File no.: 11755-20(SB); 11990-1
XXXXX
Technical Services Group
Taxes Services XXXXX June 7, 1995
This is in reply to your memorandum of March 3, 1995 regarding the above mentioned subject.
ISSUE
Under an aircraft purchase agreement and amendment between XXXXX and XXXXX dated December 28, 1988, XXXXX agreed to provide aircraft to XXXXX and make modifications to those same aircraft.
You are inquiring as to whether the provision of the aircraft and the modifications are part of a single supply or constitute two separate supplies.
Facts
We have listed hereafter the provisions of the agreement that may be useful in determining whether the aircraft and the modifications are all part of a single supply or constitute separate supplies
AIRCRAFT PURCHASE AGREEMENT / DECEMBER 28, 1988
Definitions: Maintenance and Modification Program
The maintenance and modifications defined by XXXXX and agreed by XXXXX as set forth in Paragraph III of Exhibit A, which maintenance and modifications shall be performed by XXXXX prior to Delivery to XXXXX
Section 2.01: Purchase of the Aircraft
XXXXX agrees to sell to XXXXX and XXXXX agrees to purchase from XXXXX the Aircraft, in accordance with the terms and conditions set forth in this Agreement. The Aircraft shall be delivered by XXXXX and accepted by XXXXX in an "AS IS" condition, subject to the terms and conditions of this Agreement.
Section 2.02.: Purchase Price
XXXXX shall pay XXXXX a total of XXXXX for the twenty-eight (28) Aircraft, apportioned as follows and adjusted in accordance with Section 2.04 and Exhibit B:
Section 3.04. Title and Risk of Loss
(a) Title to each of the Owned Aircraft shall transfer from XXXXX to XXXXX upon Delivery, and title to the Leased Aircraft shall transfer to XXXXX exercise of the Purchase Options being provided to XXXXX by XXXXX under the terms of Exhibits H and I, respectively.
(b) The risk of loss, damage and destruction of each Aircraft, specifically including the Leased Aircraft, shall transfer from XXXXX to XXXXX upon Delivery.
Section 3.07. Maintenance and Modification Program
XXXXX shall perform the Maintenance and Modification Program with respect to each Aircraft prior to Delivery. XXXXX shall, on the date specified on the Release notice, induct such Aircraft into the Maintenance and Modification Program.
Section 4.01. Warranties
(d) At the time of Delivery, the Aircraft shall have a currently Canadian Certificate of Air worthiness and, subject to the provisions of Section 12.11, be eligible for a U.S. type certificate and a U.S. registration issued by the FAA under applicable FAA regulations governing the operation of the Aircraft and shall be in a condition which shall permit the issuance of an air worthiness certificate to XXXXX ...
Section 9.02. Damage, Loss or Destruction of the Aircraft
In the event of the damage, destruction or constructive total loss of any or more of the Aircraft prior to Delivery, XXXXX shall immediately notify XXXXX , and if XXXXX reasonably cannot repair and deliver the damaged Aircraft within sixty (60) days of the Delivery Date, XXXXX may at its sole option cancel this Agreement as to that Aircraft by giving XXXXX written notice. In the event XXXXX elects to so cancel this Agreement as to that Aircraft, the Purchase Deposits for such Aircraft shall immediately be returned to XXXXX , and the parties shall have no further obligation or liability to each other as to such Aircraft.
Section 10.01. Events of Default
If any one or more of the following events of default (herein "Events of Default") occur, then this Agreement may, at the option of the party not in default be terminated: ...
EXHIBIT A
III. Maintenance and Modification Program
Prior to Delivery, XXXXX shall perform the following maintenance and modification work on the Aircraft in accordance with the provision of Section 3.06 of the Agreement and for the charges set forth in Paragraph IV ...
Unless otherwise mutually agreed, XXXXX shall provide modification kits and XXXXX - peculiar items, and XXXXX shall provide all other materials. However, XXXXX , at its sole discretion, may provide any or all rotable parts. ...
IV. Charges and Payments
A. Terms of Payment
1. Except with respect to those Aircraft which do not require a XXXXX "C-4" Check ..., XXXXX shall make a progress payment of XXXXX per Aircraft at the time of Delivery to XXXXX .
2. Within thirty-five (35) Business Days after Delivery of each Aircraft, XXXXX shall submit to XXXXX an itemized invoice for all charges associated with the work performed hereunder, less any progress payment made ...
