GST/HST Ruling

Dear Mr. XXXXX

Thank you for your letter of January 26, 1998, with attachments, which was forwarded to this office for reply. This letter concerned the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to facts described below.

Statement of Facts

Our understanding of the facts is as follows:

1. Human Resources Development Canada (HRDC) provides a Youth Internship Program under which they may make contributions to individuals and organizations to carry out approved projects to assist youth in making the transition from school to work.

2. Pursuant to this program, HRDC has entered into a contribution agreement with XXXXX who will act as the coordinator of XXXXX[.]

3. The agreement requires XXXXX to recruit, select, train and place individuals in jobs which provide the opportunity to gain work experience outside of Canada or in fields related to international marketing, manufacturing or research. They must also furnish HRDC with monthly progress and financial expenditure reports.

4. HRDC will provide contributions of up to XXXXX per youth to a maximum of XXXXX of the contributions will be used to cover youth related activities and XXXXX will go to XXXXX for administration.

5. One of the companies participating in XXXXX is the XXXXX[.] They have hired a student, XXXXX through a contract with XXXXX[.] The contract between XXXXX pays XXXXX[.] The term of this contract is XXXXX[.]

6. XXXXX will provide XXXXX for a period of XXXXX, to be used as a contract subsidy towards XXXXX service contract. If XXXXX employment continues through XXXXX, another XXXXX will be provided by XXXXX[.]

7. The contract between XXXXX also requires XXXXX to participate in program monitoring in order to track the progress of XXXXX work experience. This will be accomplished by way of follow-up phone calls and/or meetings.

Ruling Requested

Is the payment of a contract subsidy from XXXXX consideration for a supply and, therefore, subject to the GST.

Ruling Given

Based on the facts set out above, we rule that the contract subsidy from XXXXX is not consideration for a supply and, 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 departmental interpretative policy; and that you have fully described all necessary facts 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) 952-9218.

Yours truly,

Brent Fleming
Governments Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Dear XXXXX

Thank you for your letter of August 21, 1996 (with attachments) concerning the application of the Goods and Services Tax (GST) to the fact scenario described below. We apologize for the delay in responding to your letter.

Our understanding of the facts is as follows:

Statement of Facts

XXXXX is a Canadian company engaged in the importation, marketing and distribution of a product known as the XXXXX[.] This product has been marketed and sold as a meal replacement and has previously been zero-rated for GST purposes.

Recently, the regulations to the Food and Drug Act were amended to create a new category of food products called the "balanced nutritional supplement" category. This new category is defined in the regulations as "a food sold or represented as a supplement to a diet that may be inadequate in energy and essential nutrients". The category of "meal replacement" is defined as "a formulated food that, by itself, can replace one or more daily meals". The main differences between the "meal replacement" category and the "balanced nutritional supplement" category are the following:

•   a meal replacement must provide a minimum of 225 kcal while a nutritional supplement must provide a minimum of 150 kcal;

•   a meal replacement has both minimum and maximum fat content requirements, whereas there are no minimum fat content requirements for a nutritional supplement; and

•   a meal replacement has minimum and maximum content requirements for listed vitamins and minerals; a nutritional supplement has similar content requirements but the minimum and maximum amounts are proportional to the caloric content of the supplement.

The Regulatory Analysis Impact Statement to the new regulations states that these new regulations only apply to "balanced" nutritional supplements, which means nutritionally complete supplements that include both macro and micro-nutrients balanced in relation to energy.

XXXXX intends to modify the composition of its XXXXX products in order to qualify them as balanced nutritional supplements under these regulations and in order to be able to market them as low-fat products. The newly formulated bars will have essentially the same composition as before, except for a lower fat content. XXXXX will market the product in much the same way as before, except that it will be marketed as a low fat product under the new nutritional supplement category.

Your client XXXXX is asking for a ruling as to whether the newly formulated bars will be zero-rated for GST purposes.

Ruling Given

Based on the facts set out above, we rule that the newly formulated XXXXX qualifies as a zero-rated basic grocery item under section 1 of Part III of Schedule VI to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in the GST Memoranda Series (1.4). 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, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Yours truly,

Gregory Smart
Policy Officer
GST Rulings and Interpretations

Legal References:

Authority:

Reference:

b.c.c.:   NCS Subject Code(s) - R

b.c.c.:   District Chief, Audit

b.c.c.:   XXXXX

Dear XXXXX

Thank you for your facsimile of January 28, 1997, concerning the application of the Goods and Services Tax (GST) to the supply of trade units by a member of an organized trade exchange and the additional documentation and information provided on February 11 and March 4, 1997 respectively. We apologize for the delay in responding to your enquiry.

