31 May 1999 GST/HST Ruling HQR0001577 - S Mobile Homes and Related Supplies

Dear XXXXX

Thank you for your letters of January 29, 1999, February 26, 1999, March 19, 1999, and for taking the time, along with your client XXXXX, to speak with us via conference calls on March 12, May 17 and May 31, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of mobile homes and related items.

Your letter indicates that XXXXX XXXXX", it is your understanding that effective April 24, 1996, the products sold by XXXXX meet the definition of "mobile home" in subsection 123(1) of the Excise Tax Act ("the Act"). For purposes of this letter, it will be assumed that your understanding is correct.

We will respond to your questions in the same order as they were presented in your letter of January 29, 1999.

[I.] Betterment Fees

Statement of Facts

Our understanding of the facts is as follows:

XXXXX collects fees on behalf of the XXXXX for each home sold to dealers who are members of an XXXXX[.] The fee is currently XXXXX for each home sold to a dealer.

2. The fee is shown separately on XXXXX invoice to a dealer. The fee and the XXXXX thereon is charged and passed on to the appropriate XXXXX[.]

3. XXXXX is not remunerated for collecting the fee on behalf of the XXXXX does not record the fee as revenue in its books and records.

[4.] XXXXX acts as agent in collecting the betterment fees on behalf of the XXXXX[.]

5. The dealers pay an annual membership fee to an XXXXX which is consideration for a taxable supply.

6. The betterment fees are additional consideration for the taxable supply of the annual membership fee in one of the XXXXX[.]

Ruling Requested

1. What is the tax status of the betterment fees?

Ruling Given

Based on the facts set out above, we rule that:

1. XXXXX current practice of collecting the HST payable on the betterment fees as agent for an XXXXX and passing it on to the XXXXX is correct.

II. New Home Warranties

Statement of Facts

Our understanding of the facts and the transactions is as follows:

1. Under the relevant XXXXX builders, including mobile home manufacturers, are required to register themselves and to register each individual unit covered by the warranties.

2. The amount of the registration fee payable by XXXXX becomes part of the cost of the mobile home. The fee payable by XXXXX included as a separate charge on XXXXX invoice to a dealer.

Ruling Requested

1. What is the tax status of the warranty registration fees?

Ruling Given

Based on the facts set out above, we rule that:

1. The warranty registration fee is part of the consideration for the single supply of a mobile home and pursuant to Part II of Schedule IX to the Act, the applicable tax will be based on the province in which XXXXX delivers or makes available the mobile home to the dealer. Where the dealer is not an individual, pursuant to subsection 221(2) of the Act, XXXXX will not be required to collect tax on the supply.

III. Freight and Set Charges

Statement of Facts

Our understanding of the facts is as follows:

1. Generally, dealers arrange to pick up the mobile homes at XXXXX facility.

2. In some cases, XXXXX arranges for a common carrier to deliver the mobile home to the dealer or the dealer's purchaser.

3. Ownership of the mobile home is transferred to the dealer, or in the case of a sale directly to an individual, that individual, when the full purchase price of the mobile homes has been paid.

4. Freight is charged at cost, and is shown separately on the sales invoice.

5. "Set" charges (i.e. amount charged to physically set the home on a foundation) may be included in the invoice from the carrier and similarly passed on to the dealer.

Ruling Requested

1. What is the tax status of the freight and set charges?

Ruling Given

Based on the facts set out above, we rule that:

1. When a dealer purchases a mobile home from XXXXX and the contract price includes "freight" or "freight and set", XXXXX is making a single supply of the mobile home and not a separate supply of the mobile home and "freight" or "set" services. Pursuant to Part II of Schedule IX to the Act, the applicable tax will be based on the province in which XXXXX delivers or makes available the mobile home to the dealer. Where the dealer is not an individual, pursuant to subsection 221(2) of the Act[.] XXXXX will not be required to collect tax on the supply.

