25 September 2002 GST/HST Ruling 42394 - Supplies of Sites in

Dear XXXXX:

We refer to our telephone calls of the last several months and the various documents submitted to our office in relation to an enquiry received from one of the residents at the XXXXX. The resident was enquiring as to the application of the Goods and Services Tax (GST) to certain fees you are charging in respect of supplies of the sites. As you requested in one of those telephone calls, we are issuing a ruling on the status of your various supplies of sites in the XXXXX.

All legislative references are to the Excise Tax Act (the Act).

Statement of Facts

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

1. XXXXX (the Landlord) operates XXXXX, a piece of land containing XXXXX recreational vehicle sites located on XXXXX. The XXXXX is legally described as XXXXX (the "Park"). Legal title to the Park rests with XXXXX, which is a trustee for the Landlord, while beneficial ownership rests with the Landlord. We are assuming that XXXXX is a bare trust.

2. Persons wishing to use a site in the Park originally purchased a share in the capital of the Landlord. Under the share purchase agreement, the share purchasers (Members) gained the right to the exclusive use of a specific site in the Park for a period of XXXXX years for the purpose of placing a vehicle or trailer designed for recreational use (collectively, the "Trailers") thereon. The Landlord retained beneficial ownership of the Park. Members were required to make more than a nominal payment when entering into the share purchase agreement for the use of a site in the Park. We have not seen a copy of the share purchase agreement, however we understand that the agreement amounted to a lease of a site in the Park made by the Landlord to a Member. We understand that a Member was also required to pay a yearly fee to cover the Landlord's costs of operating the Park and to pay an amount in respect of property taxes assessed against the Park.

3. The Trailers rest on concrete pads, but none of them are permanently affixed to their sites in the same manner as a house normally would be, nor do any of the Trailers qualify as a "mobile home" pursuant to the definition of that term in subsection 123(1). XXXXX of the sites are occupied by individuals that use a Trailer situated on the site as their primary place of residence. The remainder of the sites that are currently occupied are for the recreational use of the occupant. The Park is serviced and accessible throughout the year.

4. A XXXXX was filed and approved under the XXXXX to convert the Park into a "shared interest" development. The XXXXX had the effect of dividing the Park into XXXXX undivided interests (the "Interests"). The Park is not governed by the XXXXX XXXXX and an Interest is not a condominium or XXXXX. Persons acquiring an Interest will be registered in the relevant land titles office as a registered owner ("Owner") of an undivided XXXXX interest in fee simple of the Park. Owners are required to enter into a Co-Owners Agreement. Pursuant to the Co-Owners agreement, ownership of an Interest confers upon the Owner the right to the exclusive use of a particular site within the Park and to use the common areas and facilities of the Park. (Generally, each Owner who occupies a site in the Park would own a XXXXX interest in the Park, however, there is nothing that prevents a person from acquiring more than one interest in the Park. For example, a person could own a XXXXX interest and thus be entitled to occupy two sites in the Park.) Each Owner acknowledges that all other Owners have also been granted exclusive use of a site in the Park and the Owner agrees to refrain from interfering with any of the rights granted to the other Owners.

5. Under the Co-Owners Agreement, the Landlord will continue to operate the Park until XXXXX (the Owners Association), or XXXXX, whichever is earliest (the Turnover Date). The Owners Association is a "non-profit organization" as that term is defined in subsection 123(1) and will be composed of those persons who purchase an Interest in the Park. The Co-Owners Agreement does not contemplate any Members remaining after the Turnover Date.

6. The Landlord indicated that they had two objectives in converting the Park to a shared interest development. The first objective was to allow occupants to acquire equity in the Park by acquiring an interest therein. This allowed the Owners to use their Interest as collateral for a loan (including a mortgage loan), which the occupants were generally not able to do when they did not hold an interest in the Park. The second objective was for the Landlord to divest themselves of operating the Park by selling Interests and eventually having the Owners Association operate the Park.