Statement of Facts

•   You, as a sole proprietor, operate a business under the trade name XXXXX[.] You are not currently registered for the GST as you are a small supplier for purposes of the GST.

•   XXXXX[.]

•   You are a member of the trade exchange system administered by XXXXX

•   XXXXX administers a trade exchange system through which member businesses agree to exchange goods and services among members through the use of a "trade card" and "trade dollars".

•   XXXXX charges an initial set-up fee of XXXXX (cash) to all of its members. Members receive an automatic XXXXX trade dollar credit line upon the payment of the initial set-up fee.

•   Members must pay XXXXX an annual renewal fee of XXXXX (cash), a cash commission of XXXXX on all sales and XXXXX on all purchases and must also pay a XXXXX (trade) statement processing fee each month. The cash commission applies to the gross value of each sale or purchase with other XXXXX members or other trade exchange affiliates. All fees charged by XXXXX are for services rendered in processing members into the exchange system, maintaining records and facilitating the members' use of the exchange.

•   The Application and Agreement (Agreement) states that XXXXX is functioning in a brokerage capacity and that the member indemnifies and holds XXXXX harmless with respect to any claim, debt, or liability whatsoever, arising out of any trade exchange transaction wherein the member is the purchaser or supplier.

•   XXXXX the Agreement states that trade transactions are entered into on a voluntary basis between members; XXXXX assumes no responsibility for the quality, timely delivery, warranty or dispute of any nature between members with regard to any good or service being traded.

•   The declaration and reporting of all applicable local, provincial and federal taxes resulting from trade transactions rests solely with the member.

•   Increases in a member's account balance occur when the member supplies goods and/or services within the exchange system. Specifically, the equivalent value of the good or service supplied is credited to the member's account. The member's account is debited when the member purchases a good or service within the exchange system.

•   To receive credit for transactions the supplier must:

i) obtain an authorization number from XXXXX on each transaction over XXXXX prior to making the supply; (If the transaction occurs outside business hours, the supplier should obtain the purchaser's Visa, Mastercard, or American Express credit card number and the expiry date of the particular card as a back-up form of payment and call for authorization during business hours.)

ii) check the expiration date on the purchaser's trade card to make sure it is still valid; and

iii) obtain the purchaser's signature on a XXXXX trade slip or other written document and mail all white copies to the XXXXX head office within XXXXX. (If a signed trade slip is not submitted to the XXXXX head office within XXXXX, XXXXX has the right to reverse authorization, in which event, it will be the responsibility of the supplier to collect another form of consideration from the purchaser.)

     For telephone order transactions, the supplier must put the abbreviation XXXXX in the signature area with the printed name of the purchaser. In the event that the purchaser disputes the purchase within XXXXX, it will be reversed by XXXXX unless a signed trade slip has been received. Telephone orders are not reversible after XXXXX

•   The trade slip which the purchaser signs authorizes XXXXX to debit the purchaser's account by the amount of the total shown. Taxes, tips and gratuities are not include in that total.

•   Purchases by members must be limited to the amount of XXXXX trade dollars in the purchaser's account plus the purchaser's available credit amount. Any time a member's trade account is in a deficit position, XXXXX has the right to demand immediate payment in cash for the total trade deficit due and may take any action necessary to secure such payment.

•   A member or XXXXX may cancel the Agreement after XXXXX written notice. Upon cancellation, all trade dollars due the member must be spent within XXXXX on goods and services available through XXXXX Any outstanding cash or trade dollar balance due must be paid to XXXXX in full within XXXXX in cash.

•   The Agreement clearly states that the trade dollars are not to be considered legal tender, securities, or commodities by either XXXXX or its members, and may not be redeemed for cash.

Ruling Requested

Is the GST charged on the trade dollars which are given as payment for a good and/or service by a member?

Ruling Given

Trade dollars are not subject to the GST when used by a member as consideration for a supply of property and/or service irrespective of whether or not the member is a registrant for purposes of the GST.

