16 November 1998 GST/HST Interpretation HQR0001278 - Application of GST/HST to Parks Canada Real Property Transactions

Dear XXXXX

Thank you for your letter of August 4, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to real property transactions by Parks Canada.

On April 1, 1997, the HST replaced the GST and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador with a harmonized tax rate of 15%. As none of the real property transactions that are the subject of your letter take place in any of the participating provinces, our interpretation will only deal with the application of the GST.

Interpretation Requested

Subsections 3(1) and 18(1) of the National Parks Lease and Licence of Occupation Regulations (1991) authorize the Minister of Canadian Heritage to grant leases and licences of occupation of public lands in the Towns of Banff and Jasper, Alberta, and visitor centres and resort subdivisions in Banff, Jasper, Kootenay, Prince Albert, Riding Mountain, Waterton Lakes, Wood Buffalo, and Yoho National Parks.

As indicated in your letter of November 3, 1998, you wish to know the application of the GST to the following transactions. In each case, the lease or licence is with respect to the land only, as any structures on the land are constructed by and remain the property of the lessee or licensee.

1. Residential and Cottage 13

(a) Leases/licences for year round residential use

(b) Leases/licences for year round cottage use

(c) Leases/licences for seasonal cottage use

1. Commercial

(a) Leases/licences for purpose of trade

(b) Leases/licences for purpose of tourism

(c) Leases/licences for purpose of service stations

(d) Leases/licences for purposes of places of accommodation, recreation or entertainment of visitors

2. Other leases/licences

(a) Leases/licences for purpose of a school

(b) Leases/licences for purpose of a church

(c) Leases/licences for purpose of a hospital

(d) Leases for any other purpose where the carrying out of those purposes involves providing services to the community in which those purposes are carried out

(e) Leases/licences granted for uses ancillary to the main lease/licence (e.g. sewage disposal field or parking lot expansion adjacent to an existing operation)

3. Subdivision fees

Where Parks Canada has agreed to a subdivision which involves the surrender of one lease (or more) in exchange for the issuance of two (or more) replacement leases for the purpose of a subdivision of leasehold title, the annual rent for the leases is set in accordance the National Parks Lease and Licence of Occupation Regulations (1991) as applicable and as chosen by the lessee.

Where the subdivision of land involves a partial surrender and wher[e] XXXXX Parks Canada has agreed to accept a partial surrender of an existing leasehold interest in exchange for one retained leasehold interest and one or more new leases for the parcel or parcels created by the subdivision, the annual rent for the retained leasehold interest remains the same until the next rent review date. In reference to the new lease(s) the annual rent is set in accordance with the National Parks Lease and Licence of Occupation Regulations (1991) as applicable and as chosen by the lessee.

Under subsections 3(9) and 18(15) of the National Parks Lease and Licence of Occupation Regulations (1991), where a lease/licence is amended or surrendered for purposes relating to the subdivision of the subject land, the lessee/licence is required to pay a fee as calculated in those subsections. You wish to know whether GST is applicable to these subdivision fees.

Interpretation Given

Based on the information provided, our view is that GST applies to the listed transactions as follows:

1. (a) Leases or licences of land (other than a site in a residential trailer park) are exempt from GST under paragraph 7(a) of Part I of Schedule V to the Excise Tax Act ("the Act") under two conditions. First, the lease or licence must provide for continuous possession or use of the land for a period or at least one month. Secondly, the lessee or licensee must be either (i) the owner, lessee or occupant of a residential unit (e.g. house, condominium unit, mobile home, apartment or hotel room) that is or will be affixed to the land as a place of residence, or (ii) a person who is acquiring possession of the land for the purpose of constructing a residential complex (i.e. generally, a building or part of building containing a residential unit or units) in the course of a commercial activity. Examples of the latter category of lessee/licensee would be corporations that build houses or apartment buildings for sale or rent.

Separate conditions apply to leases or licences of sites in residential trailer parks. Briefly, a residential trailer park is an area of land comprised of at least two sites, each of which is intended to be leased or licensed to persons who will place a mobile home or travel trailer (or similar vehicle) on the site, and 90% or more of the leases or licences provide for continuous possession or use of at least one month in the case of mobile homes and 12 months in the case of travel trailers. The sites must be serviced and accessible for use by mobile homes throughout the year.

Under paragraph 7(b) of Part I of Schedule V to the Act, leases or licences of sites in residential trailer parks are exempt from GST if the lessee or licensee receives continuous possession or use of the site for a period of at least one month and is the owner, lessee or occupant of a mobile home or a travel trailer.

In addition, section 6.1 of Part I of Schedule V to the Act exempts a lease or licence of land under which the lessee or any sublessee is, or will be, subletting the land on an exempt basis under section 7 (see above); or the lessee or any sublessee is, or will be, leasing or licensing a residential complex or residential unit in a residential complex located on the land as a place of residence or lodging for a continuous period of at least one month or a residential unit for rent not exceeding $20 per day (i.e. exempt supplies under section 6 of Part I of Schedule V). This provision also applies when it is reasonably expected that the lessee is subletting to other lessees or sublessees who are or will be leasing or licensing on an exempt basis.

