25 September 2002 GST/HST Ruling 36265 - Tax Status of Fees in

Dear XXXXX:

Thank you for your letter of XXXXX, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain amounts charged in respect of a site you occupy in the XXXXX. Your letter was forwarded to us from the XXXXX GST/HST Rulings office in XXXXX for our response.

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

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the Landlord) operates XXXXX (the Park), a piece of land containing XXXXX recreational vehicle sites located on XXXXX.

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. 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). The Park is serviced and accessible throughout the year and you use your trailer as your primary place of residence.

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 fee simple estate in the Park into XXXXX undivided interests (the "Interests"). The Park is not governed by the 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 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.

6. 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. 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.

7. A number of Members have opted to acquire Interests. 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. 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.

8. A number of sites in the Park have remained unoccupied since the Park was first developed in XXXXX. The Landlord has had the 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.)

9. 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, we understand that such amounts are not included.)

10. 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. We understand 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.

11. 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.

Ruling Requested

You have requested a ruling on whether the Fee and the Property Tax amount are subject to the GST.

Rulings Given

You did not indicate whether you were an Owner or a Member. Therefore, our ruling will address both possibilities.

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

1. With respect to supplies made 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 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.

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

Explanation

Before addressing your specific question, it will be necessary to outline the nature of the supplies of sites in the Park made by the Landlord. We will then address your specific question on the application of the GST to the Fee and the Property Tax amount.

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.

Based on the foregoing, the lease of sites to Members is exempt under paragraph 7(b) of Part I of Schedule V to the Act. 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 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.

With respect to the Property Tax amount that is charged to an Owner, each Owner is ultimately responsible to pay their portion of the property taxes in respect of the Park. 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.

Additional Information

If you have paid an amount of tax to the Landlord that was in fact not payable, you can request a refund or credit of the amount from the Landlord. If you cannot get a refund or credit from the Landlord, you can apply for a rebate of the amount. To that end, we enclose the GST/HST guide, "General Application For GST/HST Rebates". Please note that you must file a rebate application within two years after the day you paid the amount in error.

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.