Place Vanier, Tower C, 10th Floor
25 McArthur Ave.
Ottawa, ON
XXXXX K1A 0L5
XXXXX
XXXXX Case: HQR0000399
XXXXX Reg: XXXXX
XXXXX
This letter is in regards to XXXXX E-mail message of October 31, 1996 to Mr. Don Dawson, concerning the application of the Goods and Services Tax (GST) to the supply of modular and mobile homes. Our understanding of the facts, based on the submitted documentation and numerous conversations with XXXXX is as follows:
Statement of Facts
• XXXXX was supplying trailers and other similar units by way of sale, together with the supply of land by way of lease.
• Effective XXXXX XXXXX began supplying modular and mobile homes by way of sale. XXXXX continued to provide the supply of land by way of lease.
• Some units are single units, others are in two parts and need to be attached together when set up on site on a poured cement pad.
• XXXXX was charging the GST on the sale of the units but not on the rental of the sites, and was claiming input tax credits on the land as well as the structures.
The park did not qualify as a residential trailer park for GST purposes. The supplies by way of lease were made in the course of commercial activities and were taxable for GST purposes.
• In XXXXX became a mobile home park for municipal purposes. XXXXX received approval from XXXXX for year round use of the property as a mobile home park. The trailers and other similar units that previously occupied sites in the park were removed. The sites within the park were then occupied by mobile or modular homes that were sold only by XXXXX and all leases were for a 12 month period, however, as per the conversation between XXXXX , John Bain and myself on July 16, 1997, XXXXX still did not qualify as a "residential trailer park" for GST purposes pursuant to subsection 123(1) of the Excise Tax Act (the Act) for GST purposes.
• Currently a new addition is being added to the mobile home park.
Interpretation Requested
1. Do the units that are in two sections which are attached on the site qualify under the definition of "mobile home" found in subsection 123(1) of the Act as they are 90% or more complete and only require attachment?
2. Do these units that are in two sections and require attachment qualify for the GST new housing rebate under section 254 of the Act?
3. Can modular homes existing on land leased by the owner of the park that are sold by the builder XXXXX qualify for the rebate under section 254 of the Act and be paid or credited back to the purchaser if the lease of land is not a long term lease?
4. How should the land be treated for GST purposes?
Interpretation Given
1. The definition of mobile home in subsection 123(1) of the Act has been amended through Bill C-70 which received Royal Assent on March 20, 1997, to mean
"a building, the manufacture and assembly of which is completed or substantially completed, that is equipped with complete plumbing, electrical and heating facilities and that is designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence, but does not include any travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use".
This is deemed to have come into force on April 24, 1996. This expanded definition allows for the inclusion of various homes, such as mini-homes, not previously considered mobile homes. Mini homes are homes which would have met the previous definition of a "mobile home" pursuant to the Act, except that they were not designed to be hauled on their own chassis. Further, since the current definition of "residential complex" includes mobile homes, mini-homes will be brought into the definition of "residential complex" indirectly.
Modular homes are homes that are usually made of two or more components which are connected at the site for the home. Modular homes that are in two pieces will generally not qualify under the definition of "mobile home" as they do not meet the requirements in subsection 123(1) of the Act. The units must be 90% or more structurally complete prior to being attached (in regards to construction and heating, electrical and plumbing structures). Ninety percent or more of the "manufacture and assembly" of the building must be completed offsite and designed to be moved to a site for installation. Further to this, the definition of building must be considered as the definition states a mobile home means "a building".
Pursuant to Black's Law Dictionary, a building is "a structure or edifice inclosing a space within its walls, and usually, but not necessarily, covered with a roof". Inclose means to enclose or surround on all sides. Although, as per my conversation with XXXXX on May 29, 1997, the interior of XXXXX homes is already completed and the exterior need only be completed by adding a few panels to the siding, the roof and the flooring, modular homes would not meet qualifications under the definition of "mobile homes" as they are not considered buildings, for GST purposes, prior to being transported to their sites for installation.
Further to this, please note that the definition of a modular home in the "Procedure for Certification of Factory-Built Houses" that was provided by XXXXX describes finished sections of a complete dwelling built in a factory for transport to the site for installation. In this case the term 'finished' means fully enclosed on the exterior and interior but need not include interior painting, taping, installation of cabinets, floor covering, heating system and exterior finishes. A home that falls under this definition would not meet the qualifications in the definition of a "mobile home" for GST purposes.
XXXXX email of October 31, 1996 to Don Dawson states that some of the single units of XXXXX are complete when transported to sites but others are in two parts and require attachment on a poured cement pad. All of the new units that are manufactured have a Z240 Mobile Home rating. That attached brochure for XXXXX states that all homes are built to the CSA Z240 (mobile homes) Standard or CSA A277 (modular homes) Manufactured Home Codes.
Those units that meet x the Z240 Mobile Home rating and the criteria under subsection 123(1) of the Act will qualify as "mobile homes" for GST purposes. Those units that are built to the CSA Z277 Manufactured Home Codes do not qualify under the definition of "mobile home" for GST purposes.
2. As modular homes do not meet the definition of a "mobile home" pursuant to subsection 123(1) of the Act, they further do not qualify as a residential complex or unit and therefore do not meet the criteria for a new housing rebate when supplied separately from the land. However, depending on the transaction, e.g. a supply of a modular home and a corresponding lease of the land, where the self-supply rules pursuant to subparagraph 191(1)(b)(i) of the Act apply, a GST new housing rebate under section 254.1 of the Act may be available where all the conditions thereunder are satisfied. In certain scenarios, an individual who purchases a modular home may qualify for a GST new housing rebate under section 256 of the Act.