7. Since the filing of the XXXXX, Members have had the option of acquiring an Interest from the Landlord. An opting Member pays no additional consideration to the Landlord upon acquiring an Interest. There is no requirement for Members to acquire an Interest in the Park, although most have opted to do so. Persons who wish to occupy a site in the Park and who were not Members prior to the establishment of the shared interest development must now purchase an Interest. That is, these 'newcomers' do not have the option of leasing a site in the Park - if they want to use a site in the Park, they must purchase an Interest. These persons also pay more than a nominal amount for the acquisition of their Interest.

8. To date, XXXXX Members have opted to acquire Interests, including XXXXX individuals who occupy a Trailer as their primary place of residence. Members who have not converted their memberships to Interests retain their exclusive right to occupy their particular site for a total of XXXXX years and to use common areas and facilities in the Park. There are XXXXX such Members remaining. Once the Owners Association has assumed responsibility for management of the Park, the Landlord will continue to lease sites in the Park to those Members who have not opted to become Owners, should any such Members remain. To the extent that the Landlord is not able to sell all Interests, the Landlord will continue to have an ownership interest in the Park. These Interests will not be supplied from the Landlord to the Owner's Association at the Turnover Date.

9. XXXXX sites in the Park have remained unoccupied since the Park was first developed in XXXXX[.] The Landlord has had the XXXXX corresponding Interests listed for sale since the filing of the XXXXX. (The Landlord has ownership interests in the sites occupied by Members, but those sites are not listed for sale as Members already occupy them.)

10. The Landlord sets an annual budget to estimate the costs involved in running the Park. Included in the budget are costs (the Costs) related to a water system, sewage disposal system, internal roads, fencing, washrooms, laundry facilities, and various recreational facilities. The Costs are shared equally by all Members and Owners in the form of an annual maintenance fee (the "Fee"), which is administered by the Landlord. The Fee is currently XXXXX annually for each Owner and Member. (Although the XXXXX indicates that certain amounts in respect of property taxes would be included in the Costs, you confirmed that such amounts are not included.)

11. XXXXX of the Co-Owners Agreement provides that each Owner is to pay property taxes assessed against their site and an equal portion of the assessment made on the common areas of the Park. In the event that the assessing authority does not provide separate assessments against each site, the Landlord or the Owners Association (whichever is operating the Park) is to allocate the assessment for the Park against each site. You confirmed that the Landlord, Owners and Members bear the property taxes for the Park in proportion with the number of sites owned or otherwise occupied by the Landlord, an Owner, or a Member. In other words, each Owner or Member occupying a site contributes XXXXX of the total property tax assessment relating to that site (the Property Tax amount) while the Landlord is responsible for the remaining portion of the total property tax assessment. The Landlord pays the full assessment on behalf of all Owners then requests reimbursement of the Property Tax amount from the Owners and Members by issuing an invoice for the appropriate amount. Nevertheless, the liability for paying the property taxes to the assessing authority remains with the Landlord and each Owner.

12. To date, the Landlord, a GST/HST registrant, has been collecting and remitting GST on the Fee and on the Property Tax amount in respect of sites occupied by Owners and Members. The Landlord has also been collecting GST on leases of sites to Members made under the share purchase agreement and on the sales of Interests in the Park.

Rulings Requested

You are enquiring as to the application of the GST on the Fee and the Property Tax amount. You are also enquiring on the application of the GST to these amounts once the Owners Association assumes responsibility for the operation of the Park

Rulings Given

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

1. With respect to supplies made by the Landlord to a Member, the Fee and the Property Tax amount are consideration for an exempt supply and are therefore not subject to the GST.

2. With respect to supplies made by the Landlord to an Owner, the Fee is subject to the GST. The Property Tax amount is not consideration for a supply made by the Landlord and is therefore not subject to the GST.

3. With respect to the supplies made by the Owners Association to an Owner, the Fee is subject to the GST. The Property Tax amount is not consideration for a supply made by the Owners Association and is therefore not subject to the GST.

These 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 our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

In order to address your questions, it will be necessary to outline the nature of the supply of sites in the Park made by the Landlord. We will then address your specific questions on the application of the GST to the Fee and the Property Tax amount and to the status of these fees once the Owners Association is managing the Park.

