28 April 2005 GST/HST Ruling 59839 - Construction of a replacement house

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 the additional information you sent by fax XXXXX concerning the application of the Goods and Services Tax (GST) in respect of park lot development fees (PLDFs) and the annual land rental fees for provincial park lots. All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand:

1. Under the XXXXX, XXXXX (the Lessor) holds public draws for the right to lease specific provincial park lots (referred to as "XXXXX Lots") for recreational/residential purposes. These lots are not sites in a "residential trailer park" as defined in subsection 123(1).

2. Applicants to the public draw are required to submit a $XXXXX deposit with their draw application and are refunded the deposit if they were unsuccessful.

3. A successful applicant of the draw is required to pay the PLDF and complete a lease application form in order to obtain a particular XXXXX Lot. The $XXXXX deposit is retained by the Lessor and applied to the PLDF payable by the applicant.

4. Once the Lessor receives the PLDF and the application for a XXXXX Lease, the applicant is entitled to take possession of the particular XXXXX Lot and receives two copies of XXXXX (the Lease Agreement). The applicant is required to sign the Lease Agreement and return it to the Lessor, at which point the applicant becomes the Lessee of the Lot. The term of the Lease Agreement is XXXXX years.

5. The Lessee is also invoiced a pro-rated amount of the annual land rental fee and annual service fees for the balance of the first rental year. The total annual land rental fee payable by a Lessee under a Lease Agreement varies from $XXXXX to $XXXXX depending on the particular XXXXX Lot.

6. Annual service fees payable under the Lease Agreement vary widely depending upon the location of the XXXXX Lot subdivision and the services provided. The annual service fees relate to non-optional municipal services such as snow removal and garbage collection. Pursuant to a ruling issued XXXXX, CRA (formerly Revenue Canada) ruled that these services are exempt from GST in accordance with section 21 of Part VI of Schedule V.

7. Pursuant to XXXXX under the Lease Agreement, the Lessee is required to construct a residence on the leased lot within 2 years of signing the Lease Agreement.

8. The amount of land included in a XXXXX Lot is not in excess of the amount reasonably necessary for the use and enjoyment of the residential unit as a place of residence for individuals.

9. Currently the PLDF fee varies from approximately $XXXXX to $XXXXX per lot. The amount of PLDF is determined based on certain costs including: land survey costs, local improvements and capital development costs incurred by the Lessor in respect of land in the particular provincial park.

10. The legislated authority to charge PLDFs is XXXXX which provides that the Minister XXXXX may, in respect of any land in a provincial park held under permit or lease, require the permit holder or lessee to pay any charges or rates that may be necessary to pay for services, local improvements, and capital development costs for that land.

11. Although the amount of the PLDF is based on costs incurred or that may be incurred by the Lessor, the Lessor is not providing any supply to the Lessee in respect of the PLDF other than the supply of the XXXXX Lot by way of lease. The Lessor represents the PLDF as a payment for the right to obtain a lease on the XXXXX Lot, where the PLDF must be paid before entering into the Lease Agreement. Payment of the PLDF would only be necessary if the applicant wishes to enter into the Lease Agreement.

Rulings Requested

1. You would like to know if the annual land rental fee is consideration for a supply that is subject to GST.

2. You would like to know if the PLDF is consideration for a supply that is subject to GST.

Rulings Given

Based on the facts set out above, we rule that:

1. The annual land rental fee is part of the consideration payable for a supply of real property (i.e., the XXXXX Lot) by way of lease that is not subject to GST.

2. The PLDF is part of the consideration payable for a supply of real property (i.e., the XXXXX Lot) by way of lease that is not subject to GST.

The deposit, once applied as part payment of the PLDF, becomes part of the consideration paid for the exempt supply of real property at that time in accordance with subsection 168(9).

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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

Based on the unique facts of these particular transactions and in accordance with Policy Statement P-077R2 - Single and Multiple Supplies, (1) the right to enter into the XXXXX Lease and (2) the XXXXX Lease itself, are two elements of a single supply of real property (i.e., the lease of XXXXX Lot).

As a result the annual land rental fee and the PLDF are each part of the consideration payable for the lease of the XXXXX Lot. The supply of the XXXXX Lot by way of lease is an exempt supply under paragraph 7(a) of Part I of Schedule V. Therefore, GST is not payable in respect of either the annual land rental fee or the PLDF.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

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

2005/05/03 — RITS 59996 — Proof of Delivery to a Reserve