27 June 1997 GST/HST Interpretation HQR0000619 - Application of Harmonized Sales Tax (HST) - Specific Questions -

This letter is in reply to your facsimile dated March 24, 1997 to Mr. Pierre Bertrand regarding the application of the HST. We apologize for the delay in responding.

All legislative references are to the Excise Tax Act (ETA) unless otherwise indicated.

Our understanding of the facts is as follows:

1. XXXXX is a listed financial institution for goods and services tax (GST) purposes. XXXXX is a selected listed financial institution since it has satisfied the two conditions as set out in subsection 225.2(1) of the ETA.

2. XXXXX holds mortgages, loans and various other assets, including commercial and residential real estate portfolios.

3. Properties which have been seized or taken over by XXXXX are managed by property managers on behalf of XXXXX[.]

4. XXXXX may attorn rents from real estate properties prior to any foreclosure or other legal action.

5. When XXXXX attorns rents, the GST on the attorned rents is reported and remitted under the debtor's registration numbers.

6. When XXXXX has seized a property, the GST is reported and remitted under XXXXX own GST return.

Interpretations Requested

You have requested answers to the following questions:

1. Will GST/HST collectible by XXXXX on commercial rents or other taxable real estate transactions be "prescribed" for purposes of A of the attribution formula for selected listed financial institutions, and therefore excluded from A, or will such amounts be required to be included in A?

2. Will GST collected on attorned rents be prescribed and therefore excluded from the formula in A?

3. Will XXXXX be able to remit the HST portion related to any attorned rents directly to Revenue Canada, Excise on a separate return just as it does today for the GST and the Quebec Sales Tax (QST)?

4. Will ITC's pertaining to commercial rentals and sales of commercial properties be prescribed and therefore excluded from B of the attribution formula or will such amounts be required to be included in B (i.e. will XXXXX continue to claim all such ITC's in the normal manner)?

5. Would you confirm that the exception to collection of the GST in s. 221(2) of the ETA will be expanded to include the HST portion in similar circumstances?

6. Would you confirm the correct tax application of property tax services charged by a property tax manager who is physically located in XXXXX but who charges for services related to a real property located in a participating HST province, when the invoice is directed to XXXXX in XXXXX Interpretations Given

Our responses are as follows:

1. The draft Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (the "draft Regulations") set out certain amounts of tax that are "prescribed amounts of tax" for the purposes of paragraph (a) of the description of element A and paragraph (a) of the description of element F in the formula in subsection 225.2(2). Prescribed amounts of tax are set out in Part III of the draft Regulations. First, a prescribed amount of tax will include any amount of tax paid or payable by an insurer in respect of property or a service acquired, imported or brought into a participating province exclusively and directly for consumption, use or supply in the course of investigating, settling or defending an insurance claim, other than a claim in respect of accident and sickness or life insurance. Second, a prescribed amount of tax will include any amount of tax payable by a selected financial institution in respect of the acquisition or importation of property referred to in subsection 259.1(2); that is, the GST, or the federal component of the HST, payable on printed books and similar materials described in that section. Therefore, GST/HST collectible by XXXXX on commercial rents or other taxable real estate transactions are not prescribed for purposes of element A of the special attribution formula.

2. GST collectible on attorned rents are not prescribed amounts of tax. Prescribed amounts of tax were outlined in the response to question #1.

3. Our understanding is that the GST on rents attorned on property which has not yet been seized or foreclosed on by XXXXX is currently remitted by XXXXX separately on the debtor's GST return. XXXXX may remit HST in the same manner.

4. ITC's pertaining to commercial rentals and sales of commercial properties are not prescribed amounts of tax and therefore are not excluded from element B of the special attribution formula. ITC's with respect to prescribed amounts of tax in element B refer to prescribed amounts of tax included in element A.

5. Subsection 165(2) states, in part, that "every recipient of a taxable supply made in a participating province shall pay to Her Majesty in right of Canada, in addition to the tax imposed by subsection (1), tax in respect of the supply calculated at the tax rate for that province on the value of the consideration for that supply." This provision extends the application of the HST to Division II tax and consequently extends the application of subsection 221(2) to the HST in similar circumstances.

6. Section 2 of Part IV of Schedule IX states that "a supply of a service in relation to real property is made in a province if

(a) all or substantially all of the real property that is situated in Canada is situated in the province; or

(b) the place of negotiation of the supply is in the province and it is not the case that all or substantially all of the real property is situated outside the province."

Section 3 states "subject to section 2, where a supply of a service in relation to real property is made and the real property that is situated in Canada is situated primarily in participating provinces, the supply is made in the participating province in which the greatest proportion of the real property that is situated in the participating provinces is situated, unless the place of negotiation of the supply is outside Canada and it is not the case that all or substantially all of the property is situated in Canada." In order to determine if the property tax manager must charge HST it is necessary to examine the facts and apply the above provisions in each situation.

Please refer to Technical Information Bulletin B-083R, Financial Services Under the HST dated May 23, 1997 for more information. Should you have any questions please do not hesitate to contact me at (613) 952-9577 or Duncan Jones at (613) 952-9210.

Sincerely,

Marilena Guerra, C.M.A.
Rulings Officer
Financial Institutions and
Real Property Directorate
GST/HST Rulings and Interpretations
Policy and Legislation Branch