10 January 2005 GST/HST Ruling 49116 - Importation of the 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:

This is in reply to your letter XXXXX in which you request information concerning the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") treatment of leases and licences of sites in XXXXX ("the Park"). We apologize for the delay in responding.

The general scenario that follows is based on your letter (with attachments), our various conversations XXXXX and on information provided by XXXXX. You have indicated that the facts surrounding the site lease to XXXXX are generally true for the remainder of the subject leases but that it is not possible at this time to confirm as fact the circumstances peculiar to each of the affected lessees.

As GST/HST rulings are binding on the Canada Revenue Agency, we are not able to provide a ruling covering the GST status of site leases and licences to unidentified parties whose individual circumstances cannot be confirmed as fact. However, in order to provide you with the clearest possible response, we have provided an interpretation on the following general scenario along with an explanation of how we arrived at our interpretation. We trust that this will assist you in determining the GST treatment of the leases and licences at issue.

All references are to the Excise Tax Act ("ETA").

1. XXXXX owns and operates the Park and is registered for GST purposes. The Park is located in XXXXX.

2. The Park contains XXXXX seasonal campground sites (the "Campground Sites") and XXXXX sites that are occupied by units which are used by their owners as residences (the "Residential Sites"). The area of the Park containing the Residential Sites is contiguous to the area of the Park containing the seasonal sites.

The Campground Sites

3. The Campground Sites are occupied by licensees (the "Licensees") who have placed various recreational vehicles (the "RVs") on their respective sites.

4. The document included in your submission entitled XXXXX (the "Licence Agreement") indicates that the licences pertaining to the Campground Sites extend from May to October annually (the "camping season").

5. XXXXX the Licence Agreement indicates that a particular Campground Site XXXXX.

6. The RVs are variously described as pop-up tent trailers, fifth-wheel trailers and motor homes designed for recreational use. None of the RVs are designed for use on a year-round basis; specifically, they are not designed to withstand XXXXX environmental conditions during winter.

7. Some of the RVs bear skirting and/or porches. All RVs have their undercarriage intact, including tow tongues and wheels, and none are physically attached to their sites in any way. Moreover, the RVs have conformed to the provisions of paragraph 22 of the Licence Agreement, which states:

XXXXX.

8. The Campground Sites are equipped with full hydro, water, and sewer facilities; however, these facilities are not available for use from November through April of each year (the "off-season"). Further, the roads in this area of the Park are not maintained during the off-season.

9. The current licence fee for a summer season is $XXXXX. A Licensee who wishes to occupy a site for the forthcoming camping season must license a site by December 31st of each year. Where the licence is not renewed, the Licensee must remove their RV from its site by that date. Where the licence is extended, the Licensee may leave the RV on its site during the off-season for no additional charge.

10. The Licence Agreement prohibits the Licensees from occupying their RVs beyond the end of the camping season.

The Residential Sites

11. An individual may occupy a Residential Site pursuant to a lease agreement with the Park. Such lessees are hereafter referred to as "Residents".

12. The Residents have placed various park-model units (the "Homes") on their respective sites, some of which meet the Canadian Standards Association Z240 building standards. All of the Homes are equipped with complete plumbing, electrical and heating facilities. The Homes are designed and manufactured to withstand XXXXX environmental conditions such that they are comfortably habitable throughout the entire year.

13. The Homes bear skirting and porches and have had their undercarriage (including wheels and hauling tongues) removed. All Homes are at least 12 feet wide and would require a special tow vehicle and permit to relocate them.

14. The Homes consist of at least one living area, a full bathroom, master bedroom and full kitchen. All are equipped with complete plumbing, electrical and heating facilities.

15. The Residential Sites are equipped with full hydro, water and sewer facilities, all of which the Park makes available to the Homes throughout the year. The water system serving the Residential Sites is winterized and remains in service throughout the year. All Homes are connected to the aforementioned facilities.

16. All roads within the area containing the Residential Sites are maintained during the winter months. Under the lease agreements, the Park is responsible for plowing the Residents' driveways.