IV. Finish Charges

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. A purchaser will enter into an agreement with a dealer to purchase a mobile home. Often, the home contains custom features and the dealer will provide to XXXXX floor plans and a list of the features that are requested. XXXXX will provide a quote on the cost of constructing the home. If the quote is acceptable, the dealer advise XXXXX an XXXXX prepares and signs a production order and price confirmation. The dealer also signs the production order/price confirmation document and notes any required changes.

2. Any changes received from the dealer are documented by XXXXX internal change orders and updated to the original order form. Price adjustments are reflected on the original production order.

3. Finish charges are costs incurred to finish and complete the mobile home on the purchaser's site. Finish charges will be included in the original quote where the dealer requests finishing. However, there will often be situations in which finishing services are requested or changed after the estimate is approved and construction has started. In some cases, the dealer will initially not request any finishing work by XXXXX but will subsequently ask for finishing services because it (the dealer) is unable to do the work.

4. Occasionally XXXXX will sell a mobile home directly to an individual.

Transactions

When invoiced, standard finish items are generally listed as one item (i.e. "modular finish"), additional extra finish items are listed separately. In cases where the finish items were not contemplated in the original quote or were changed, they may be shown on the invoice for the mobile home, or they may be listed on a separate invoice. The following are the possible arrangements with regard to sales of mobile homes and materials/labour to finish the homes:

Invoiced on same invoice as original sale

(a) Home is invoiced without finish charges.

(b) Home is invoiced with finish charges for labour to finish the home included on the same invoice.

(c) Home is invoiced with finish charges for materials and installation for an item such as a porch charged on the same invoice. The item could be constructed either at the factory or the home site by XXXXX[.]

(d) Home is invoiced with materials for an item such as a porch charged on the same invoice. This item could be constructed at the home site by the dealer or the dealer's subcontractor.

(e) Home is sold with materials, for an attached or unattached structure constructed on the site by someone other than XXXXX included on the original invoice. This is provided as part of the original contract of sale.

Invoiced on separate invoice from original sale of home

(a) Home is purchased. Subsequent to the purchase, additional materials to finish the home are invoiced separately.

(b) Home is purchased. Additional materials are invoiced separately. All materials relate to the construction of items other than the original home.

(c) Home is purchased. Materials for items to be installed, such as a porch, are sold and invoiced at a later date.

(d) Home is purchased. Charges for materials for items to be installed, such as a porch, are invoiced separately.

Rulings Requested

1. What is the tax status of the finish charges?

2. How should each scenario mentioned above be taxed?

3. What is the appropriate tax rate when the home is delivered to a participating province versus a non-participating province?

4. What happens if the finish charge is inadvertently missed on the original invoice and subsequently invoiced separately?

5. Are there any specific documentary requirements that must be met?

Rulings Given

Based on the facts set out above, we rule that:

1. Finishing items will be considered to be part of a single supply of a mobile home where:

(a) the finishing items constitute part of the residential complex i.e. they form part of the mobile home or they are an appurtenance to the mobile home that is reasonably necessary for the use and enjoyment of the home as a place of residence for individuals; and

(b) the finishing items and the mobile home are both supplied pursuant to a single sales agreement. In the circumstances described, the XXXXX order and price confirmation form, when signed by XXXXX and, the dealer, or purchaser, could constitute a sales agreement for the construction of a residential complex. The number of invoices issued does not normally affect the status of supplies that are made pursuant to a single sales agreement

Where these conditions are met, pursuant to Part II of Schedule IX to the Act, the applicable tax will be based on the province in which XXXXX delivers or makes available the mobile home. Where the sale is made to a dealer who is not an individual, pursuant to subsection 221(2) of the Act, XXXXX will not be required to collect tax on the supply.

2. In circumstances where work is done by XXXXX that was not included in the original agreement, that agreement could nevertheless be considered to include the additional work provided that:

(a) the additional items constitute part of the residential complex i.e. they form part of the mobile home or they are an appurtenance to the mobile home that is reasonably necessary for the use and enjoyment of the home as a place of residence for individuals;

(b) the additional items are ordered prior to the time that title to the complex is transferred to the dealer/purchaser;

(c) the additional items are supplied at or around the same time as the other elements of the residential complex; and

(d) it is reasonable in all the circumstances to conclude that the parties intended for the additional elements to be part of the original agreement and not a separate supply.

