23 June 2006 GST/HST Interpretation 80518 - Amending a ticket for passenger transportation service

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:

The following is further to recent communications XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to modular homes and the implications of the proposed reduction in the GST/HST rate.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers document http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the Canada Revenue Agency (CRA) Web site.

Interpretation Requested

XXXXX requested general information XXXXX on the impact of the proposed changes relating to the reduction in the GST/HST rate.

Interpretation Given

We are providing you with the following general information confirming our discussions with XXXXX. Should you require any definitive responses or interpretations with respect to certain supplies made XXXXX, please submit a formal request for an interpretation or ruling. The request should be sent to:

Mr. Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
14th Floor, Tower "A", Place de Ville
320 Queen Street
Ottawa, Ontario
K1A 0L5

With respect to the application of the GST/HST, reference should be made to GST/HST Policy Statement P-223 - The meaning of manufacture and assembly of which is completed or substantially completed in the definition of mobile home (http://www.cra-arc.gc.ca/E/pub/gl/p-223/README.html), which is also available on the CRA Web site.

Our responses are based on the sale of a modular home, as described below, made by a builder.

A modular home is a factory-built house or building intended for residential occupancy that consists of "modules" where each module has three walls and a roof or ceiling. For purposes of the GST/HST new housing rebate and the new GST/HST transitional rebate, a modular home is generally considered to be a mobile home. A "mobile home" is defined, for GST/HST purposes, in subsection 123(1). To be considered a mobile home for GST/HST purposes, the modular home has to be equipped with complete plumbing, electrical and heating facilities, and designed to be moved to a site for installation on a foundation and to be connected to service facilities, and used as a place of residence. In addition, the modules must be in as finished a condition as possible before leaving the manufacturer's premises.

A "builder" for GST/HST purposes, includes the manufacturer, distributor, or retailer of a mobile home, which would include a person commonly referred to as a dealer.

Should you require assistance with a determination as to whether a particular manufactured unit is considered to be a mobile home and consequently a residential complex for GST/HST purposes, please forward to us the information regarding the particular unit and we will be pleased to review your submission. In addition, if there are any specific services that are provided by the manufacturer that are not discussed below XXXXX, we can also address the application of the GST/HST to these services if you provide us the additional information.

"Mobile homes" are included in the definitions of "real property" and "residential complexes" for GST/HST purposes. As a result, the GST/HST treatment of supplies of modular homes that meet the definition of "mobile home" is the same as it is for all other types of residential complexes. Generally, the sale of a newly constructed modular home, made before any individual occupies the modular home as a place of residence or lodging, is subject to GST/HST.

Transitional rules

The transitional rules for purposes of the GST/HST rate reduction, proposed in the Federal Budget of May 2, 2006, that apply to real property and, more specifically, sales of residential complexes, also apply to sales of modular homes that are considered to be mobile homes for GST/HST purposes.

If a written agreement is entered into before May 3, 2006, to purchase a new modular home, GST at 7% or HST at 15% will apply. If both ownership and possession are transferred after June 30, 2006, a GST/HST Transitional Rebate may be available. The rebate takes into account the reduction in the GST/HST rate and any rebate, such as a new housing rebate, that the purchaser may be entitled to claim.

If a written agreement is entered into after May 2, 2006, to purchase a modular home, GST at 7% or HST at 15% will apply if either ownership or possession is transferred before July 1, 2006. If both ownership and possession are transferred after June 30, 2006, GST at 6% or HST at 14% will apply.

Ownership and possession

In the case of modular homes, ownership and possession are generally transferred on the day that the modular home is delivered to the site. However, ownership and/or possession may be transferred on a different day depending on the terms of the agreement to transfer ownership. For example, the agreement to transfer ownership of a modular home may specify that ownership transfers to a purchaser prior to delivery of the modular home to the site.

Other services supplied with the modular home

It is the CRA's position that where a modular home is supplied together with other services that include: freight & set-up services and finishing services (e.g., on-site assembly of the modular home, construction of a porch, deck, garage, etc.), such services will be considered to be part of a single supply of a modular home where certain conditions are met. For example, in the case of finishing items where:

(a) the finishing items constitute part of the residential complex, i.e., they form part of the modular home or they are an appurtenance to the modular home that is reasonably necessary for the use and enjoyment of the modular home as a place of residence for individuals; and

(b) the finishing items and the modular home are both supplied together pursuant to a single sales agreement. The number of invoices issued does not normally affect whether or not the supply is a single supply.

Services that are elements of a single supply of a modular home can be provided at the time of delivery of the modular home or shortly thereafter.

In circumstances where additional items (e.g., such as finishing services required to complete the modular home) are not included in the original agreement for the sale of a modular home but are provided at the time of delivery of the modular home or shortly thereafter, the additional items may still form part of a single supply of a modular home provided that:

(a) the additional items constitute part of the residential complex, i.e., they form part of the modular home or they are an appurtenance to the modular home that is reasonably necessary for the use and enjoyment of the modular home as a place of residence for individuals;

(b) the additional items are ordered prior to the time that title to the residential complex is transferred to the purchaser;

(c) the additional items are provided at or around the same time as the other elements included in the supply of the residential complex; and

(d) it is reasonable in all the circumstances to conclude that the parties intended for the additional elements to be part of the original agreement and not a separate supply.

If you require more information on the application of the GST/HST to set-up and finishing services supplied together with a modular home, please provide us with the details of the services and the terms under which they are provided and we will be pleased to provide you with an interpretation.

If the additional items are not part of a single supply of a modular home, you may refer to the Reduction in the Rate of the GST/HST - Questions and Answers document (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) available on the CRA Web site for the impact of the GST/HST rate reduction on supplies of goods and services. In these cases, it may be possible that the additional good or service may be taxed at a rate that is different than the rate that applies to the sale of the modular home.

Exempt supply of land by way of lease

The GST/HST rate reduction does not have an impact on supplies that are exempt for GST/HST purposes. Land supplied by way of lease, licence or similar arrangement for residential use is not subject to GST/HST where certain conditions are met.

For land not included in a "residential trailer park" as defined for GST/HST purposes, a supply of such land by way of lease, licence or similar arrangement will not be subject to GST/HST where the following conditions are met:

•   the lease, licence or similar arrangement provides for the continuous possession or use of the land for a period of at least one month;

•   the person to whom the supply of the land is made is, or it is reasonable to expect will be, an owner, lessee, or person in occupation or possession of a modular home to be affixed to the land for use as a place of residence of individuals; and

•   the land, for which the lease, licence or similar arrangement is granted, is reasonably necessary for the use and enjoyment of the modular home, affixed or to be affixed to the land, as a place of residence for individuals.

For more information on supplies of land for residential use and what constitutes a residential trailer park for GST/HST purposes, refer to Chapter 19.2.2, Residential Real Property Rentals (http://www.cra-arc.gc.ca/E/pub/gm/19-2-2/19-2-2r-e.html) of the GST/HST Memoranda Series that is available on the CRA Web site.

The foregoing comments represent our general views with respect to the proposed amendments to the Excise Tax Act as they relate to the subject matter of your request. Any change to the wording of these proposed amendments or any future 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 GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the CRA with respect to a particular situation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-8852.

Yours truly,

Daryl J. A. Hooley, CGA
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2006/06/23 — RITS 80536 — The GST/HST Status of the Supply of a Service