16 January 2004 GST/HST Interpretation 44803 - Status of Supplies Made at

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

We refer to your communications with the GST/HST XXXXX Rulings Centre at the XXXXX Tax Services Office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain supplies being made at XXXXX. The most recent letter to that office XXXXX addressed questions they raised in communications sent to you XXXXX.

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

Statement of Facts

Our understanding of the facts and transaction is as follows:

1. XXXXX "the Premises"XXXXX is a condominium complex legally described as XXXXX.

2. Various persons, including individuals and corporations, have purchased condominium units (hereafter "a Unit") in the Premises. You represent some of the persons who have purchased a Unit.

3. A person who purchases a Unit in the Premises (hereafter "an Owner") has the option of renting the Unit to an individual (or up to XXXXX individuals) who will occupy the Unit as a place of residence. An Owner also has the option of having XXXXX XXXXX (hereafter "A Ltd." or "the Landlord") act as agent of the Owner in making supplies of a Unit on behalf of the Owner. Where an Owner chooses this option, A Ltd. and the tenant of the Unit enter into the XXXXX (hereafter "the Lease Agreement"), a copy of which was submitted to our office XXXXX. (It is noted that there are some differences between this Lease Agreement and earlier versions submitted to the XXXXX Office XXXXX XXXXX. For example, this Lease Agreement provides that A Ltd. is the owner "or [Owner's] agent" of a particular Unit in the Premises.) Also where an Owner chooses this option, the Owner enters into the XXXXX XXXXX (hereafter "the Business Agreement").

4. Where an Owner opts to have A Ltd. supply a Unit on an Owner's behalf, the Owner necessarily enters into the XXXXX (hereafter "the Service Agreement", described in detail in XXXXX, below), with XXXXX.XXXXX is affiliated with A Ltd. in that both corporations are under the same directing person or persons. As such, these corporations may be "associated" or "related" for purposes of the Act.) (hereafter "the Operator"). A tenant of a Unit receives the right to use the Unit and to receive the various services (hereafter "the Services") set out in the Service Agreement. The tenant pays a monthly amount to the Unit Owner (or agent thereof) for supplies of the Unit and the Services. The monthly amount payable by a tenant on a sample agreement you submitted to our office was $XXXXX.

5. The Lease Agreement sets out the following:

(a) XXXXX sets out the term of the lease, but failing the specification of a term, also provides that the tenancy will be on a month to month basis;

(b) XXXXX provides that the tenant is to make a rental deposit payment equal to one month's rent;

(c) XXXXX sets out that the rent is due monthly, on the first day of the month, and is subject to any rent increase the Landlord imposes from time to time;

(d) XXXXX provides that if the tenant wants additional properties or services provided, additional fees are payable for these items or services;( For example, at a tenant's option, A Ltd. can supply or cause to be supplied the installation of a security alarm panel in the Unit, an alarm monitoring service, a monthly parking pass, a medic alert system and a pendant style personal call device.)

(e) XXXXX provides that there are to be no charges for the properties and services set out in the Service Agreement;

(f) XXXXX requires the tenant to pay a security deposit of one-half of the monthly rent on execution of the Lease Agreement, and that upon surrender of the premises, the deposit is refundable with interest under the terms of the XXXXX;

(g) XXXXX provides that the tenant is responsible for payment of all costs for telephone service and content and liability insurance;

(h) XXXXX provides that the Landlord is to supply (Presumably, A Ltd. can also cause to be supplied the Services rather than making the supply itself. We assume that such is the case given the terms of the Service Agreement wherein another person is responsible for making certain properties and services available to tenants.) the Premises with the Services;

(i) XXXXX provides that the tenant is to use the Unit only for private residential purposes;

(j) XXXXX provides that the tenant must allow the Landlord, upon reasonable notice, to show the Unit to prospective purchasers or prospective tenants;

(k) XXXXX provides that a tenant cannot assign the Lease Agreement or sublet the Unit;

