2 July 1998 GST/HST Ruling HQR0001215 - Application of the GST/HST to the Purchase of Real Property

This is in response to your letter of May 14, 1998 (with attachments) to XXXXX of the XXXXX TIS Centre, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below. This enquiry was made by you as representative of the XXXXX[.]

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

1. The XXXXX purchased real property in the XXXXX on XXXXX, 19 xx. This property was purchased for the purpose of constructing the new XXXXX. The XXXXX claimed a GST rebate on the purchase of this property.

2. The XXXXX (as Lessor) plans to lease this property to the XXXXX (as Lessee). A copy of the Lease agreement that will be entered into for this purpose was provided for our review.

3.  XXXXX of the Lease agreement states that the term of the lease will commence on XXXXX , 19 xx and end on XXXXX, 19 xx. An option for a one-month renewal is provided.

4.  XXXXX of the Lease agreement states that the "Lessor shall not charge any rent, or other compensation to the Lessee for the use of the property."

5.  XXXXX of the Lease agreement states that

"THE LESSEE COVENANTS WITH THE LESSOR:

(a) To use the Premises for the parking of buses only;".

6. On XXXXX, 19 xx, the XXXXX TIS Centre issued a GST/HST Interpretation regarding two of the three questions you had posed in your letter of XXXXX, 19 XXXXX as reflected below. The question of whether the XXXXX is involved in a commercial activity was not addressed. Following the receipt of this GST/HST Interpretation, you requested a GST/HST Application Ruling to address all three questions.

Transaction

The XXXXX proposes to lease real property, as described above, to the XXXXX for no consideration.

Ruling Requested

1. The Lease agreement does not constitute a commercial activity on behalf of the XXXXX[.]

2. The XXXXX is not liable to collect GST in any form as a result of the Lease agreement or on supplies made by the XXXXX on the site.

3. The Lease agreement does not affect the XXXXX entitlement to a GST refund in respect of the purchase of this property.

Ruling Given

Based on the facts set out above, we rule that

1. The provision of real property by way of lease by the XXXXX is a commercial activity for the purposes of GST/HST. See explanation below.

2. Although the XXXXX provision of real property by way of lease to the XXXXX is a taxable supply under the Excise Tax Act, it is not required to collect GST as it is made for no consideration. The XXXXX is liable to collect GST on any taxable supplies it makes.

3. The Lease agreement does not affect the GST rebate claimed by the XXXXX for the purchase of this property.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction for which you requested a ruling.

Explanation

The definition of "commercial activity" of a person for GST/HST purposes includes the making of a supply (other than an exempt supply) by the person of real property of the person. As no exempting provisions apply with respect to the lease of real property by the XXXXX to the XXXXX pursuant to the Lease agreement, it is a taxable supply. As the XXXXX is making a supply of real property by way of lease for no consideration, no GST applies.

Although the XXXXX is considered to be involved in a commercial activity for GST/HST purposes, it is not required to register for GST/HST provided that its revenue from its provision of taxable supplies, such as the lease of real property in question, is $30,000 or less in a year.

Since the determination of whether the XXXXX activities is a commercial activity for purposes of the Foreign Mission and International Organizations Act (FMIOA) is outside of this Department's jurisdiction, we are unable to provide a GST Application Ruling in this regard. However, in a letter dated XXXXX, 19 XXXXX to the Department (attached), XXXXX Department of Foreign Affairs and International Trade, advised that the Lease agreement at hand does not violate the FMIOA x nor constitute a commercial activity for purposes of that Act.

As the XXXXX is not involved in a commercial activity for purposes of the FMIOA, its entitlement to a rebate of GST/HST paid is not affected as a result of its lease of the real property to the XXXXX[.] Therefore, the XXXXX is entitled to the GST rebate it claimed for the purchase of this property.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-7952.

Yours truly,

Lynn F. Renner
Rulings Officer
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate