24 April 2007 GST/HST Ruling 61048 - Application of the GST/HST to the sale of books by an online high school.

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.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 61048
XXXXX	April 24, 2007

Subject:

GST/HST RULING Tax Status of Fees in XXXXX

Dear XXXXX:

Thank you for your letter XXXXX in which you request confirmation of our ruling XXXXX, concerning the application of the Goods and Services Tax (GST) to certain amounts charged in respect of a site in the XXXXX. The XXXXX GST/HST Rulings Centre forwarded your letter to us for response. We apologize for the delay in providing you with this reply.

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

Due to the confidentiality provisions of the ETA, we are unable to provide you with information relating specifically to the ruling referenced in your letter. However, we are pleased to provide you with the following ruling that addresses the application of the GST to amounts charged by your client, XXXXX.

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the "Original Landlord") was the sole owner of land that consists of XXXXX recreational vehicle sites (the "Park") located on XXXXX.

2. Prior to XXXXX, the Original Landlord managed the day-to-day operations of the Park.

3. Persons wishing to use a site in the Park (the "Lessees") entered into a "XXXXX agreement" with the Original Landlord that is a lease of a site in the Park. Under the agreement, a Lessee is given the right to the exclusive use of a specific site in the Park for a period of XXXXX years for the purpose of placing a vehicle or trailer designed for recreational use (the "Trailer") thereon. Upon entering into the agreement, a Lessee was required to make a payment that was more than nominal. The Lessee also agreed to pay a yearly fee to cover the Original Landlord's costs of operating the Park and to pay an amount in respect of the property taxes assessed against the Park.

4. The Park is serviced and accessible throughout the year. At least one of the Trailers is used as a primary place of residence. None of the Trailers qualify as a "mobile home", as defined in subsection 123(1).

5. A Disclosure Statement was filed and approved under the XXXXX to convert the Park into a "shared interest" development. The Disclosure Statement had the effect of dividing the fee simple estate in the Park into XXXXX undivided interests (the "Interests"). The Park is not governed by the XXXXX and an Interest is not a condominium or XXXXX lot. Persons purchasing an Interest are registered in the land titles office as a registered owner ("Owner") of an undivided 1/XXXXX interest in fee simple of the Park.

6. Lessees have the option of terminating their lease and purchasing an Interest. A Lessee pays nominal consideration to purchase an Interest (i.e., a minimal amount necessary to legally effect the purchase and become an Owner). A number of Lessees have opted to become Owners.

7. Owners are required to enter into a Co-Owners Agreement. Pursuant to the Co-Owners Agreement, ownership of an Interest confers upon an Owner the right to the exclusive use of a particular site within the Park and to use the common areas and facilities of the Park. ^[xi]footnote 1 Each Owner acknowledges that all other Owners have also been granted exclusive use of a site in the Park and the Owner agrees to refrain from interfering with any of the rights granted to the other Owners.

8. Persons who were not Lessees prior to the establishment of the shared interest development must now purchase an Interest if they wish to occupy a site in the Park and do not have the option of leasing a site under the "XXXXX agreement" previously made available by the Original Landlord. Such a person must pay more than a nominal amount to purchase an Interest.

9. Lessees who have opted to not become Owners continue to occupy their site in the Park pursuant to the agreement entered into with the Original Landlord. Given that the Original Landlord has sold some Interests, the yearly fee to cover the costs of operating the Park and the amount in respect of property taxes that is assessed against the Park are now payable to the Original Landlord and the other Owners (collectively, the "Interest Holders").

10. After an Interest was sold and prior to XXXXX, the Original Landlord collected, on behalf of the Interest Holders, the yearly fee and the amount in respect of the property taxes that are payable by the Lessees. However, the Original Landlord retained the Owners' share in these revenues in exchange for managing the day-to-day operations of the Park.

11. A number of sites in the Park have remained unoccupied since the Park was first developed in XXXXX. The Original Landlord has had the corresponding Interests listed for sale since the filing of the Disclosure Statement. The Original Landlord has ownership of the Interests that relate to the sites occupied by the Lessees and those Interests are not for sale.

12. XXXXX (the "Owners' Association") is a corporation that is a "non-profit organization" as that term is defined in subsection 123(1). Owners are members of the Owners' Association, which does not itself hold an Interest.

13. XXXXX the Owners' Association manages the day-to-day operations of the Park. The Owners' Association is registered for GST purposes.

14. On behalf of the Interest Holders, the Owners' Association now collects the yearly fee payable by the Lessees. Instead of physically giving the amounts collected to the Interest Holders, the Owner's Association retains these amounts in exchange for managing the day-to-day operations of the Park.

15. The Owners' Association sets an annual budget to estimate the costs (the Costs) involved in running the Park (e.g., the costs related to the maintenance of the Park, repairs, wages and benefits to staff and operating supplies). The Costs are recovered in the form of an annual maintenance fee (the "Fee") that is collected from the Interest Holders in proportion to their Interest. Although the Disclosure Statement indicates that certain amounts in respect of property taxes would be included in the Costs, we understand that such amounts are not included.

16. XXXXX of the Co-Owners Agreement provides that each Owner is to pay property taxes assessed against their site and an equal portion of the assessment made on the common areas of the Park. In the event that the assessing authority does not provide separate assessments against each site, the Interest Holders are to allocate the assessment for the Park against each site.

17. The Owner's Association pays the full property tax assessment on behalf of the Interest Holders then requests reimbursement of the property tax amount from the Interest Holders. Each Owner occupying a site contributes 1/XXXXX of the total property tax assessment while the Original Landlord is responsible for the remaining portion of the assessment taking into consideration the amounts in respect of the property taxes that is payable by the Lessees to the Interest Holders and collected by the Owners' Association.

Rulings Requested

You would like to know whether the Owners' Association is required to collect GST in respect of the yearly fee and the amount in respect of the property taxes that are payable by the Lessees. You would also like to know whether the Owners' Association is required to collect GST in respect of the Fee and the amount in respect of the property taxes that are payable by the Owners.

Rulings Given

Based on the facts set out above, we rule that

1. The Owners' Association is not required to collect GST in respect of the yearly fee payable by a Lessee and that it collects on behalf of the Interest Holders.

2. The Owners' Association is not required to collect GST in respect of the amount that relates to the property taxes that is payable by a Lessee and that it collects on behalf of the Interest Holders.

3. The Owners' Association is not required to collect GST in respect of the reimbursement of the property taxes it paid on behalf of the Interest Holders.

4. The Owners' Association is required to collect GST in respect of the day-to-day management service provided to the Interest Holders. The consideration for this service includes the Fee charged to the Interest Holders and an amount equal to the yearly fees paid by the Lessees that it collects on behalf of the Interest Holders and retains as consideration for its management service.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings 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 their validity, and all relevant facts and transactions have been fully disclosed.

Explanation

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

"... the land that is included in a trailer park 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, license 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".

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

"...a piece of land that is owned by or leased to the person and that is exclusively composed of

(a) one or more sites each of which is, or is intended to be, supplied by the person by way of lease, licence or similar arrangement to the owner, lessee or person in occupation or possession of a mobile home, or a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site, and

(b) other land that is reasonably necessary for

(i) the use and enjoyment of the sites 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

(ii) the purpose of engaging in the business of supplying the sites by way of lease, licence or similar arrangement".

Based on our understanding, the Park is a "residential trailer park" for purposes of the ETA.

Supplies of real property by way of lease, licence or similar arrangement are generally subject to the GST/HST unless a specific provision applies to exempt a particular supply. Section 7 of Part I of Schedule V to the ETA exempts 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, or ..."

The sites supplied by the Interest Holders to the Lessees by way of lease are exempt under paragraph 7(b) of Part I of Schedule V to the ETA and therefore not subject to the GST. The yearly fee and the amount in respect of the property taxes that are payable by a Lessee are additional consideration for the exempt supply of a site in the Park made by way of lease by the Interest Holders. As a result, the Interest Holders are not required to collect GST in respect of these amounts. The fact that the Owners' Association is collecting these amounts on behalf of the Interest Holders does not affect the tax status of the supply of a site by way of lease made by the Interest Holders to the Lessees even though the Owners' Association does not actually remit the amounts collected to the Interest Holders. The Owners' Association is not making a supply to the Lessees and is not required to collect GST in respect of these amounts that it collects on behalf of the Interest Holders.

The Owners' Association is also not required to collect GST when it seeks reimbursement of the property taxes that it paid on behalf of the Interest Holders. The Owner's Association is not making a supply to the Interest Holders when it seeks this reimbursement.

The Owners' Association is making a taxable supply of the day-to-day management service provided to the Interest Holders. There is no provision in the ETA that would exempt the service provided to the Interest Holders; the Owners' Association is therefore required to collect GST calculated on the total consideration for the supply of this service. The consideration for the supply includes the Fee charged to the Interest Holders. The consideration for the supply also includes an amount equal to the yearly fees paid by the Lessees that the Owners' Association collects on behalf of the Interest Holders and retains as consideration for its management service. The Interest Holders are required to pay the GST in respect of the day-to-day management service, calculated on the total consideration payable for the service, to the Owners' Association.

To explain further, the Owners' Association collects the yearly fees from the Lessees on behalf of the Interest Holders (fact 14). It is our view that the Interest Holders must pay to the Owners' Association an amount equivalent to those yearly fees as partial consideration for the supply of the management service provided by the Owners' Association. As such, the Owners' Association simply retains the yearly fees collected from the Lessees as consideration for that supply.

If you require clarification with respect to any of the issues discussed in this letter, please call Mr. Marcel Boivin, Manager of the Real Property Unit directly at 613-954-3772.

Yours truly,

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

2007/05/17 — RITS 64868 — [Application of the GST/HST to Public Service Bodies and Non-Profit Organizations]