17. The Residents occupy the Homes as places of residence. All of the Homes have been on the same site for two years or longer. The Residents will inhabit them indefinitely.

18. Under the lease agreement, a Resident may occupy their Home for a maximum of 270 days per year. The Resident is given the discretion of choosing the days that are suitable to them.

19. XXXXX.

Interpretation Requested

You have asked us to clarify the GST treatment of the Campground Sites and the Residential Sites.

Interpretation Given

In the general scenario outlined above, it is our interpretation that the licences of Campground Sites would be subject to the GST at 7%, while the leases of Residential Sites would be exempt pursuant to subparagraph 7(a)(i) of Part I of Schedule V.

Explanation

Supplies, including leases and licences of real property, are subject to the GST/HST unless specifically exempt. In the present case, the tax status of the above-described leases and licences is contingent on the application of the exemptions contained in section 7 of Part I of Schedule V. Section 7 exempts, in part, the following:

"A supply

(a) of land (other than a site in a residential trailer park) made, under a lease, licence or similar arrangement which provides for continuous possession or use of the land for a period of at least one month, to

(i) the owner, lessee or person in occupation or possession of a residential unit that is or is to be affixed to the land for the purpose of its use and enjoyment as a place of residence for individuals, or

(ii) a person who is acquiring possession of the land for the purpose of constructing a residential complex on it in the course of a commercial activity,

(b) of a site in a residential trailer park made, under a lease, licence or similar arrangement which provides for continuous possession or use of the site for a period of at least one month, to the owner, lessee or person in occupation or possession of

(i) a mobile home, or

(ii) a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site ..."

Paragraph 7(b) thus exempts certain supplies of sites forming part of a "residential trailer park" (defined below) while the paragraph 7(a) exemption pertains to supplies of sites that do not form part of a "residential trailer park". The following analysis begins with a discussion of "residential trailer park" in the context paragraph 7(b) and is followed by a discussion of paragraph 7(a).

Paragraph 7(b) of Part I of Schedule V

A "residential trailer park" of a person is defined in subsection 123(1) as:

"... the land that is included in a trailer park ^[xxxix]1 of the person or, where the person has two or more trailer parks that are immediately contiguous to each other, the land that is included in those contiguous trailer parks, and any buildings, fixtures and other appurtenances to the land that are reasonably necessary for

(a) the use and enjoyment of sites in the trailer parks by individuals residing in or occupying mobile homes, or travel trailers, motor homes or similar vehicles or trailers, situated or to be situated on those sites, or

(b) the purpose of engaging in the business of supplying those sites by way of lease, licence or similar arrangement,

but does not include such land and appurtenances or any part of them unless the land encompasses at least two sites and all or substantially all of the sites in the trailer parks

(c) are supplied, or are intended to be supplied, under a lease, licence or similar arrangement under which continuous possession or use of a site is provided for a period of at least

(i) one month, in the case of a mobile home or other residential unit, and

(ii) twelve months, in the case of a travel trailer, motor home or similar vehicle or trailer that is not a residential unit, and

(d) if the sites were occupied by mobile homes, would be suitable for use by individuals as places of residence throughout the year ..."

Under the circumstances, the land within the Park would qualify as a "trailer park" as required by the above definition. The requirements of paragraph (a) are therefore satisfied.

Paragraph (c) requires that substantially all of the sites in the Park be leased for a period of at least one month in the case of mobile homes and other residential units and twelve months in the case of travel trailers, motor homes or similar structures. In addition, paragraph (d) of the definition indicates that the Park would not qualify as a residential trailer park unless all or substantially all of the sites are suitable for use by occupants of a mobile home (whether or not a particular site is actually occupied by one) as a place of residence throughout the year.

Determining whether paragraph (c) is applicable would potentially require a discussion of two specific issues: (1) whether the RVs occupying the campground could be described as "mobile homes" or "residential units" for purposes of subparagraph (c)(i); and (2), where subparagraph (c)(i) is not applicable, whether the leases of the sites occupied by the RVs could be viewed as being for a period of 12 consecutive months.

Notwithstanding that the conditions of paragraph (c) could potentially apply, it would appear that the requirements of paragraph (d) would not apply in this case. Specifically, since the utilities to the Campground Sites are unavailable during the off-season, those sites could not be considered as being "... suitable for use by individuals as places of residence throughout the year ..."[.]

As paragraph (d) is not applicable, the Park could not be considered a "residential trailer park". As a result, the exemption in paragraph 7(b) of Part I of Schedule V would not be applicable. Nevertheless, paragraph 7(a) may still apply.

Paragraph 7(a) of Part I of Schedule V

Subparagraph 7(a)(i) exempts a supply of land (other than a site in a residential trailer park) made under a lease, licence or similar arrangement which provides for continuous possession or use of the land for a period of at least one month, to the owner, lessee or person in occupation or possession of a "residential unit" that is or is to be affixed to the land for the purpose of its use and enjoyment as a place of residence for individuals. Given these provisions, it would be necessary in the present case to determine whether a particular Home or RV is a "residential unit" and, if so, whether such unit is "affixed" to its site.

Definition of "residential unit" for purposes of paragraph 7(a)

Subsection 123(1) defines the term "residential unit" to include a "mobile home" or similar premises that is occupied by an individual as a place of residence or lodging. Accordingly, any mobile homes occupying sites in the Park will be considered a residential unit by definition.

Definition of "mobile home"

The term "mobile home" is defined in subsection 123(1) as follows:

"... a building, the manufacture and assembly of which is completed or substantially completed, that is equipped with complete plumbing, electrical and heating facilities and that is designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence, but does not include any travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use ..."

In addition to the above, Policy Statement P-223, The Meaning of "manufacture and assembly of which is completed or substantially completed" in the Definition of "Mobile Home (enclosed) effectively includes in the definition of "mobile home" buildings composed of one or more components that otherwise meet the remaining requirements of the above definition. In summary, a particular unit may qualify as a "mobile home" for GST/HST purposes if it is:

(a) comprised of one or more components where

(i) each component consists of at least one room or living area, and

(ii) the manufacture and assembly of each component is completed or substantially completed prior to being moved to a site,

(b) equipped with complete plumbing, electrical and heating facilities,

(c) designed to be moved to a site for installation on a foundation and connection to service facilities,

(d) to be occupied as a place of residence, and

(e) not a travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use.

Under Policy Statement P-223, multi-section mobile/modular homes are to consist of three-dimensional modules with three walls and a roof/ceiling in order to come within the definition of "mobile home". The policy also stipulates that these modules are to be in as finished condition as possible prior to leaving the manufacturer's premises, taking into consideration that they must be transported. Further, it states that units manufactured to either CSA A277 or Z240 building standards and other similar buildings will be considered as "mobile homes" for purposes of the ETA. The policy thus provides two alternative standards by which a particular unit could be considered as a "mobile home": the unit may fall within the auspices of points (a) through (e) above; alternatively, it may conform to the aforementioned CSA standards.

Some of the Homes, having been manufactured to CSA Z240 standards, will fall within the definition of "mobile home" pursuant to the above criteria. Whether the remaining units can be considered as mobile homes will depend on the presence or absence of the criteria delineated in points (a) through (e) above. In determining whether those factors are present, one must bear in mind the purpose of P-223, which is to provide criteria for distinguishing between those units that are residential in nature as opposed to those that are for recreational use. To this end, the policy excludes from the definition of "mobile home" those units that are travel trailers, motor homes, camping trailers or other vehicles or trailers designed for recreational use.

In the circumstances of the general scenario, it is our opinion that the Homes meet the criteria described in paragraphs (a) to (d). Given that the Homes have no undercarriage or hauling tongues and require a special permit and vehicle to relocate them, we would not consider the Homes to fall within a standard normally attributed to a travel trailer, motor home, camping trailer or other vehicle designed for recreational use; paragraph (e) will therefore also have been satisfied. Moreover, even though certain Homes may not meet CSA A277 or Z240 building standards, they appear to be similar to such units, as evidenced by the attributes outlined in points 12 to 17 of the general scenario. Accordingly, it is our opinion that the Homes would be "mobile homes" and therefore "residential units" for purposes of paragraph 7(a).