ANSWER
To answer your question, we have considered the four (4) factors included in Policy 077 regarding Single and Multiple Supplies. In this particular case, we believe that the conditions of the agreements entered into by XXXXX and XXXXX will, by themselves, allow to determine whether all the elements provided by XXXXX are part of a single supply or constitute separate supplies.
Pursuant to section 2.01. of the Aircraft Purchase Agreement, it appears that the main object of the agreement is the sale of the aircraft by XXXXX to XXXXX . This clause specifies that the aircraft are to be accepted by XXXXX "in an AS IS condition, subject to the terms and conditions of this Agreement" (emphasis is ours). Therefore, even though the aircraft are to be accepted as is by XXXXX given that this clause is subject to the terms and conditions of the agreement, it may not be interpreted to mean that the aircraft are to be accepted as is without the modifications sought by XXXXX . In fact, the modifications may be a condition to be met before the sale of a particular aircraft is completed and XXXXX may only be required to accept a particular aircraft after the modifications requested by XXXXX have been made.
Pursuant to section 3.07. of the same agreement, XXXXX accepts to perform the Maintenance and Modification Program with respect to each aircraft prior to delivery of the aircraft to XXXXX . According to the definition of this Program, the maintenance and the modifications to be performed by XXXXX are to be defined by XXXXX
Clause IV.A. of Exhibit A attached to the Aircraft Purchase Agreement specifies the terms of payment in respect of the maintenance and the modifications to be performed to the aircraft by XXXXX Pursuant to this provision, XXXXX shall make a progress payment to XXXXX at the time of delivery of an aircraft and XXXXX shall submit an itemized invoice for all the charges associated with the maintenance and modifications performed on the aircraft within thirty-five (35) business days after delivery. Therefore, XXXXX is not required to make payments in respect of the modifications made on a particular aircraft before the time XXXXX has delivered this aircraft.
Sections 3.04. and 9.02. of the Aircraft Purchase Agreement are particularly relevant in determining whether the modifications constitute a separate supply or are part of the supply of the aircraft. Section 3.04. specifies that title to, and the risk of loss, damage and destruction of each aircraft shall transfer to XXXXX upon delivery. Section 9.02. states that, in the event of the damage, destruction or constructive total loss of any aircraft, XXXXX may cancel the agreement as to that aircraft if XXXXX cannot repair and deliver the aircraft within sixty (60) days of the planned delivery day. "In the event XXXXX elects to so cancel this Agreement as to that Aircraft, the Purchase Deposits for such Aircraft shall immediately be returned to XXXXX , and the Parties shall have no further obligation or liability to each other as to such Aircraft" (emphasis is ours).
Based on sections 3.04. and 9.02 of the purchase agreement, it appears that XXXXX is not required to pay any amount to XXXXX in respect of an aircraft, where the aircraft has been damaged, destroyed or lost and XXXXX elects to cancel the purchase of that aircraft under accepted conditions. In such a situation, XXXXX would not be required to pay for the modifications given that XXXXX is required to pay XXXXX for the modifications on or after the delivery of an aircraft and that the parties do not have any further obligation or liability to each other where XXXXX cancels the agreement in respect of an aircraft pursuant to section 9.02. Put differently, XXXXX is not required to pay for the modifications made on a particular aircraft if XXXXX does not deliver that aircraft to XXXXX The fact that title to, and the risk of loss, damage and destruction of each of aircraft shall transfer to XXXXX upon delivery and that XXXXX is not entitled to be paid for the modifications where an aircraft is not delivered indicates that the modifications do not constitute a separate supply. If they were, XXXXX would be entitled to be paid for the modifications made on a particular aircraft even if title to that aircraft was not transferred to XXXXX In addition, given that XXXXX has agreed and is required to perform the modifications to the aircraft before delivery, it appears that XXXXX and XXXXX have entered into an agreement for the supply of aircraft including the modifications and the sale would not be completed if the modifications were not made.
In conclusion, based on the above analysis, we believe that XXXXX is making a single supply of aircraft having specific characteristics (i.e. having been modified to the extent required by XXXXX I hope the above information will be useful to you. Should you wish to discuss this issue further, please contact Serge Bernier at (613) 952-9580, Anny Roy at (613) 964-2560 or Gunar Ozols at (613) 952-9589.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretation XXXXX
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A. Venne
Imposition team |
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