13 March 2006 GST/HST Interpretation 50387-1 - Canadian Forces Post Office Boxes (5000 Series)

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:

We refer to our letter XXXXX, a GST/HST Interpretation issued by GST/HST Rulings XXXXX.

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

In the above referenced letter, we indicated in our interpretation that paragraph 25(h) of Part VI of Schedule V to the ETA could apply to the lease of a parking facility where one or both of the following conditions are met:

1. The terms of the lease agreement require that the parking facility be used by the parking lot operator only for the supply of parking spaces to end users; and

2. The parking facility consists of buildings, structures or other improvements that are clearly intended to be used for the activity of supplying parking spaces to end users.

We have reviewed our position on this matter. The following interpretation supersedes our previous position as explained above. We apologize for any inconvenience this may cause.

At the time our response was provided, your client was contemplating entering into lease agreements with third parties for the lease of parking facilities. If your client has entered into a lease agreement, we would be pleased to issue a ruling provided that the lease agreement and an update of the facts and circumstances of the particular transaction accompany your request.

Interpretations Given

The underground parking facility

It is our view that the lease of an entire parking facility by a public service body (other than a financial institution, municipality or government) to a lessee, who will in turn make supplies of parking spaces in the facility, is not excluded from the exemption by paragraph 25(h) of Part VI of Schedule V to the ETA. The lease of an entire parking facility in the circumstances described in our letter XXXXX, is more than simply a lease of a number of parking spaces, as other improvements and areas form part of the parking facility that is being leased.

The entire legally described parcel of property, part of which is the underground parking facility, is used primarily in making exempt supplies. As such, it is not the case that immediately before the underground parking facility is leased to a third party, that property (i.e., the entire legally described parcel) was used primarily in commercial activities. As such, paragraph 25(d) of Part VI of Schedule V to the ETA does not apply.

As no other exclusions to the exemption in section 25 apply, the lease of the underground parking facility by your client, XXXXX (hereafter "the Centre"), to a third party will be exempt under section 25 of Part VI of Schedule V to the ETA ^[xxiv]1.

The new parking facility

The lease of the new parking facility by the Centre to a third party will not be excluded from exemption under paragraph 25(h) of Part VI of Schedule V to the ETA for the same reasons as set out above.

In determining whether paragraph 25(d) of Part VI of Schedule V to the ETA applies to exclude the lease of the new parking facility by the Centre to a third party, it will be necessary to determine whether the entire legally described property, part of which is the new parking facility, was used, otherwise than in making the supply to the third party, primarily in commercial activities of the Centre immediately before tax in respect of the lease becomes payable by the third party (if that lease of the parking facility to the third party were a taxable supply).

Pursuant to subsection 141.01(5), the methods used by a person to determine the extent to which the use of properties is for the purpose of making taxable supplies for consideration or for other purposes must be made in a fair and reasonable manner and must be used consistently throughout a year.

If, prior to the lease of the new parking facility to a third party, the parking facility was used by the Centre to make taxable supplies of parking spaces, the parking lot would be used in commercial activities. Other uses of the entire property must also be considered before the primary use of the property can be determined.

If, prior to the lease of the new parking facility to a third party, the facility was not used to make supplies of parking spaces, it is possible that the facility was still used in the course of commercial activities by the Centre. Under the provisions of subsection 196(1), where a person acquires or appropriates property for use as capital property of the person to a particular extent in a particular way, the person is deemed to use the property immediately after that time to the particular extent in the particular way. Accordingly, if, during construction of the new parking facility, the Centre intended to use the facility in the course of making taxable supplies of parking spaces, they would be deemed to use the parking facility in that manner, at least until such time that there is a change-in-use of the property. Again, other uses of the entire property must be considered before determining whether the entire property was used primarily in commercial activities.

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, Goods and Services Tax Rulings, 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) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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