Where these conditions are met, pursuant to Part II of Schedule IX to the Act, the applicable tax will be based on the province in which XXXXX delivers or makes available the mobile home. Where the sale is made to a dealer who is not an individual, pursuant to subsection 221(2) of the Ac[t] XXXXX will not be required to collect tax on the supply.

3. With respect to the situations identified in rulings 1 and 2, where XXXXX making a single supply of a mobile home, the applicable tax will be based on the province in which XXXXX delivers or makes available the mobile home. Where that province is a participating province (Newfoundland, New Brunswick or Nova Scotia), the applicable tax rate is the HST at 15% while supplies to all other provinces will attract the GST at 7%. In respect of sales to a dealer, where the dealer is not an individual, pursuant to subsection 221(2) of the Act XXXXX will not be required to collect tax on the supply. In respect of sales made directly to an individua[l] XXXXX will be required to collect the applicable tax.

4. Where finishing charges are not included in the original sales agreement and the other requirements set out above are not satisfied, the supply of the additional items is likely to constitute a separate supply from the supply of the residential complex, regardless of whether the items are included in the same invoice as the mobile home, or invoiced separately, whether by inadvertence or otherwise.

Where only the materials are supplied, (i.e., no installation) XXXXX is making a supply of tangible personal property. Pursuant to Part II of Schedule IX to the Act, a supply of tangible personal property is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. In these circumstances XXXXX, and not the dealer, would have to collect and remit the tax on the supply in question.

Where XXXXX as agreed to install the materials in a residential complex, it is making the supply of a service. Where the service is in relation to real property, the applicable tax rate will be determined in accordance with the provisions of section 2 of Part IV of Schedule IX to the Act. Where the service is not in relation to real property, the applicable tax rate will be determined in accordance with the provisions of Part V of Schedule IX to the Act. In these circumstances, XXXXX and not the dealer, would have to collect and remit tax on the supply in question.

5. The Act does not set out specific documentation requirements that would be required in the circumstances you described, other than the general provisions of subsection 286(1). That subsection requires XXXXX to keep sufficient books and records in such form containing such information as will enable the determination of XXXXX liabilities and obligations under the Act.

Comments

The guidelines set out above distinguish between situations in which the parties intended that their agreement should encompass certain finishing elements, and other situations where the additional elements were not originally within the contemplation of the parties and comprise a separate and distinct arrangement.

For example, where XXXXX delivers a mobile home to a site pursuant to an agreement and returns a week later to deliver and install a porch, it is likely that the dealer and XXXXX intended for the agreement to included the supply and installation of the porch, even though, cost of the porch was neither included in the original quote nor in the first invoice.

On the other hand, where XXXXX delivers a mobile home and returns six months later, to install a porch, it is more likely that the provision of the porch was not contemplated in the original agreement and reflects a subsequent agreement to supply the item, unless of course the quote or other document clearly establishes that XXXXX was at all times under a contractual obligation to provide the porch as part of the mobile home.

V. Free Standing or Built-in Appliances

Statement of Facts

Our understanding of the facts is as follows:

1. Appliances may be included in the sale price of the home or invoiced separately.

2. Appliances may be built-in, such as dishwashers and stovetops, or free standing, like refrigerators and electric ranges.

3. In general, these items are included on the original sale invoice.

Ruling Requested

1. What is the tax status of appliances sold by XXXXX[.]

Ruling Given

Based on the facts set out above, we rule that:

1.(a) Built-in appliances are considered to form part of a mobile home regardless of whether they are shown as separate items on the agreement of purchase and sale or whether a separate consideration is shown for the appliances. As the appliances are considered to be part of the real property for GST/HST purposes XXXXX is not required to collect tax in respect of the appliances, unless it is also required to collect tax on the sale of the mobile home, as might occur when the home is supplied directly to a person that is not registered for the GST/HST or to an individual. The value of the appliances may be included in determining the amount of any GST/HST new housing rebate for which an individual purchaser may be eligible.