On the other hand, we would not consider the RVs to be "mobile homes" as their relative portability would indicate that they are akin to a travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use. Moreover, given that the RVs are restricted to recreational and/or vocational use by the Licence Agreement, it would be difficult to take the view that a particular Licensee is occupying an RV as a place of residence (as is required by paragraph (d) above).

Where a particular RV does not qualify as a "mobile home", it may nevertheless qualify as a "residential unit" if it meets the conditions of enclosed Policy Statement P-104, Meaning Of 'Mobile Home', 'Residential Unit' And 'Residential Complex' In The Context Of Mini-Homes, Park Model Trailers, Travel Trailers And Motor Homes.

Policy Statement P-104 ("P-104")

P-104 addresses the issue of whether units such as the RVs could be considered "mobile homes" or "residential units" for purposes of the exemption in paragraph 7(a) above.

The policy states that units such as travel trailers and motor homes are not generally considered as "mobile homes" as they are not designed to be placed or installed on a foundation similar to that of a mobile home and are normally for recreational use. Where a particular unit does not qualify as a mobile home, it may nevertheless be considered as a "residential unit" under the policy if it is permanently affixed to land in the same manner as a house. Whether a particular home or trailer is "permanently affixed" to land in the same manner as a house is a question of fact to be determined with reference to the particular circumstances of a given situation. The policy lists certain factors that might be considered in making this determination, including:

•   the type of home or trailer in question;

•   the use of the home and the applicable land;

•   the actual degree of permanency with the land;

•   applicable provisions of any agreements relating to the permanency and means of affixation of the home or trailer to the land; and

•   the removal or ownership of the home or trailer at the end of the lease.

Similar to the guidelines outlined in P-223, the above criteria is designed to assist in distinguishing between units held for residential as opposed to recreational purposes by focusing on the concept of permanence. The criteria aids in measuring the degree of permanence of a particular unit with the underlying land by considering both physical and non-physical indicators as appropriate.

Although physical attachment to the land subjacent to a particular unit would in most cases be a strong indicator that a unit was intended to be permanent with it, this criterion would need to be considered in light of other relevant factors including those listed above. Using similar logic, a particular unit that is not physically attached to land should not necessarily be precluded from consideration as a "residential unit" if other relevant factors support its inclusion in the definition.

Given the general scenario, it would be our opinion that the RVs are not intended to be permanent with their respective sites and, by extension, are not "permanently affixed" to them. The fact that they are not physically attached to the land, although not conclusive in itself, nevertheless indicates that they are for recreational purposes and are not intended to be permanent with their sites. Also supporting a recreational purpose is XXXXX the Licence Agreement, which stipulates that any additions or improvements to an RV, where approved, XXXXX. Further, that the Licence Agreement restricts an RV from being used for residential purposes supports the view that they are not intended to be permanent with their sites. This particular feature of the Licence Agreement is consistent with the requirement that the Licensees vacate their RVs at the end of a camping season and, in combination with the fact that the RVs are not designed for year-round occupation, supports a recreational intention.

For these reasons, we would not view the RVs as being permanent with their sites and therefore would not consider them to be "permanently affixed" for purposes of P-104. Accordingly, the RVs could not be considered as "residential units" under the policy.

Meaning of "affixed" for purposes of subparagraph 7(a)(i)

Recall that subparagraph 7(a)(i) requires a particular "residential unit" to be "affixed" to the underlying land. A unit qualifying as a "residential unit" under P-104, having been determined to be "permanently affixed" under the policy, will also be considered to be affixed for purposes of subparagraph 7(a)(i).

