Dear sir:
This is in response to your memo of February 26, 1996, to Mr. Adrien Venne, concerning the application of GST to supplies pertaining to municipal property taxes and an easement agreement.
Facts
1. XXXXX (the Owners) is a strata corporation that operates a residential condominium complex located at XXXXX owns a commercial building located at XXXXX. The two buildings are separately owned, maintaining separate legal addresses. However, they are adjacent to one another, and share various structural systems, mechanical systems, utilities and other components.
2. XXXXX building includes an underground parking facility that is located entirely under XXXXX. However, XXXXX has granted a perpetual easement to the Owners in the form of a right to use XXXXX of the XXXXX parking spaces in the parking facility at XXXXX, including the right to enter and exit the parking facility. The easement agreement states that the Owners are liable to pay XXXXX for "reasonable expenses incurred ... for maintaining, operating, repairing and replacing the parking facilities". Such "reasonable expenses" are to include insurance costs, operation and repair costs, painting, cleaning and lighting, and the cost of maintaining security, including wages and uniforms for employees. The expenses for which XXXXX is to be reimbursed also include "duties, assessments, and/or charges, municipal realty taxes, water taxes, school taxes ...".
3. XXXXX and the Owners have agreed that the amount that the Owners should pay to XXXXX in respect of municipal realty taxes should be equal to 71/322 of the property taxes that XXXXX is liable to pay in respect of the underground parking facility.
Question
1. Is the supply of the easement a supply by way of sale?
2. Are the moneys paid to XXXXX by the Owners in respect of XXXXX property tax bill consideration for a tax exempt supply of property taxes, or are the moneys consideration for a taxable supply of real property?
Response
1. The supply of the easement is a taxable supply of real property by way of an arrangement similar to a lease or licence.
2. The moneys paid to XXXXX by the Owners in respect of the property taxes paid by XXXXX on the parking garage are consideration for a taxable supply of real property.
Rationale
Policy paper P-111 states: "The determination of whether the consideration is paid for the grant (i.e. sale) or use (i.e. lease) of the property may be reflected in the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, and the actual dealings among the parties involved." In the situation at issue, the Owners do not take possession of the property or receive title to it. They only receive the right to enter and use the property for one specified purpose, that of parking their cars. XXXXX retains control, possession of and title to the property, and is responsible for operating and maintaining the space, while charging the Owners ongoing fees for doing so. This is similar to a supply by way of licence.
While Policy Paper P-[0]62 states that easements may be considered similar to a sale if they are granted in perpetuity and for a single consideration, the easement at issue is granted in return for the repeated payment of ongoing expenses, and not for a single consideration. While the easement agreement states that the supply is made for no consideration, it also states that the Owners are liable to pay for ongoing expenses each year as a condition of retaining the easement. Those amounts must be considered payment for the easement, regardless of what the amounts are called by XXXXX[.] The payments are multiple consideration for a taxable supply of real property by way of an arrangement similar to a licence.
The accountant for the Owners suggested that, if the supply was one of real property, it would be exempted by the provisions of either paragraph 6(a), paragraph 6(b), section 6.1, section 7 or section 8 of Part I of Schedule V to the ETA. However, we do not believe that any of these provisions would apply.
Paragraphs 6(a) and 6(b) would not exempt the supply because the parking spaces are not residential complexes or residential units.
Section 6.1 would not exempt the supply because the parking spaces are not land, a part of a building that forms part of a residential complex or a residential complex. Section 7 would not exempt the supply because the parking spaces are not land or sites in a residential trailer park. Section 8 would not exempt the supply because it is not a supply by way of sale, and because the parking spaces are not in a condominium complex - they are in a building next door to a condominium complex. Section 8.1 would not exempt the supply because section 8.1 applies only to a supply of a parking space made to a lessee or person in occupation or possession of a residential unit, and the supply at issue is a supply of parking spaces made to a condominium corporation. No other exempting provision would apply, so the supply of real property by way of easement is taxable.
If we had agreed with your conclusion that the supply of the easement was made for no consideration, in a manner similar to a supply by way of sale, we would have regarded the continuous payments to XXXXX the Owners as consideration for the taxable supply of services of maintaining the real property.
The payments are not consideration for exempt supplies of municipal property taxes, because XXXXX is not a taxing authority, and does not have the power to levy municipal property taxes or any other taxes against the Owners. In any case, it is XXXXX who has title to the property and hence the liability to pay any applicable property taxes.
If you require any further information concerning this matter, please contact Mr. Don Dawson at (613) 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11870-5
Ref. 13.2/1/V
Document #1652
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