It would appear, generally, that the leases or licences described in paragraph 1(a) of your list would meet one of the above exempting provisions.

(b) - (c) The term "place of residence", as used for GST purposes, applies to more than an individual's home address. As noted in the attached Policy Number P-130, entitled "Place of Residence", other premises may be a place of residence, based on considerations involving a determination of the purpose of stay, amount of time of stay and physical presence. You will need to apply the considerations and factors outlined in the policy statement to the use of a particular cottage. However, it would appear generally that such places, being the lessee/licensee's own property and being available for the lessee/licensee's use throughout the year or on a recurring seasonal basis, would be considered to be places of residence.

Accordingly, it would appear that the lease or licences described in paragraph 1(b) and (c) would also be exempt on one of the same bases as those in paragraph 1(a). To the extent that a particular cottage did not meet the criteria set out in Policy Number P-130, the exemption found in subparagraph 7(a)(i) of Part I of Schedule V to the Act would not be applicable. Depending on the facts of the individual case, one of the other exemption provisions discussed above may apply.

2. (a) - (c) There is no provision in the Act under which the leases and licences of the kind described in paragraph 2(a), (b), or (c) would be exempt from GST. Accordingly, they would all be taxable at 7% pursuant to subsection 165(1) of the Act.

(d) The Act provides no exemptions for your leases and licences for the purpose of places of recreation or entertainment. Consequently, those leases and licences would be taxable at 7% under subsection 165(1) of the Act.

The leases and licences for the purpose of places of accommodation, however, may be exempt from GST. This would be the case where the land is leased or licensed to a person who is constructing a hotel or similar building where more than 10% of the accommodation will be for 60 days or longer. The hotel would therefore be considered to be a residential complex, and the lease or licence to the hotel builder would be exempt from tax under subparagraph 7(a)(ii) of Part I of Schedule V to the Act. Alternatively, if the lessee or licensee is or will be using the land to provide accommodation in a residential complex, or residential units in a residential complex, for continuous periods of one month or longer, or to provide accommodation in residential units (whether located in a residential complex or not) for a daily rate of $20 or less, then the lease or licence would be exempt under section 6.1 of Part I of Schedule V. Further, if the lessee or licensee will be providing accommodation in a residential trailer park that would be exempt under paragraph 7(b) of Part I of Schedule V, as discussed above, then the lease or licence will be exempt under section 6.1. Finally, if the lessee or licensee is subletting the land to a hotel builder or accommodation provider as described in this paragraph, then the lease or licence would also be exempt under section 6.1.

3. (a) - (d) The Act provides no exemptions for your leases and licences for the purpose of schools, churches, hospitals, or providing services to the community. Consequently, those leases and licences would be taxable at 7% under subsection 165(1) of the Act.

(e) Whether or not a lease or licence for an ancillary purpose is exempt from tax depends on the status of the main lease or licence. If the main lease or licence is exempt by virtue of section 7 of Part I of Schedule V to the Act, or is exempt under section 6.1 because the lessee or licensee is subletting the land on an exempt basis under section 7, then the ancillary lease or licence would be exempt from GST under the same provision if the additional area is contiguous to and would be considered to be reasonably necessary for the use and enjoyment of the residential complex, residential unit, mobile home, or travel trailer as a place of residence.

If the main lease or licence is exempt under section 6.1 of Part I of Schedule V of the Act because the lessee or licensee is using the land to make exempt leases or licences of residential complexes or residential units in a residential complex under paragraph 6(a), then the ancillary lease or licence would also be exempt from GST under the same provision provision if the additional area is contiguous to and would be considered to be reasonably necessary for the use and enjoyment of the residential complex as a place of residence. However, if the only basis on which the lease or license is exempt from GST is that the lessee or licensee is using the land to rent residential units for $20 or less per day, then there is no provision under which the ancillary lease would be exempt.

Please note that if the ancillary lease would be exempt as discussed above, then it would also be exempt under section 6.1 of Part I of Schedule V to the Act if it were a sublessee who was making the exempt supplies under section 7 or paragraph 6(a) rather than the lessee or licensee.

4. For GST purposes, the subdivision fee would be considered to be part of the consideration for the supply of the new or amended lease(s) or licence(s). The subdivision fee and the lease or licence cannot be separated as they are directly relevant to one another. Neither is useful by itself as one is contingent on the provision of the other.

Therefore, whether GST is applicable to the subdivision fee depends on the status of the particular lease or licence. For example, if the subdivision fee relates to a new or amended lease for the purpose of residential use, and has been determined to be exempt as discussed above, then the subdivision fee would not attract GST. However, if the subdivision fee relates to a new or amended lease for the purpose of a commercial use, and has been determined to be taxable, then the subdivision fee would be subject to GST at 7%.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

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1. In our telephone conversation of November 4, 1998, you noted that the term "residential" refers to persons who have their home address in the park because of their "need to reside" (i.e. they either work or own a business there).

By contrast, "cottages" are generally for recreation. The lesseelicensee may have use of the cottage on a year-round or seasonal basis, as permitted under the leaselicence. Leases/licences permitting year-round cottage use are provided on a "need to reside" basis and for all practical purposes are treated by Parks Canada as "residential".

Michael Wolff
Real Property Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate