Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 223571
Dear [Client]:
Subject: GST/HST RULING
Supply of a temporary easement
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of a temporary easement over your property.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following from the documents and information you provided on [mm/dd/yyyy], […]:
1. […](the “Owners”) are the legal owners of the property known municipally as […](the “Property”).
2. […].
3. On [mm/dd/yyyy], the Owners signed an agreement (the “Agreement”) with the City, granting them a temporary easement over part of the Property (the “Temporary Easement”). The relevant terms and conditions of the Agreement for purposes of this ruling may be summarized as follows:
a. The Temporary Easement is for a period of [...]which commenced on [mm/dd/yyyy] and will expire on [mm/dd/yyyy].
b. The Temporary Easement is conveyed over Part of Lot […](the “Easement Lands”). It consists of the side laneway and rear yard of the Property.
c. The Temporary Easement is provided exclusively for the following purpose: […][description of construction to be completed].
d. Upon completion of […][construction], the City must remove all chattels and equipment from the Easement Lands, and restore them to the condition existing immediately prior to the construction […].
e. In consideration for the transfer of the Temporary Easement, the owners received a lump-sum of $[…] on the closing date of the agreement. This payment is accepted by the Owners without prejudice to any of their rights to claim additional compensation for the market value of the transfer.
4. The Property is held in joint tenancy by the Owners.
5. […](“Owner 1”) is not a GST/HST registrant.
6. […](“Owner 2”) is a GST/HST registrant for the purposes of his business, which does not involve any activity related to real property.
7. The Property is not being used primarily for commercial activities.
8. The Easement Lands were not used in any commercial activities prior to the Agreement.
RULING REQUESTED
You would like to know whether the supply of the Temporary Easement made under the Agreement should be treated as a supply of real property by way of sale or a supply of real property by way of lease, licence or similar arrangement.
You would also like to know if the supply of the Temporary Easement is a taxable supply subject to GST/HST.
Finally, in the case where the supply of the Temporary Easement is a taxable supply subject to the GST/HST, you would like to know who is responsible for the collection and remittance of GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that the supply of the Temporary Easement is a taxable supply of real property by way of lease, licence or similar arrangement, and is subject to the GST/HST.
EXPLANATION
Nature of the supply
The supply of an easement over real property is a supply of real property for GST/HST purposes and as such is subject to the provisions in the ETA that apply to a supply of real property.
For the purposes of GST/HST, the supply of an easement could either be considered a supply by way of lease, licence or similar arrangement or, alternatively, a supply by way of sale. Factors to consider in making this determination are the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, and the actual dealings among the parties involved.
Where the easement gives the recipient the use or right to use real property without legal ownership in the underlying property over a specified period of time, the supply would normally be considered to made by way of an arrangement similar to a lease or license.
Where the consideration for the supply of an easement relates to the actual grant or transfer of the equitable interest in the property and not to the use or right to use the property, the supply would normally be considered as being in respect of the sale of real property.
In the case at hand, the terms of the Agreement are not indicative of a sale of an interest in the property given the nature of the interest transferred to the City, and the specified period of use under the Agreement.
More specifically, the Agreement states the Temporary Easement has a term of […], and is conveyed for specific uses, as described above, with no legal ownership over the Easement Lands. Additionally, once the City has completed [construction], it will to remove all chattels and equipment, and restore the Easement Lands to the condition existing immediately prior to the construction […].
Consequently, the supply of the Temporary Easement to the City under the Agreement is considered a supply of real property by way of lease, licence, or similar arrangement.
Tax status of the supply
Section 165 provides that every recipient of a taxable supply made in Canada shall pay to her Majesty in right of Canada tax in respect of the supply. A “taxable supply” is defined in subsection 123(1) as a “supply that is made in the course of a commercial activity”.
A “commercial activity”, as defined in subsection 123(1), includes the making of a supply of real property.
As such, supplies of real property made in Canada are taxable supplies for which GST/HST is collectible unless a specific relieving provision applies. In the present case, there is no exempting provision that applies to the supply of the Temporary Easement to the City.
Therefore, the supply of the Temporary Easement is a taxable supply of real property, and is subject to GST/HST.
Requirement to collect GST
It is important to recognize that the fact that real property is owned in joint tenancy has a bearing on the GST/HST implications of a supply of the property. This stems from the nature of joint tenancy at common law.
When real property held in joint tenancy is supplied by way of sale, or by way of lease, licence or similar arrangement, the supply is a single supply made by all of the joint tenants. In turn, a payment of consideration and tax made by the recipient of a supply of real property that is held in joint tenancy is a payment made to all of the joint tenants.
As a general rule, every person who makes a taxable supply in Canada is required to collect the tax payable by the recipient in respect of the supply. However, section 166 excludes any part of the consideration for a taxable supply that becomes due, or is paid before it becomes due, when the supplier is a small supplier from the calculation of tax payable in respect of the taxable supply. The effect of section 166 is to relieve small suppliers who are not registrants from the requirement under subsection 221(1) to collect GST/HST in respect of their taxable supplies, with the exception of sales of real property and certain sales of capital property.
In light of section 166, Owner 1 would be relieved from collecting HST in respect of the taxable supply made to the City under the Agreement as long as she qualifies as a small supplier.
On the other hand, given that Owner 2 is a GST/HST registrant, the City would be required to pay and Owner 2 would be required to collect HST at the applicable rate on the value of the consideration payable for the taxable supply made under the Agreement.
Liability to report and remit GST
The final issue stemming from your query is the Owners’ respective obligation to report and account for amounts collectible or collected as or on account of GST/HST in their respective net tax calculation and to remit any positive amounts of net tax.
As explained above, Owner 2 was required to collect HST in respect of the taxable supply of real property made to the City. Subsection 225(1) therefore required him to include amounts that became collectible by him and amounts he collected as or on account of tax in a particular reporting period, when determining his net tax for that reporting period.
Provided that Owner 1 was, in fact, a small supplier, Owner 1 was not required to collect
HST in respect of these taxable supplies. Despite this, in light of the common-law principles of unity that apply in respect of real property that is held in joint tenancy, both Owners would be viewed as having collected amounts actually paid by the City as or on account of tax. Subsection 225(1) requires a person such as Owner 1 who collects amounts as or on account of tax to include the amounts collected in her net tax calculation. Further, subsection 222(1) deems Owner 1 to hold the amounts collected as or on account of tax in trust for the Crown until the amounts are remitted to the Receiver General or withdrawn as an input tax credit or net tax deduction under subsection 222(2).
Ordinarily, amounts collected by a non-registrant as or on account of tax are to be reported on GST/HST returns, each reflecting the amounts collected during a particular calendar month. A non-registrant is required to file its returns and remit the net tax by the end of the month following the month in which the tax was collected.
Where the Owners are both required to account for amounts collected as or on account of tax, the accounting of the amount and the remittance of any resulting positive amount of net tax by one of the parties will discharge the liability of both parties. As such, where Owner 2 reports the amounts of HST in respect of the taxable supplies in his GST/HST returns and remits any resulting positive amounts of net tax, Owner 1’s liability to remit the amounts collected as or on account of GST/HST will be discharged.
That is, as the Owners hold the property in joint tenancy, GST/HST is required to be collected and remitted to the CRA on the total consideration for the supply of the Temporary Easement. This may be remitted by either Owner 1 or Owner 2. Once the GST/HST has been reported and remitted the GST/HST on the total consideration by one Owner, the other owner is relieved of this liability.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 514-213-6075. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Stéphanie Blanchette
Real Property Unit 2
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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