8 May 2003 GST/HST Ruling 7613 - Revocation of GST Application Ruling [on the Supply of Credits Made Outside Canada]

Dear XXXXX:

This letter is further to the GST Application Ruling issued to you from the XXXXX Tax Services office XXXXX (a copy of which is enclosed).

In that letter, we ruled that:

1. The supply of the XXXXX credits are deemed to be made outside Canada pursuant to subsection 142(2) of the Excise Tax Act and as such, are not subject to the Goods and Services Tax (GST); and

2. The supplies of the XXXXX units as hotel suites between XXXXX, and the end of the first quarter of XXXXX, are taxable supplies, subject to the GST at seven percent pursuant to subsection 165(1) of the Excise Tax Act.

We wish to advise you that we are revoking the first ruling above. The second ruling remains unchanged.

Our revised ruling in respect of the first issue is as follows.XXXXX[.] 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. XXXXX is registered under Subdivision d of Division V of the Act as of the date of this letter and has been so registered since XXXXX.

2. XXXXX method of timesharing resorts is essentially as follows:

XXXXX owns resorts located in XXXXX and XXXXX. XXXXX holds these resorts for the exclusive use of persons who have purchased timeshare interests.

XXXXX sells timeshare interests in the form of XXXXX ("points").

A person is required to purchase a minimum of XXXXX points to obtain the right to use and occupy resort accommodation on a timeshare basis. Each point sells for the same price.

By acquiring more than XXXXX points, timeshare owners are able to enhance their timeshare rights in terms of duration, frequency and/or season of their annual entitlement to use or occupy resort accommodation.

Points are valid for one year; however, if unused points are XXXXX timebanked XXXXX they may be used any time within XXXXX years after the date they were timebanked.

Each unit of resort accommodation is assigned a nightly occupancy point value, which varies depending upon the season of use, size of the unit and resort location.

Prior to the timeshare owner securing a specific right by way of reservation, XXXXX has no obligation to provide a timeshare owner with the right to use or occupy any particular resort property, in any particular location, at any specific time.

3. XXXXX does not make supplies by way of sale of points in XXXXX All offers made for the purchase of points are accepted by XXXXX at its sales offices in XXXXX XXXXX (i.e. outside Canada).

4. While it is possible for a person resident in Canada to acquire points, it is not possible to acquire ownership of points in XXXXX. Rather, such persons must acquire ownership of points either at an XXXXX or XXXXX sales centre, or at XXXXX corporate offices in XXXXX.

5. XXXXX does not collect any funds from the point holders in respect of their use or occupancy of a condominium unit supplied by way of licence for a specific time interval.

6. Assessments are levied against point holders on an annual basis in respect of that person's proportionate share of XXXXX ongoing maintenance and operational costs XXXXX and collected through XXXXX corporate offices in XXXXX. While the assessments are not contingent upon the use by the credit holders of their points, point holders with outstanding assessments are "restricted" from using their points.

Ruling Requested

You are requesting a ruling on the tax status of the timeshare points.

Ruling Given

Based on the facts set out above, we rule that the supply of the timeshare points is deemed to be made partly in Canada and partly outside Canada, pursuant to section 142 of the ETA. The portion of the supply that is deemed to be made in Canada is subject to GST, while the portion of the supply that is deemed to be made outside Canada is not subject to 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 transaction(s) for which you requested a ruling.

We would appreciate receiving from you any representations as to an effective date for the revocation of the ruling within thirty (30) days of the date of this letter. If we have not heard from you within that thirty-day period, the revocation will be effective on that thirtieth day.

Explanation

Supplies of the Timeshare Points Made by XXXXX supply of points is a supply of intangible personal property related to real property situated in Canada and outside Canada. The points represent a non-specific right to use interest. Although the exercise of this non-specific right will ultimately lead to a supply of real property by way of lease, licence or similar arrangement, the vacation credits, in and of themselves, do not constitute a "lease, licence or similar arrangement". The supply of intangible personal property is made in the course of a commercial activity (i.e. a business carried on by XXXXX) and Schedule V to the Act contains no exempting provision for such a supply. Accordingly, this supply is taxable and where the supply is made in Canada, the supply is subject to tax under section 165.

Application of the Place of Supply Rules

A portion of the supply of points made by way of sale by XXXXX is deemed to be made in Canada in accordance with subparagraph 142(1)(c)(ii) on the basis that:

•   the supply of the points is a supply of intangible personal property and not a supply of real property by way of lease, licence or similar arrangement,

•   the points represent a non-specific right to use or occupy more than one real property in various locations,

•   the exercise of the non-specific right to use or occupy XXXXX timeshared properties may result in the acquisition of a specific right to use real property situated in Canada, and

•   subsection 143(1) does not operate to deem the supply to be made outside Canada as XXXXX is registered under Subdivision d of Division V of the Act at all relevant times during which the supplies under review are made.

Similarly, a portion of the supply of points made by way of sale by XXXXX is deemed to be made outside Canada in accordance with subparagraph 142(2)(c)(ii) on the basis that:

•   the supply of the points is a supply of intangible personal property and not a supply of real property by way of lease, licence or similar arrangement,

•   the points represent a non-specific right to use or occupy more than one real property in various locations, and

•   the exercise of the non-specific right to use or occupy XXXXX timeshared properties may result in the acquisition of a specific right to use real property situated outside Canada.

In the circumstances, where the intangible personal property relates in part to real property situated in Canada and in part to real property situated outside Canada, it is the position of the Canada Customs and Revenue Agency that the GST/HST will apply only to the extent that the intangible personal property relates to real property in Canada at the time consideration for the intangible personal property becomes due. Accordingly, it will be necessary to determine the proportion of the supply that is deemed to be made in Canada at the time consideration for the supply becomes payable. It is that portion of the supply that will attract tax.

In determining the proportion of the supply that is deemed to be made in Canada, and therefore subject to tax, the method chosen should be fair and reasonable. In this regard, if the resorts are of equal value in all respects (i.e. in terms of accommodations, amenities, etc.), an apportionment based on the ratio of the number of units in Canada to the total number of units throughout the world would be fair and reasonable. A consistent allocation method should be used from one period to the next unless there is a change in circumstances justifying a corresponding change in the allocation method.

Should you have any further questions or require clarification on the above matter, please do not hesitate to call 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.