19 January 2005 GST/HST Interpretation 50163 - GST/HST treatment of site leases

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 transfer of units in gross royalty trusts. You submitted XXXXX gross royalty trust certificates 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 agreements) and a letter 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 XXXXX trust certificates you submitted and information you provided in our conversation.

Generally, the XXXXX gross royalty trust certificates are certificates issued regarding various gross royalty trusts. Each certificate indicates that a certain individual is entered on the register of the trustee as the holder of a specific number of units in a particular gross royalty trust. The property held by the trustee of each gross royalty trust generally includes a royalty calculated as a percentage of, or fraction of the landlord's interest in (as the case may be), the petroleum, natural gas and related hydrocarbons, produced, saved and marketed from specific areas of land. A unit holder is entitled to receive a percentage of income of the gross royalty trust.

We understand that the individual named on the certificates is deceased, and therefore, the units in the gross royalty trusts are being held by the executor of the estate of the deceased individual. The executor of the estate of the deceased individual is distributing the units in the gross royalty trusts to a specific beneficiary of the estate of the deceased individual. The name on the trust certificates will be changed from the name of the individual who is deceased to the name of an individual to whom the units of the gross royalty trusts are being distributed.

Interpretation Requested

When the executor of the estate of the deceased individual distributes the units held in the gross royalty trusts to a beneficiary of the estate of the deceased individual, and the name on the certificate is changed to reflect the new owner of the units, whether the distribution by the estate 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 capacity of trustee of the trust, and by the personal representative of a deceased individual in 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.

The certificates submitted for our review state that a particular individual holds a certain number of units in gross royalty trusts. By virtue of holding a unit, the holder is entitled to receive a percentage of income of a gross royalty trust, representing the holder's interest in the gross royalty trust. Therefore, the units fall within paragraph (d) of the definition of financial instrument in subsection 123(1) of the ETA.

Where the executor of the estate of the deceased individual is distributing from the estate units in a gross royalty trust to beneficiaries of the estate, the estate is transferring the ownership of an interest in a 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 to the transfer of the units.

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.

For your convenience, find enclosed a copy of Chapter 1.4 and Chapter 17.1 the GST/HST Memoranda Series.

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
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2005/01/06 — RITS 50183 — Application of GST/HST to Operation of Recreation Centre