10 July 2007 GST/HST Ruling 79146 - Application of the GST/HST to the affairs 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:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST) to supplies of real property made by way of lease by XXXXX (the Municipality). We apologize for the delay in providing you with this response.

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

Statement of Facts

We understand that:

1. The Municipality is registered for GST/HST purposes.

2. The Municipality leases the second storey of a local elementary school from XXXXX, and sub-leases it to the following organizations:

•   XXXXX;

•   XXXXX;

•   XXXXX; and

•   XXXXX.

3. The Municipality also leases spaces in buildings it owns to separate entities that operate the following:

•   a community health clinic;

•   a health unit;

•   a mental health unit; and

•   a canteen.

4. The Municipality does not contribute to the budgets of the above organizations/entities, except for the health unit where the Municipality contributes to the overall budget of the health unit but does not approve their budget or exercise control over the operations of the health unit.

5. All of these leases and sub-leases were entered into before March 10, 2004. However, there are no written agreements entered into before March 10, 2004, in respect of any of these leases and sub-leases.

Ruling Requested

You would like to know the tax status of these leases and sub-leases following the amendment introduced in 2004, which excludes from exemption supplies of real property made by a public service body that is a municipality.

Ruling Given

Based on the facts set out above, we rule that the supplies of real property made under the above lease and sub-lease agreements are taxable supplies where the consideration for the supplies becomes due after March 9, 2004. As a result, the Municipality is required to charge and collect GST in respect of lease payments made under these agreements that became due after March 9, 2004.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

As you are aware, an amendment was introduced in 2004 whereby supplies of real property made by a municipality are excluded from the exemption under section 25 of Part VI of Schedule V to the ETA. This amendment applies to any supply for which consideration becomes due after March 9, 2004, or was paid after that day without having become due. However, the amendment does not apply to any supply made under an agreement in writing entered into before March 10, 2004.

The supplies made under the lease and sub-lease agreements referred to above are not exempt under section 25 of Part VI of Schedule V to the ETA because, while they may be made under agreements entered into before March 10, 2004, the agreements were not in writing.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-3772.

Respectfully,

Marcel R. Boivin
Manager
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/07/09 — RITS 80137 — Federal Printed Book Rebate