GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
XXXXX
XXXXX Case: HQR0001331
XXXXX 11950-15; 11870-14-2
September 28, 1998
Dear XXXXX
We are writing to revise our interpretation with respect to a memorandum (with attachments) from XXXXX Verification and Enforcement Division, XXXXX TSO dated December 19, 1997 concerning the application of the Goods and Services Tax to a recreation centre that has been constructed as part of a retirement community and that is used primarily by residents of that community. Our original position was set out in a letter dated March 17, 1998.
Facts
1. The case dealt with a retirement community in which the developer supplied modular homes to residents and placed the homes on sites that were demised to each resident pursuant to a long term lease. The development is not a trailer park within the meaning of the ETA.
2. After a substantial number of the units planned for the development had been occupied, the developer, constructed recreational facilities at a cost of approximately XXXXX[.]
3. Access to the recreation centre is limited primarily to residents of the retirement community. However, a small number of memberships are made available to non-residents.
4. Tenants in the community are charged a basic rent and a monthly fee to cover operating expenses. Those expenses include their share of the operating costs of the recreation centre.
5. In our letter of March 17, 1998 we took the position that the developer was not entitled to ITC's in respect of either the construction or operating costs of the recreation centre. Our reason for this decision was that:
The meaning of the definition of "residential complex" as per subsection 123(1) does not extend to include the recreation centre. A "residential complex" refers to a building, appurtenances and the land immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals. The recreation centre is not an appurtenance "to the exempt activity of renting residential land". An appurtenance is that which belongs to something else; an adjunct; an appendix. It is something annexed to another thing more worthy as principal and which passes as incidental to it, as a right of way or other easement of land. The appurtenance must be reasonably necessary for the use and enjoyment of the building as a place of residence to come within the definition of "residential complex".
The actual use of the recreation centre is not in the course of a commercial activity as defined in subsection 123(1). The right to use the recreation centre is part of the supply of the lease of real property. The supply of the lease of land is exempt from the GST pursuant to section 7 of Part I of Schedule V, provided the lease is for a period of at least one month. In accordance with Policy Statement P077 entitled "Single and Multiple Supplies", the additional fees (i.e. "maintenance fee", etc.) are considered to be part of the consideration for the supply of the real property and therefore, take on the same tax status, in this case that being GST exempt.
Revised Interpretation
After carefully reviewing the matter and considering other interpretations we have concluded that:
1. The recreation centre does form part of each residential complex that is supplied by the developer. The developer is supplying a package deal to each resident that consists of several different elements including the building, land and recreation centre. Subject to a small number of memberships that are made available to non-residents, none of these elements are available on their own and the residents are not permitted to opt out of any of the elements. In consequence, it appears that the each element is reasonably necessary for the use and enjoyment of the dwellings and therefore constitutes part of each residential complex.
2. Since the recreation centre constitutes part of each residential complex, and since paragraph 191(1)(d) of the ETA requires the developer to self assess on the fair market value of each residential complex, the developer must include that portion of the recreation centre that is attributable to each residential complex when calculating the fair market value of each residential complex.
The developer is entitled to ITC's on all of its construction costs until it has self supplied on all residential complexes that include the facility as an element of the residential complex.
3. Since both the land and the recreation centre form part of a residential complex, none of the rent payable with respect to the any part of the residential complex, including these elements, is subject to GST and no ITC's are available on any expenses incurred in making the supply.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.
Yours truly,
Michael Ezri
Arulings Officer
Real Property Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate
Legislative References:
| NCS Subject Code(s): |
I-15; 11870-14-2 |
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