Telephone: (613) 954-8585
Facsimile: (613) 990-1233
XXXXX File: I 11750-5-1
XXXXX Leg. Ref: 123, 177, 268
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Subject:
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Bare Trusts/Agency
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Dear XXXXX:
Thank you for your memorandum dated April 26, 1993, to Robert Wong, concerning the liability for the GST on the sale of property held by an agent on behalf of a trust where the sale is handled by a management company.
As indicated above, the three principal organizations involved in this case are:
1. The XXXXX (the "Trust") which was established under the laws of Hong Kong. The trust was created by XXXXX (the settlor) with the original trustee being the XXXXX. Currently, the trustees are XXXXX. XXXXX[.]
2. XXXXX is the "agent" of the XXXXX. The agency agreement was executed in 1991. The sole shareholder of this XXXXX registered company is XXXXX, who is one of the directors. The other director is XXXXX who is also the president of the company.
3. XXXXX (the "manager") has a management agreement with the agent (as directed by the "trust") which commenced in 1991. The "manager" is an XXXXX registered company, with two shareholders. The two equal shareholders, XXXXX are also directors of the company. The president is XXXXX.
It should be noted that the three organizations indicated above are all GST registrants.
The facts of the case are as follows:
• The agent acquired legal title to the property, located in XXXXX from the trust in 1990. However, according to the agreement, the agent has no interest, beneficial or otherwise, in the property, it is the trust that is the absolute beneficial owner of the property.
• In addition, the agent, as indicated in the agency agreement, has no positive duties in relation to the property, except:
I to carry out all lawful instructions of the principal;
II to deliver the title to the property to the principal when needed; and
III to do all such acts and things as required to allow the principal to borrow, or to borrow on behalf of the principal.
• The manager, as per the management agreement, has been appointed by the agent on behalf of the trust, to plan, develop and service the lands, arrange for subdivision of the property and to sell the lots and parcels of the property.
• The manager receives a fee for their services, which is paid monthly. The manager is reimbursed for all expenses incurred in the provision of providing their services relating to the property. The management agreement excludes the possibility that the trust, the agent and the manager are a partnership or a joint venture.
In your memorandum you raised three issues:
1) The first issue pertains to the role of the agent; specifically, is the agent acting in the capacity of an agent of the trust or is the agent, in effect, a bare trust holding land for the trust.
The role of the agent is not a crucial factor in determining the liability for the GST upon the sale of the property. XXXXX acquired the legal title of the property in the capacity as an agent, however, the beneficial ownership is still held by the trust. Upon the sale of the property, it would be the trust, as the beneficial owner, that would be involved in the commercial activity.
Furthermore, even if we agree with the contention of XXXXX that the agent, by holding title to the property for the trust, is in essence a bare trust, then, as indicated in the policy on bare trusts (TIB 068), it is the one who has the decision making powers and responsibilities relating to the management and administration of the property in the trust that is involved in commercial activities, which, in this case, is the XXXXX.
2) The second issue is whether the manager, at the time of the sale of the land, is acting as an undisclosed agent of the agent or of the trust.
When the manager sells the property in question, it is acting in the capacity of an agent for XXXXX. On the basis of the information provided, the manager would be acting as an undisclosed agent, consequently section 177 of the Excise Tax Act (the ETA) would be applicable to the transaction(s).
However, prior to 1993 an agent was considered undisclosed if:
"the agent does not enter into a written agreement with the recipient, or issue an invoice for the supply, in the name of the principal ...".
When property is sold, the title to the land is transferred to the recipient. Depending on the facts of the case, it may be difficult to demonstrate, prior to 1993, that the principal Excise Tax Act (the ETA) would be applicable to the transaction(s).
However, prior to 1993 an agent was considered undisclosed if:
"the agent does not enter into a written agreement with the recipient, or issue an invoice for the supply, in the name of the principal ...".
When property is sold, the title to the land is transferred to the recipient. Depending on the facts of the case, it may be difficult to demonstrate, prior to 1993, that the principal was indeed undisclosed.
3) The third issue concerns the entitlement to claim the input tax credits (ITC) on purchases made by the various organizations.
As indicated in the agreements submitted, the trust indemnifies the agent for any expenses incurred as well as compensates/reimburses the manager for any of their expenses incurred, furthermore, as both the manager and the trust are making purchases in their capacity as agents for the trust, it is the trust that would account for any of the ITCs available.
This interpretation is based upon our current understanding of the ETA and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
Sincerely,
H.L. Jones
Director
General Tax Policy
Goods and Service Tax
| c.c.: |
David C. Moore
Robert Wong |
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