(b) Free standing appliances will be considered to be part of a single supply of a mobile home where:

(i) the appliances form part of an all-inclusive consideration determined at the time of signing the agreement of purchase and sale for the mobile home, and there is no separate identification in the agreement for the consideration paid or payable for the supply of the appliances;

(ii) the appliances are of the type normally supplied by XXXXX for similar mobile homes, were not custom ordered by the dealer/purchaser of the mobile home (as opposed to simple colour changes or normal upgrades), may be offered generally by others in the mobile/mini/modular home manufacturing industry, and relate to the use and enjoyment of the mobile home by the purchaser; and

(iii) the dealer/purchaser does not have a choice of taking a cash discount or other supply in lieu of the supply of the appliances. Where the conditions described are satisfied, XXXXX obligation to collect and remit tax would be the same as its obligations in respect of built-in appliances.

(c) Where the appliances are free standing and the conditions described above are not satisfied, the sale of the appliances will be considered to be separate supplies from the sale of the mobile home and XXXXX will be required to collect tax at a rate that is dependent upon the place where the appliances are delivered or made available to the dealer/purchaser as determined under Part II of Schedule IX to the Act. The consideration for the supply of the appliances may not be included in determining the amount of any GST/HST new housing rebate.

VI. Credit Notes

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX sells mobile homes to registrant dealers and to individuals. The consideration for the sales may include amounts in respect of various finishing charges previously mentioned.

2. After issuing invoices for the finishing charges, the dealers/individuals may no longer require certain finishing services to be performed by XXXXX In these circumstances, XXXXX will credit or refund the consideration in respect of the finishing services.

3. Other circumstances in which XXXXX adjusts the consideration or tax on a supply include:

(a) Incorrect billing amounts - a dealer/individual is overcharged an amount due to human error, and

(b) Return of axles - XXXXX will allow a dealer/individual to use axles in transporting a home to a site. The dealer individual will be invoiced for the axles. When the axles are returned by the dealer/individual, XXXXX credits or refunds an amount in respect of the property returned, usually for an amount less than the original amount charged to the dealer/individual.

Ruling Requested

1. How should tax be treated for purposes of section 232 of the Act (i.e. credit notes)?

Ruling Given

Based on the facts set out above, we rule that:

1. Where XXXXX has:

(a) charged to or collected from another person an amount in excess of the amount that was collectible by XXXXX or

(b) charged to or collected from another person tax on consideration for a supply and the consideration, or a part thereof, is for any reason reduced subsequent to making the supply, the tax so charged or collected may be adjusted, credited or refunded by XXXXX[.]

Comments

Please note that subsections 231(1) and (2) are permissive in that they allow XXXXX to refund or credit the tax, but do not require it to do so. Where XXXXX has made a supply to a registered person and the provisions of (a) or (b) apply, XXXXX may choose not to refund, credit or adjust the tax where the recipient has claimed an input tax credit in respect of the supply. Where XXXXX makes a supply to an individual, XXXXX may choose to refund, credit or adjust the tax, recognizing that the person is not eligible to claim an input tax credit.

Where (a) applie[s] XXXXX may adjust, refund or credit the tax within two years after the day the amount was charged or collected. Where (b) applies XXXXX may adjust, refund or credit the tax within four years after the end of the reporting period of XXXXX in which the consideration was reduced.

For the purpose of these rulings, tangible personal property is considered to be delivered in a participating province by XXXXX and is deemed not to be delivered in any other province by XXXXX where XXXXX

(a) ships the property to a destination in the particular province that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or

(b) sends the property by mail or courier to an address in the particular province.

The foregoing rulings are 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 these rulings 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(s) for which you requested a ruling.

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,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate