1 September 1997 GST/HST Interpretation 11640-4[1] - Warranty Repairs

Thank you for your letter of April 22, 1997 concerning warranty repairs by an unregistered non-resident in respect of real property.

We understand your concern is whether heating, ventilation and/or air condition units become real property when installed in a building.

You described the following situation in your letter:

1. XXXXX purchases heating, ventilation and air condition units from Canadian registrant, XXXXX who obtains its inventory from a local dealer for XXXXX is a registered non-resident company that has an unincorporated division called XXXXX

2. GST is paid on the Extended Warranty Plan ("the Plan") that is bought following the purchase of new equipment from XXXXX The warranty contract is issued by XXXXX on behalf of XXXXX Once completed, XXXXX must send it to the US company, XXXXX invoices XXXXX for any repairs required under warranty. GST is charged on the costs incurred for parts and labour.

4. XXXXX understands that supplies to XXXXX would not be zero-rated under any provisions since they are a GST registrant. Paragraph 13(a) of Part V of Schedule VI to the Excise Tax Act (ETA) would not apply. Section 13 zero-rates warranty repairs of tangible personal property; therefore, if the tangible personal property ("TPP") becomes real property after installation, it would not be zero-rated.

In addition, the following assumption has been made:

The heating, ventilation and air conditioning units can not be easily removed from the real property once installed. (i.e. air conditioner is not a unit that is placed in a window for summer months)

Interpretation Requested

Our opinion has been requested on whether the TPP supplied and installed becomes real property and whether paragraph 13(a) of Part V of Schedule VI to the ETA applies to this situation.

Interpretation Given

Paragraph 13(a) of Part V of Schedule VI to the ETA states:

"A supply made to a non-resident person who is not registered under Subdivision d of Division V of Part IX of the Act of

(a) tangible personal property, or a service performed in respect of tangible personal property, where the property or service is acquired by the person for the purpose of fulfilling an obligation of the person under a warranty;"

In order for the supply of a service to be zero-rated under this provision it must be in respect of TPP. The heating, ventilation and/or air condition units are TPP prior to being installed in real property. However, once installed, the TPP becomes real property. Consequently, Part V of Schedule VI to the ETA does not zero-rate repair services in respect of real property to the non-resident. A supply of parts, on the other hand, would be zero-rated as the supply does not have to be in respect of TPP.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8532.

Legislative References: Sch. VI, Part V, 13(a)

NCS Subject Code(s): 11640-4