File 11660-9; 11950-1(sm)
Section 123 & 273
Telephone No. (613) 954-8585
Fax No. (613) 990-1233
Dear Mr. XXXXX
Thank you for your memorandum dated May 24, 1995, with documents attached, requesting a GST interpretation with respect to the gravity base structure ("GBS") being built by XXXXX
Statement of Facts
Based on the information provided in your memorandum and the attached documentation, we understand the facts to be as follows:
1. XXXXX is a joint venture, the participants of which are XXXXX corporations.
2. The joint venture agreement was entered into on October 10, 1990.
3. The purpose of the joint venture was to bid for the design, engineering, procurement, prefabrication, construction and installation of the GBS for use in the XXXXX project and, if the bid was accepted, to enter into a contact with XXXXX ) to carry out the project.
4. The joint venture participants are eligible to share in the profits of the joint venture and are liable for all losses in the following proportions:
XXXXX
5. The liabilities and obligations incurred in the name of the joint venture are joint and several with each participant being responsible for its proportion.
6. Overall management of the joint venture is the responsibility of a management committee comprising of one nominee of each participant with each nominee having a vote for each percentage point of the participant's proportion. Any decision requires an affirmative vote representing at least 85% of the interests of the participants.
7. Day to day management of the joint venture is the responsibility of an executive committee, the members of which are nominees of each participant excluding XXXXX
8. Certain of the participants are eligible for a preferential distribution of profit as provided for in the joint venture agreement because of their work on the executive committee.
9. A project director whose duties are to manage the joint venture is described in the joint venture agreement, but one is not named nor is it clear who has the authority to name one.
10. Each participant is required to provide its proportionate share of working capital and guarantees.
11. The joint venture will terminate upon receipt of the final payment for the contract and upon providing for and paying all costs incurred.
12. The GBS is a multi-compartment storage concrete structure and support for the production facilities of the XXXXX It consists of a basic slab and a caisson that reaches from the seabed to about XXXXX metres above the water with XXXXX shafts extending above the caisson to support the topsides. The topsides consist of XXXXX modules and provide support for the production facilities.
13. The GBS will weigh approximately XXXXX tonnes and has a diameter of XXXXX metres. When ballasted and when the topsides are attached, it will weigh approximately XXXXX tonnes.
14. XXXXX It is estimated that the GBS will cost approximately XXXXX
15. The GBS was built in dry dock on the coast of XXXXX and will be towed to its location in the XXXXX That location is XXXXX
16. A concrete skirt will be attached to the GBS at its base. The skirt has prongs on the bottom edge which will be embedded in the seabed.
17. Once the GBS is in place, a gathering system of pipelines will connect the GBS with the XXXXX wells being drilled in the XXXXX
18. Although the GBS is movable, it is anticipated that it will not be moved for XXXXX years (the length of time required to exploit all the oil in the XXXXX It is not expected that the GBS will be used after that date; however, the modules may be individually used on other projects.
19. Although not mentioned in the joint venture agreement, it is our understanding that the joint venture is also responsible for constructing:
• access roads;
• accommodation for staff;
• all services for the site;
• production facilities for the manufacture of structural steel bars; and
• a wharf at the dry dock site in XXXXX
Interpretations Requested
1. Is the GBS considered "real property" for purposes of the Excise Tax Act?
2. Does XXXXX qualify to make the joint venture election under section 273 of the Excise Tax Act?
Interpretations Given
Real Property
We have the following comments in response to the questions in your memorandum:
Because the GBS will be located in the XXXXX c outside the twelve mile limit but within the 200 mile limit, we first have to determine whether the definition of real property in the Excise Tax Act applies or whether international laws must be looked to. We requested a legal opinion on this issue and our counsel advised us that the definition in the Excise Tax Act prevails. This conclusion is due, in part, to the Canadian Laws Offshore Application Act.