Supply to Members by way of lease, licence or similar arrangement

Paragraph 7(b) of Part I of Schedule V to the Act provides exemption for the supply of a site in a residential trailer park made under a lease, licence or similar arrangement which provides for continuous possession or use of the site for a period of at least one month to the owner, lessee or person in occupation or possession of a mobile home or a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site.

In order for the exemption in paragraph 7(b) to apply, a site must be situated in a residential trailer park. A "residential trailer park" is defined in subsection 123(1) as a trailer park encompassing at least two sites, where:

(a) substantially all of the sites in the trailer park are supplied under a lease, licence or similar arrangement, or are intended to be supplied under a lease, licence or similar arrangement, under which continuous possession or use of a site is provided for a period of at least

•   one month, in the case of mobile homes or other residential unit, or

•   twelve months in the case of travel trailers or motor homes, or similar vehicles that are not residential units;

and

(b) the sites would be suitable for use by occupants of a mobile home (whether or not the park in fact has mobile homes) as a place of residence of individuals throughout the year. This means the sites must be serviced and accessible for use by a mobile home throughout the year.

A "trailer park" of a person is defined in subsection 123(1) as an area of land that is owned by or leased to the person that consists exclusively of:

(a) one or more sites, each of which is or is intended to be supplied by way of lease, licence or similar arrangement to a person who will place a mobile home, travel trailer or motor home (or similar vehicle or trailer) on the site;

(b) other land that is or is intended to be reasonably necessary for the use and enjoyment of the sites by the occupants; and

(c) land that is reasonably necessary for the operation of the park.

The lease of sites to Members is exempt under paragraph 7(b) of Part I of Schedule V to the Act. The exemption would apply both before and after the Landlord began to sell Interests in the Park. The Fee and the Property Tax amount payable by a Member are viewed as additional consideration for the exempt supply by way of lease and accordingly, are not subject to the GST.

The Fee and Property Tax Amount Payable by Owners

The Fee charged to an Owner is in respect of a supply by the Landlord of property and services where the supply is made in the course of operating the Park. No exemptions exist for this supply and accordingly, the Fee is subject to the GST. Such is the case whether the Fee is charged to an Owner by the Landlord or by the Owners Association.

With respect to the Property Tax amount that is charged to an Owner, each Owner is ultimately liable to pay their portion of the property taxes in respect of the Park to the assessing authority. The Landlord is not making a supply for consideration when the Landlord pays an amount on behalf of an Owner and is subsequently reimbursed by the Owner. Therefore, no GST applies to the Property Tax amount paid by an Owner to the Landlord. Similarly, no GST will apply to the Property Tax amount payable by an Owner to the Owners Association.

Additional Information

Adjustment, Refund or Credit of the GST

Section 232 permits an adjustment, refund or credit of the GST where an excess amount of tax has been charged or collected. The Landlord may subtract from its net tax the amount of tax adjusted, refunded or credited to the extent that the tax has previously been accounted for. Further information on this topic is available in the enclosed Technical Information Bulletin B-042, "Refund, Adjustment Or Credit Of GST".

Sales of Interests in the Park

In general, section 5.3 of part I of Schedule V to the Act exempts the supply by way of sale of a residential trailer park or an interest therein. Paragraph 5.3(a) provides that, in order to qualify for the exemption, the supplier must have acquired the land as an exempt residential trailer park - i.e., the acquisition by the supplier was exempt under this section - or the supplier was deemed, under section 190 or the change-in-use rules for real property, to have received a taxable supply of the land as a result of using the land as a residential trailer park. Section 5.3 further provides that the exemption does not apply if the person supplying the park claimed an input tax credit in respect of the last acquisition of the park or an addition thereto, or in respect of an improvement to the park or additional area after the last acquisition of the park or the addition.

A person who first supplies a site in a residential trailer park on this exempt basis is generally deemed, under subsection 190(4), to have made and received a supply by way of sale of the entire residential trailer park. The person is deemed to have paid and collected tax calculated on the fair market value of the entire park at the time the person first gives possession or occupancy of the site to the recipient of the exempt 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,

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

Encl.