Dear XXXXX
This concerns your facsimile message of August 15, 1995, to Mr. Don Gagnon, concerning the application of GST to the supply of an easement. Our response is as follows.
Facts
As indicated in your facsimile messages of August 15, 1995, and September 27, 1995, and your telephone conversations of September 8, 1995, September 28, 1995, and October 6, 1995, with Mr. Don Dawson, the facts are as follows.
XXXXX, an individual landowner who is not a registrant, entered an agreement with XXXXX, which states that XXXXX will receive XXXXX in exchange for providing future rights to access the land if necessary. However, XXXXX considers that the payment is consideration for the use of his land and the loss of trees that XXXXX is cutting down.
We have examined the copy of the easement agreement, which was dated August 16, 1995. It grants to XXXXX in perpetuity certain rights and easements. The agreement grants XXXXX the right to install a pole and to remove all trees, brush and other obstructions for XXXXX metres on each side of the hydro line, and to remove any leaning or decaying trees that might obstruct the line even if they are more than XXXXX metres away.
The easement agreement permits XXXXX employees to enter the property at any time, with or without vehicles, and to perform any repairs and maintenance or other activities necessary, and requires XXXXX not to obstruct the line. The agreement contains provisions to allow for compensation to XXXXX by XXXXX for the trees that would initially be cut, and for any subsequent damages caused by XXXXX as a result of its activities in exercising its right of easement.
Questions
1. Is the supply a supply of an easement?
2. Is the supply taxable or exempt?
Response
1. The supply is a supply of an easement, and more specifically is what is described in legal terms as "an easement in gross".
The Dictionary of Canadian Law defines an easement as:
"1. A landowner's right to use another's land for a special purpose.
2. An easement, right of way, right or licence in the nature of an easement, profit a prendre or other incorporeal hereditament, but does not include such an easement arising by operation of law."
The Dictionary of Canadian Law defines an easement in gross as "an easement created by private grant or statute, e.g. a power line or pipeline".
In the case at issue, where XXXXX is receiving access for its power line and is also receiving all the necessary related rights, the supply would appear to be a supply of an easement in gross.
The supply of an easement, including an easement in gross, can be considered to be either
(a) a supply of an arrangement similar to a lease or licence, or
(b) a supply of real property by way of sale.
Where an easement is granted in perpetuity, and where the only amount ascertained is a single consideration, as in the case at issue, the supply would be considered to be a supply of real property by way of sale.
2. You indicated in your telephone discussion with Mr. Don Dawson on October 6, 1995, that you were unable to determine whether XXXXX was using the property in a business immediately before the sale. However, this is crucial in determining whether the supply is taxable or exempt. If XXXXX is not supplying the land in the course of a business and has not filed an election with the Minister in the course of an adventure or concern in the nature of trade, the supply would be exempted by section 9 of Part I of Schedule V to the ETA. However, if any of the conditions of section 9 were not met, for example if XXXXX were a small supplier using the land in the course of a business, the supply would be taxable.
If you require any further information concerning this matter, please contact Mr. Don Dawson at 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11950-1
Ref. 165, 194
Doc. #1424
September 26, 1995
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