3. As modular homes do not meet the definition of a residential complex or unit as defined in subsection 123(1) of the Act, and therefore are ineligible to qualify for the new housing rebate, there is no rebate for the builder to pay or credit to the purchaser pursuant to section 254 of the Act. However, as noted in the previous point, where a rebate under section 254.1 of the Act is available, XXXXX XXXXX may choose to pay or credit the rebate to the individual purchaser.
4. A "residential trailer park" is defined in subsection 123(1) of the Act as a trailer park comprised of at least two sites where 90% or more of the sites in the trailer park are leased for a period of at least one month in the case of mobile homes, and 12 months in the case of travel trailers and motor homes. Further, the site must be suitable for use by occupants of a mobile home (whether or not the park in fact has mobile homes) as a place of residence or individuals throughout the year. This means the sites must be able to be serviced and accessible for use by a mobile home owner throughout the year.
As per my conversations with XXXXX on May 29, 1997, July 3, 1997, and July 16, 1997, XXXXX did not initially qualify as a residential trailer park for GST purposes. Furthermore, notwithstanding approval from the XXXXX effective March 1995, that the entire park qualified as a mobile home park for municipal purposes, the park still does not meet the criteria to be considered a "residential trailer park" for GST purposes. As a result, subsection 190(4) of the Act will not be applicable.
However, the use of the land which now constitutes a mobile home park, has changed from commercial activity (i.e. taxable leases) to exempt activity [i.e. leases exempt under subparagraph 7(a)(i) of Part I of Schedule V to the Act]. Subparagraph 7(a)(i) of Part I of Schedule V to the Act exempts the lease of land for a period of one month or longer to the owner or lessee of a residential unit (including a mobile home or a modular home affixed to the land) for use as a place of residence.
Subsection 206(4) of the Act states that where a registrant ceases to use capital real property in commercial activities, the registrant is deemed to have made a supply and to have collected tax on that portion of the property that was, immediately prior to the cessation in use, used in commercial activities. This applies where a registrant begins to use the real property 90% or more for non-commercial purposes.
Due to the nature of the business, it is reasonable to presume the land forming the mobile home park is being held as capital property. Please note that if it is shown the property is being held as inventory, the nature of this interpretation may change.
Capital property, in respect of a person, means property that is, or would be if the person were a taxpayer under the Income Tax Act (ITA), capital property of the person within the meaning of that Act, other than property described in Class 12 or 14 of Schedule II to the Income Tax Regulations.
Capital property is defined in paragraph 54(b) of the ITA as
"i) any depreciable property of the taxpayer, and
ii) any property (other than depreciable property) any gain or loss from the disposition of which would, if the property were disposed of, be a capital gain or capital loss, as the case may be, of the taxpayer."
Effective April 1, 1997, only the last acquisition of the property and improvements to the property acquired or imported since that last acquisition are taken into account in determining the amount of tax that is be remitted. If the property was not being used entirely in commercial activities immediate before the change of use, the registrant would pay tax only on that proportion of the fair market value equal to the percentage of use of the property in commercial activities.
Prior to April 1, 1997, as a result of a change-in-use under subsection 206(4) of the Act, the registrant will be deemed to have sold the property and to have collected tax as a supplier of the property at that time calculated as follows:
(A x B x C) + [D x (100 % - B) x E], where
A is 7% of the fair market value of the property at that time.
B is the percentage of use of the property in commercial activities immediately before that time.
C is 100% less the percentage rebate available to a public service body under section 259, if any, in respect of the property before beginning or ceasing use of the property in commercial activities.
D is the lesser of actual tax paid on the last acquisition and subsequent improvements to the property or 7% of the fair market value of the property at that time.
E is 100% less the percentage rebate available to a public service body under section 259, if any, in respect of the last acquisition or improvement to the property.
Because of the deemed sale, the registrant may be entitled to claim an input tax credit (ITC) under subsection 193(1) of the Act for actual tax paid on that portion of the property that was previously used otherwise than in commercial activities. The registrant is eligible to claim a credit for any tax paid on the property that previously did not qualify for an ITC. The registrant then remits a net tax amount equal to the GST payable on the fair market value of that portion of the property that was previously used in commercial activities.
Note that as XXXXX was required to go through a change-in-use with respect to the mobile home park under subsection 206(4) of the Act, subsection 190(3) of the Act is precluded from applying by virtue of paragraph 190(3)(e).
In regards to the additional land being added to the mobile home park, as XXXXX does not qualify as a "residential trailer park" for GST purposes, subsection 190(3) of the Act comes into force where under a lease, possession of land is transferred to the lessee after March 27, 1991. Subsection 190(3) of the Act requires a supplier who leases land that is exempt under section 6.1 or 7(a) of Part I of Schedule V to account for the GST on the fair market value of the land. As XXXXX does not qualify as a residential trailer park, the leases of land will be exempted pursuant to paragraph 7(a) of Part I of Schedule V to the Act.
If you require any further information concerning this matter, please contact me at (613) 952-9214.
Yours truly,
Doris Rist
ARuling Officer
Financial Institutions and Real Property
GST/HST Rulings and Interpretations
XXXXX
IN OFFICE COPY
Legal References: Excise Tax Act, Income Tax Act, XXXXX , Black's Law Dictionary
Reference: ETA ss. 123(1), 206(4), 193(1), 190(5), sec. 254, 254.1, 256, policy paper 52, 104, ncs 11870-1, QA13022, 15220, 13440, ITA paragraph 54(b), RST ss. 1(1) 99-308 def. "modular home"
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Originator's Desk Copy
NCS Subject Code(s) - I 11950-1, 11950-2, 11870-2
. Registration Number: XXXXX
. District Chief, Audit
. H.Q. Quality Assurance
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