11783-2/ss. 123(1)
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Subject:
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Assignment of lease payments from XXXXX
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Mr. XXXXX
This is in reply to the memorandum from Mr. XXXXX of your office wherein he requested that we review the above-noted assignment agreement dated February 1, 1991 and compare it to the assignment agreement dated April 30, 1992 between XXXXX in order to determine whether both agreements are to be treated differently for GST purposes. We apologize for the delay taken in providing you our response as we requested a legal opinion.
Our understanding of the facts of the XXXXX assignment agreement is as follows:
• The agreement between XXXXX provides that the Assignor sells, assigns and transfers to the Assignee all of its right, title and interest in and to each lease, the equipment under each lease, all rent and other sums payable or receivable pursuant to the terms of each lease and all property derived directly or indirectly from any dealing with any lease, the equipment or proceeds.
• The agreement provides that the Assignor is appointed by the Assignee to manage and administer each lease as agent of the Assignee.
• The agreement further provides that the Assignee does not assume any obligations under any lease or in respect of any equipment and that the Assignor agrees to honor such obligations as are binding on it under each lease.
• The Assignor shall indemnify the Assignee against all claims, demands, losses "... which the Assignee may suffer or incur arising out of or in connection with breaches of the Assignor's obligations ...".
• Where a lessee defaults under the terms of its lease, the Assignee's remedies shall be against such lease, and the rent, the proceeds, the equipment and the lessee thereunder, and the Assignee shall have no recourse against the Assignor with respect thereto.
• The Assignee may (where the Assignor fails to pay promptly or breaches any covenant) by notice relieve the Assignor of all of its responsibilities whereupon the Assignor's rights and obligations will cease and the Assignor will immediately notify each lessee of the assignment of its lease and direct each lessee to remit all due and future rent to the Assignee.
• The Assignee also agrees that any lease will be reassigned to the Assignor in accordance with the terms and conditions of the agreement, in circumstances where the lessee wishes to upgrade the equipment, or after the expiration of the term of the lease.
• The Assignee also agrees that it will not sell or assign its interest in the lease without giving notice to the Assignor of any offer and obtaining the Assignor's consent.
Although in a letter dated May 7, 1993 to XXXXX, the Department had taken the position that XXXXX was making an exempt supply of lease payments to XXXXX, based on a legal opinion that we obtained and a review of all the documents provided, we have revised our position and are thereby concluding that XXXXX assignment to XXXXX in the above-noted agreement is in fact a taxable supply of the lease and the leased equipment. As you are aware, such a position is consistent with the position that is taken with respect to the assignment agreement dated April 30, 1992 between XXXXX[.] If you have any questions or should you wish to discuss this further, please contact Danielle Laflèche at (613) 952-0329 or Duncan Jones at (613) 952-9210.
J. Sitka
A/Director
Financial Institutions and Corporate Reorganizations
GST Rulings and Interpretations
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