The amount of GST payable on the supply of a particular property or service is not affected when a member uses trade dollars as consideration for that particular supply. For example, where an office supply company, which is a member of the exchange system and is registered for purposes of the GST, sells a chair from its store in XXXXX to another member, the office supply company must charge the member purchasing the chair GST equal to 7% of the value of the consideration for the supply of the chair whether the member pays for the chair with cash or trade dollars.

This ruling is subject to the general limitations and qualifications outlined in GST Memoranda Series (1.4). 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, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Yours truly,

M. Dawn Weisberg
Senior Policy Officer
Financial Institutions and Real Property Division

                                                                        11820-4

                                                                        C.N.: 2620

                                                                        January 23, 1996

Dear Mr. XXXXX

Thank you for your faxed letter of December 8, 1995 concerning the application of the Goods and Services Tax (GST) to the provision of clinical perfusion services and perfusion goods by XXXXX to hospitals. As agreed in your recent telephone conversations with Mr. Lance Dixon, we have included the additional information provided by you in the "Statement of Facts" and provided a ruling on all the issues. This ruling revokes the application ruling provided to you by the XXXXX District Excise Office on April 12, 1995.

Statement of Facts

1. XXXXX is a proposed for-profit company that intends to provide perfusion goods and clinical perfusionist services to hospitals.

2. Such goods and services are fully paid for by XXXXX when utilized during surgical procedures performed in hospitals.

3. The perfusion goods and clinical perfusion services would continue to be covered by the provincial health insurance plan should they be provided by XXXXX under contractual arrangements with a hospital.

Proposed Transactions

1. XXXXX will supply perfusion goods as required and clinical perfusion services on a cost per case basis to hospitals and will submit monthly invoices to the hospital for these goods and services. The invoices will itemize costs associated with goods provided and costs associated with services provided.

2. XXXXX will be invoiced by independent contracted clinical perfusionists on a cost per case basis for the clinical perfusion services supplied .

3. XXXXX will purchase required perfusion goods from commercial suppliers.

4. Individual patients will not be billed by either XXXXX or the contract clinical perfusionists.

Ruling Requested

Do the perfusion goods and clinical perfusionist services provided to a hospital authority which is part of a provincial government entity have any GST consequences? Is the supply of services provided by a clinical perfusionist to XXXXX taxable? Are the perfusion goods purchased by XXXXX from commercial suppliers subject to the GST?

Ruling Given

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

1. The supply of perfusion goods to the hospital are not subject to the GST by virtue of the hospitals being part of the XXXXX provincial entity.

2. The supply of clinical perfusionist services to the hospital are not subject to the GST by virtue of the hospitals being part of the XXXXX provincial entity.

3. The supply of services provided by the perfusionist to XXXXX are taxable at the rate of 7%.

4. Perfusion goods purchased by XXXXX from commercial suppliers are taxable at the rate of 7%.

This ruling is subject to the general limitations and qualifications outlined in the GST Memoranda Series Section 1.4. We are bound by this ruling provided that none of the above issues are presently under audit, objection or appeal, there are no relevant changes in the future of the Excise Tax Act, and provided that you have fully described all necessary facts and transaction for which you requested a ruling.

Explanation

Taxable purchases made by provincial governments are treated as though zero-rated. The province, in this case, XXXXX (e.g., a hospital) would not pay the GST on its purchases of clinical perfusion services or perfusion goods from XXXXX. However, if the hospital was not designated as part of the provincial entity, the supply of clinical perfusion services and goods would be taxable at the rate of 7%.

The supply of contracted perfusion services made to XXXXX are taxable at the rate of 7% as there are no provisions in the Excise Tax Act (ETA) to provide exempt GST status.

The supply of perfusion goods to XXXXX by commercial suppliers are taxable at the rate of 7 % as there are no provisions in the ETA to provide zero-rated GST status.

As you discussed with Mr. Lance Dixon, XXXXX will approach the Department of Finance in order to have clinical perfusionists added to the list of practitioners listed in section 7 of Part II of Schedule V to the ETA. If the Department of Finance agrees to this proposal and amends the ETA to include clinical perfusionist services in section 7 of Part II of Schedule V to the ETA, such services contracted to XXXXX would be exempt of the GST.

If a business only conducts exempt GST activities, it is not permitted to become a GST registrant. An unregistered business is not entitled to claim through any credit or refund mechanism the GST paid on its expenses. However, we have determined that, for purposes of the ETA, XXXXX is involved in making two separate taxable supplies to the hospital, one is the supply of medical and surgical goods and the other is the supply of clinical perfusionist services. Accordingly, XXXXX should register and once registered is entitled to claim input tax credits in respect of the GST paid on purchases which will be used in a commercial activity, which by definition excludes the making of exempt supplies.

