed to be a supply of property made by the trust or estate at the place at which the property is delivered or made available to the person(s) and for consideration equal to the amount determined under the Income Tax Act (the "ITA") to be the proceeds of disposition. Therefore, where the distribution of the property is a taxable supply, the trust or estate will charge GST/HST of 0%, 7%, or 15%, as applicable, on the value of the consideration as determined under the ITA. However, no tax will be payable where the distribution of the property is an exempt supply, or a supply otherwise not subject to tax by virtue of a specific provision in the ETA.

Pursuant to paragraph (d) of the definition of "financial instrument" in subsection 123(1) of the ETA, an interest in a trust, and any right in respect of an interest in a trust, is a financial instrument. Pursuant to paragraph (d) of the definition of "financial service" in subsection 123(1) of the ETA, the transfer of ownership of a financial instrument is a financial service. Generally, supplies of financial services are exempt from GST/HST pursuant to Part VII of Schedule V to the ETA unless they are included in Part IX of Schedule VI to the ETA (in which case the supply of the financial service is taxable, but is zero-rated and GST/HST applies at a rate of 0% on the value of the consideration for the supply). Accordingly, in general, the supply of an interest in a trust is an exempt supply of a financial service and is not subject to tax.

If a valid trust in common law exists in the situation at hand, then the Company holds in trust for the Trust Member, based on our understanding of the trust certificate submitted for review, the undivided interest in a specific freehold mineral title and all the rents, profits and advantages accruing or arising from that interest. This collectively constitutes the trust property. By virtue of being included as a Trust Member, an individual is entitled to receive a percentage of income of the trust, representing the individual's share of the interest in the trust. Therefore, the interest or part thereof, and any rights in respect of the interest or part thereof an individual has in the trust, falls within paragraph (d) of the definition of financial instrument in subsection 123(1) of the ETA.

Where an executor of the estate of a deceased individual who was included as a Trust Member is distributing from the estate the individual's share of the interest in the trust to a beneficiary of the estate, the estate is transferring the ownership of the individual's share of the interest in the trust, which is for GST/HST purposes, the transfer of ownership of a financial instrument. The transfer of ownership of a financial instrument is an exempt supply of a financial service, and as such, GST/HST will not apply.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in Chapter 1.4 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Since we previously enclosed copies of Chapter 1.4 and Chapter 17.1 of the GST/HST Memoranda Series in our reply to you XXXXX, we have not enclosed the material with this reply. We have enclosed, however, Technical Information Bulletin B-073 "Sale of Freehold Mineral Titles."

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9213.

Yours truly,

Susan Kissner
Sepcialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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