Subsection 2(1) of that Act contains the following definitions:
" 'continental shelf' means the seabed and subsoil of those submarine areas that extend beyond the territorial sea throughout the natural prolongation of the land territory of Canada to the outer edge of the continental margin or to a distance of two hundred nautical miles from the inner limits of the territorial sea, whichever is the greater, or that extend to such limits as are prescribed pursuant to paragraph (2)(a);"
" 'federal laws' includes Acts of Parliament, regulations as defined in section 2 of the Interpretation Act and any other rules of law within the jurisdiction of Parliament but does not include ordinances within the meaning of the Northwest Territories Act or the Yukon Act;"
" 'marine installation or structure' includes
(a) any ship, offshore drilling unit, production platform, subsea installation, pumping station, living accommodation, storage structure, loading or landing platform, dredge, floating crane, pipelaying or other barge or pipeline and any anchor, anchor cable or rig pad used in connection therewith, and
(b) any other work or work within a class of works prescribed pursuant to paragraph (2)(b);"
Section 5 of that Act provides as follows:
"5.(1) Subject to any regulations made pursuant to subsection (2) or (3), federal laws apply
(a) on or under any marine installation or structure from the time it is attached or anchored to the continental shelf in connection with the exploration of that shelf or the exploitation of its mineral or other non-living resources until the marine installation or structure is removed from the waters above the continental shelf;
(b) on or under any artificial island constructed, erected or placed on the continental shelf; and
(c) within such safety zone surrounding any marine installation or structure or artificial island referred to in paragraph (a) or (b) as is determined by or pursuant to regulation."
No regulations have been made pursuant to any of the above-noted authorities.
The GBS when attached to the seabed is considered to be in Canada pursuant to the meaning of Canada in subsection 123(2) of the Excise Tax Act. In that subsection, "Canada" includes
"(a) the sea bed and subsoil of the submarine areas adjacent to the coasts of Canada in respect of which the government of Canada or of a province may grant a right, licence or privilege to explore for or exploit any minerals; and
(b) the seas and airspace above the submarine areas referred to in paragraph (a) in respect of any activities carried on in connection with the exploration or exploitation of minerals."
Accordingly, we may apply the definition of "real property" as provided for in subsection 123(1) of the Excise Tax Act. As this definition is an inclusive one, it is our policy to look to the principles of common law with respect to real property located outside Quebec. The various dictionaries (Black's Law Dictionary, The Dictionary of Canadian Law and Webster's Third New International Dictionary) all refer to whatever is affixed to the land as forming part of the real property.
At common law, there are three major points to be considered when determining if something is affixed to land.
First, one must determine the degree of permanency. The GBS is intended to remain in place for at least xx years. This length of time provides a high degree of permanency.
Second, one must determine the degree of affixation. As mentioned in the facts, the GBS has a concrete skirt affixed to it at the base. This skirt contains prongs which dig into the seabed. The GBS is also filled with concrete ballast around the circumference. Therefore, it is not easily moveable and has the required degree of affixation to qualify for real property.
The third point to consider is whether the structure improves the usefulness of the land. As the GBS makes it possible to explore for and exploit mineral deposits in the seabed, it does improve the usefulness of the land.
Accordingly, it is our opinion (and legal counsel concurs) that the GBS qualifies as real property.
Joint Venture Election
Paragraph 3(1)(a) of the Joint Venture (GST) Regulations provides that "the construction of real property, including feasibility studies, design work, development activities and the tendering of bids", is a prescribed activity for purposes of the election pursuant to subsection 273(1). There is no requirement that the persons constructing the real property must own that property.
XXXXX is a joint venture evidenced in writing and is carrying on a prescribed activity. Provided that an operator is appointed by the participants, the operator and each participant are eligible to make the joint venture election.
If any further information is required, please contact Sherry Moran at (613) 952-8807 or Sandy Marr at (613) 957-8253.
Sincerely,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretation Directorate
| c.c.: |
S. Marr - XXXXX
S. Moran
A. Venne |
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