GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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Files: 13s. 25, Part VI, Sch. V
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Subject:
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GST Ruling Request - XXXXX Board of Parks and Recreation
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Dear XXXXX
We are writing in response to your facsimile of September 4, 1997 concerning the abovenoted GST ruling request.
Our understanding of the facts based on the documentation which you submitted is as follows:
The Board of Parks and Recreation of the XXXXX leases land and buildings to the XXXXX. The rent for the premises is one dollar per year. XXXXX operates a seniors' activity centre and a restaurant on the premises.
One of the buildings included in the lease, a storage facility, was destroyed by fire. The cost of construction of an enhanced replacement structure was approximately XXXXX contributed XXXXX toward the cost of the replacement structure with XXXXX contributing the remaining XXXXX It is the requester's understanding that the XXXXX contribution consisted of insurance proceeds of XXXXX and XXXXX in funds raised through donations.
xxx oversaw the project and engaged a contractor to construct the new building. The contractor invoiced XXXXX for construction services and XXXXX claimed a municipal rebate for GST incurred on this and other taxable supplies received as part of the project. The XXXXX project cost was net of the rebate claimed.
When XXXXX requested payment of the agreed XXXXX contribution, XXXXX requested an invoice showing an amount of GST.
It is XXXXX position that the XXXXX contribution towards the cost of the storage building is a gift and would not attract GST.
Interpretation Requested
You have requested our comments as to the characterization of the payment by XXXXX to XXXXX to XXXXX is consideration for a supply of real property for GST purposes.
In this situation, XXXXX as lessee, has exclusive use and possession of the premises, including the replacement storage facility, during the term of the lease. By contributing to the cost of the replacement structure, XXXXX is contributing to the enhancement of the premises which it leases. The new building is real property of XXXXX and the provision of this property to XXXXX under the lease is a supply of real property for GST purposes pursuant to subsection 136(1) of the Excise Tax Act. The payment by XXXXX is additional consideration for the real property supplied by way of lease.
As the supply is made by a municipality, it is exempt from GST pursuant to section 25 of Part VI of Schedule V to the Excise Tax Act as none of the exclusions under this section would apply.
We note that the source of part of the XXXXX contribution was insurance proceeds, presumably received as a result of the fire. Section 4.02 of the lease provides that it is the responsibility of the tenant XXXXX to maintain insurance on property owned by the lessee and located on the premises, including such items as furniture, fittings, fixtures and trade fixtures. To the extent that any personal property of XXXXX lost in the fire was replaced by XXXXX as part of the construction of the replacement building, the payment by XXXXX to xx by could be attributable in part to such personal property, the supply of which would be taxable. Given that insurance proceeds were received by XXXXX and these proceeds were paid by XXXXX to xx , it would be prudent to clarify with the requester whether any personal property which would remain property of XXXXX on expiry of the lease was replaced and provided to XXXXX as part of the construction of the new building.
We trust that our comments are of assistance to you. Should you have any further questions, please do not hesitate to contact me at (613) 952-9212.
Yours truly,
Michael Warren
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Legislative References:
NCS Subject Code(s) I
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