(l) XXXXX provides that breach of the Lease Agreement, including failure to pay rent as required, will give the Landlord the right to terminate the Agreement and regain vacant possession of the Unit;

(m) XXXXX requires the tenant to give one month notice where the tenant plans to vacate the Unit;

(n) XXXXX provides that the Premises "[are] intended to provide XXXXX residential services that include the availability of dining, housekeeping and laundry services for residents and the provision of a common dining room, indoor recreational amenities and open space...";

(o) XXXXX provides that the Premises "[are] intended to accommodate only those senior citizens who are able to independently carry out their daily living needs, but desire to avail themselves of the services described in [the Service Agreement]";

(p) XXXXX provides that "because the Premises cannot accommodate senior citizens who are unable to independently carry out their daily living needs, the tenancy shall be terminated at such time as the Operator [as defined in the Service Agreement]...concludes that the tenant is unable to independently carry out his or her daily living needs" (Notwithstanding XXXXX provides that on a case by case basis, the Landlord may approve the a tenant's continued stay at the Premises if suitable arrangements have been made for the tenant, at the tenant's sole cost, to arrange for assistance with their daily living needs.), and 6. The Service Agreement (The Service Agreement we are commenting on is the document submitted to the XXXXXTax Services Office and provides for the Agreement to be between several Owners and XXXXX. We understand that an earlier version of such an agreement, titled "XXXXX", was abandoned in favour of the Service Agreement.) sets out the following:

(a) XXXXX provides that for the term of the Agreement, the Operator will provide XXXXX to the Occupants of all Units in the Premises. The terms "XXXXX" are defined in XXXXX of the Agreement to mean the facilities and services described in XXXXX the Agreement. XXXXX provides that:

(i) the Facilities are those parts of the Premises used for social and recreational purposes, as well as certain furnishings and equipment located within the Premises;

(ii) the Services are those services set out in the Schedule and include:

•   safety devices,

•   24-hour per day staff to provide occupants with services that may be required, (Your facsimile of XXXXX provided that these services included general building security, medic alert alarm system monitoring, security camera monitoring, building patrol, telephone and door reception, and responding to general emergencies. Other services provided by the Operator, such as helping a tenant with shopping or extra personal care services (such as the XXXXX), are billed directly by the Operator to a tenant.)

•   a "fee for use" hair salon and barber shop,

•   a food service that provides for two meals per day as well as morning and afternoon snacks,

•   a weekly laundering service for bed linens, bath towels and mats and a fee for use for other items of occupants they choose to have laundered,

•   a weekly housekeeping service including the washing of floors, cleaning of bathroom, vacuuming of carpets, general dusting, and cleaning of kitchen areas, and

•   entertainment and activities including religious services, gardening, musical programs, exercise classes, bingo, shuffleboard, banking, prescription delivery service, a library service, and numerous other services. (We note that with respect to the XXXXX set out in XXXXX the Service Agreement, the Operator is not required to provide all the listed elements, nor is the Operator limited to providing only those elements. Our ruling is based on only those elements set out in XXXXX. Should additional elements be supplied, the ruling may no longer apply.)

(b) XXXXX provides that the Operator will provide light dusting and light housekeeping for unoccupied units owned by Owners;

(c) XXXXX provides that each Owner of a Unit is to pay the fees to the Operator for the services the Operator provides to an Occupant of a Unit or in respect of an unoccupied Unit. It is noted that an Occupant is defined in XXXXX of the Agreement as the person who occupies a Unit in the Premises as a principal residence whether or not that person is the Owner of the Unit;

(d) XXXXX provides that:

(i) the Base Fee, where a Unit is unoccupied, is $XXXXX per month,

(ii) the Single Occupant Fee, where a Unit is occupied by one occupant, is $XXXXX per month, and

(iii) the Extra Occupant Fee, payable for each Occupant of a Unit in excess of one individual, is $XXXXX per month;

(e) XXXXX provides that the Operator may offer the following on a "fee for service" basis:

(i) installation of a security panel in a Unit,

(ii) monthly security alarm monitoring,

(iii) a parking stall,

(iv) an in-Unit medic alert system call station,

(v) a medic alert system portable pendant style personal call device, and

(vi) personal care services such as assistance with dressing, grooming and bathing;

(f) XXXXX provides that the Operator may increase any of the fees set out in paragraph (d) (above), not more than once a year, and

(g) XXXXX provides that each Owner of a Unit that sells the Unit to another person must have that purchaser sign an XXXXX (a copy of which was included in, and forms part of, the Service Agreement) whereby the purchaser will be bound by the terms of the Service Agreement.

7. The Business Agreement is a business pooling arrangement whereby the Operator acts on behalf of all Owners who are in a business pool. The rent collected from a tenant of a Unit is held in a trust account in the name of the Operator in trust for all Owners. Expenses for operating and maintaining the Units as well as the fees due the Operator under the Service Agreement are paid from this trust account.

8. Tenants who so desire can contract separately and directly with a health care provider in order to receive personal care or medical services at the Unit. The service provider makes this supply to the tenant who pays the service provider for the supply. None of the Operator, the Owner or A Ltd. make this supply, nor do any of them receive consideration in respect of the supply.

Ruling Requested

You are enquiring as to the GST status of the supply made by an Owner to a tenant of a Unit in the Premises under the Lease Agreement.

Ruling Given

Based on the facts set out above, we rule that an Owner is making a single supply to the tenant of a Unit. The supply is that of a residential complex by way of lease, licence or similar arrangement for the purpose of the occupancy of the complex as a place of residence of an individual. This supply is exempt pursuant to section 6 of Part I of Schedule V to the Act.

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

We view the Owner of a Unit to be making a single supply to a tenant based on the following.

The owner supplies the Unit to a tenant (through A Ltd., as agent of an Owner) under the Lease Agreement. The Lease Agreement provides that the tenant will also receive the Services (as set out in the Service Agreement). The Owner provides both the Unit and the Services. There is one consideration for the supply of the Unit and the Services and the tenant enters into only one agreement that covers both the supply of the Unit and the Services. The tenant is the recipient (as that term is defined in subsection 123(1)) of the Owner's supply.

The supply of Services is an integral component of the supply made by the Owner to a tenant. As set out in the Lease Agreement, the Unit and the Services are inextricably bound together and contractually must be supplied together. The recipient does not have the option of acquiring only the Unit where the Owner has entered into a Service Agreement with the Operator.

Based on the foregoing, we find an Owner to be making a single supply.

Based on the provisions of the Lease Agreement and the Service Agreement, we consider the supply by an Owner to a tenant to be that of a supply of a residential complex. Section 6 of Part I of Schedule V to the Act provides exemption for the supply of a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex is given to the same individual for at least one month.

Accordingly, an Owner's supply to a tenant under the Lease Agreement is exempt under section 6 of Part I of Schedule V to the Act.

Additional Information

We also wish to advise you that the Operator is making a supply to the Owners. There are no provisions that would exempt this supply and accordingly, an Owner is required to pay the GST on any supply the Operator makes to the Owner.

It appears that the Operator may be an agent of an Owner in respect of some of the activities the Operator performs and expenses the Operator incurs. To the extent that the Operator incurs an expense as agent of an Owner, any GST payable by the Operator as an agent will not be eligible for an input tax credit of the Owner or the Operator. To the extent that the Operator incurs an expense that is not in relation to their performance as agent of an Owner and the amount of the expense forms part of the consideration payable for a taxable supply by the Operator to an Owner, the Owner will not be eligible for an input tax credit for the GST payable to the Operator on the supply; the Operator will generally be eligible for an input tax credit for the GST it pays on such expenses.

We will be sending a copy of this response to the XXXXX GST/HST Rulings Centre as we understand that there are registration issues involved for Owners who have registered or applied to be registered.

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