For those units not subject to P-104 but which nevertheless qualify as a "residential unit" (e.g., the Homes), the concept of "permanence" as illustrated in P-104 is useful in determining whether a particular unit is affixed for purposes of subparagraph 7(a)(i). In assessing permanence, all the facts of a particular case should be considered, including the intention of the owner. In addition to the indicators of permanence listed in P-104, the following may be considered when determining whether a "residential unit" is affixed to its site:

•   the unit is connected to utilities;

•   the unit is placed on concrete pads and skirted;

•   the unit is left in place for an indefinite period of time;

•   the unit is available for use on a year round basis; and

•   the unit is used often enough to constitute a place of residence.

In the present scenario, it would appear that all of the above criteria would apply to the Homes. We would therefore view the Homes as being affixed to their respective sites for purposes of subparagraph 7(a)(i); the Residential Site leases would therefore be exempt from the GST. Given that the RVs do not qualify as "residential units" (either by definition or under P-104), they cannot be considered for exemption under subparagraph 7(a)(i).

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 section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Additional Information

Self-supply

Please note that subsection 190(3) requires a person who first supplies land by way of a lease that is exempt under subparagraph 7(a)(i) above to account for the GST/HST on the fair market value of the land so leased. Pursuant to subsection 190(3), if the Park were the first person to supply the Residential Sites, it would be deemed to have made and received a taxable supply by way of sale of the relevant land and to have paid tax in respect of that deemed supply. In that case, the Park would have been required to include the tax in the net tax calculation for the reporting period in which the Residential Sites were first leased. For more information, please consult paragraphs 64 to 67 of GST/HST Memoranda Series section 19.2.3, Residential Real Property - Deemed Supplies (enclosed).

New residential rental property rebate ("NRR")

Note also that a person who makes a supply of land that is exempt under subparagraph 7(a)(i) may be eligible for a NRR if, in entering the lease agreement, the person is deemed to have made and received a taxable supply by way of sale of the land and to have paid tax in respect of that deemed supply. Accordingly, if the leases of the Residential Sites, being exempt supplies pursuant to subparagraph 7(a)(i), results in the Park being deemed to have paid tax under subsection 190(3), it may be eligible for a NRR for each site if the eligibility conditions for the NRR are satisfied. Please refer to the enclosed excerpt from Technical Interpretation Bulletin B-087, GST/HST New Residential Rental Property Rebate for further details.

Tax paid in error

Where tax has been erroneously charged and collected in respect of the Residential Sites, you may refund that tax to the affected Lessees, subject to subsection 232(1). Subsection 232(1) indicates that you may, within two years after the day the amount was so charged or collected, refund or credit the tax. Where such action is taken, subsection 232(3) would require you to issue a credit note in the amount of the refund or credit. If the amount refunded or credited has been included in determining net tax for the reporting period in which it issued the credit note or for a previous reporting period, you may deduct that amount in determining your net tax for the reporting period in which the credit note is issued, on line 107 of your GST/HST return.

Input tax credits ("ITCs")

As you are aware, a recipient that is a GST/HST registrant is generally entitled, pursuant to subsection 169(1), to claim ITCs for tax paid or payable on property and services to the extent (expressed as a percentage) that the property or service is acquired or imported for consumption, use or supply in the course of the recipient's commercial activities. A "commercial activity" is defined in the ETA to include a business carried on by the person, except to the extent to which the business involves the making of exempt supplies by the person. Accordingly, no ITCs would be available in respect of tax paid on property or services acquired for consumption, use or supply in its exempt activities.

Note that ITCs remain available for any inputs that relate directly to the making of taxable supplies. If you wish to also claim partial ITCs in respect of the Park as a whole, you must calculate in a reasonable manner the percentage for which the inputs were used in commercial activity, pursuant to paragraph 169(1)(c). Note however, that if a particular input is used at least 90% of the time in making exempt supplies, the Company would not be able to claim any ITCs for the tax paid on the input, pursuant to subsection 141(4).

We trust that the above will be of assistance. Should you have any further questions or require clarification on any of the above matters, please do not hesitate to contact me at (613) 952-8816.

Yours Truly,

Paul Hawtin
Rulings Officer
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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