If further assistance is required, please do not hesitate to contact either myself or Mr. Lance Dixon at (613) 952-9264.

Yours truly

J.A .Venne
Director
Special Sectors
GST Rulings and Interpretations
Policy and Legislation Branch

Dear XXXXX

I refer to your letter of October 31, 1995 wherein you requested a GST advance ruling with respect to the transaction between XXXXX and XXXXX. Please note that we are unable to provide you with an advance ruling as the requirements established in GST Memorandum 1.4 (enclosed) have not been met. The following is a GST application ruling regarding the aforementioned transaction.

Facts

1. XXXXX is a registered charity for purposes of the Income Tax Act and is registered for purposes of the GST XXXXX[.]

2. XXXXX has entered into a scientific research and development contract with XXXXX[.]

3. Article 1.1 - XXXXX hereby confers upon the University the mandate to perform certain scientific research and experimental development for the purpose of producing certain software systems which are destined to be manufactured in series and marketed by XXXXX (herein after the "Deliverables")

4. Article 1.3 - The Parties acknowledge that the University shall perform the scientific research and experimental development and produce the Deliverables, attached hereto as Schedule B, on a best efforts basis, without guarantee.

5. Article 6.1 - Subject to third party rights, all intellectual property rights resulting from the scientific research and experimental development, as well as the Deliverables, including any and all software systems, source and binary codes, manuals, reports, studies, technologies, discovery, invention (patentable or not), method, process, apparatus, plan, design, drawing, trade secrets, ideas and/or know-how shall as between the Parties be the exclusive property of XXXXX[.]

6. Article 6.4 - XXXXX shall have the exclusive and irrevocable non-limited world-wide rights to market, exploit, modify, improve, directly or indirectly, without limitation, any and all of the intellectual property rights relating to the scientific research and experimental development performed, as well as the Deliverables produced pursuant to this Agreement, including all software systems, source and binary codes, manuals, reports, studies, technologies, discover, invention (patentable or not), method, process, apparatus, plan, design, drawing, trade secrets, ideas and/or know-how.

7. Article 6.5 - XXXXX shall be furnished with copies of any and all proposed publications or disclosures relating to the scientific research and experimental development performed, as well as the Deliverables produced pursuant to this Agreement at least thirty (30) days in advance of presentation or publication. If XXXXX does not object in writing to such disclosure within fifteen (15) days of receipt, University shall be free to proceed. In the event written objection is made by XXXXX the Parties shall negotiate an acceptable version of the proposed disclosure, including the release date, within the original thirty (30) day notice period.

8. Schedule A - Preamble: The proposed research and development project undertaken jointly with XXXXX aims to advance scientific knowledge in the area of parallel computing with specific practical applications in mind. The applications lie primarily in the area of spatial data processing, XXXXX and, in the future, in medical computing. Most of the proposed work will be applied research with some experimental development. Mathematical analysis and computer programming will be carried out to directly support the work.

9. The deliverables as outlined in Schedule B of the Agreement are:

•   yearly reports describing the activities of the research team,

•   technical reports and/or publications in the area and copies of Master/Ph.D. theses

•   relevant material keeping XXXXX abreast of developments in the area e.g., by providing an overview of relevant literature

•   results of investigating new parallel algorithms in the area (written in pseudo-code)

•   prototype experimental implementations of relevant algorithms on the XXXXX computer

•   results of investigation comparisons of parallel algorithms to existing sequential algorithms (e.g., measuring of speed-up) with documentation judged appropriate by the Committee.

Request

You request a ruling confirming that the supplies made by XXXXX to XXXXX under the Research and Development contract are exempt supplies pursuant to section 2 of Part VI of Schedule V to the Excise Tax Act (the ETA).

Ruling

Based on the information presented, we rule that the supply made by XXXXX to XXXXX under the Research and Development contract is a service of scientific research and technical development and is exempt pursuant to section 2 of Part VI of Schedule V.

The ruling is subject to the general limitations and qualifications set forth in GST Memoranda Series Section 1.4. 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, and that you have fully described all necessary facts and transactions for which you requested a ruling.

If you have any questions or comments, please do not hesitate to contact Joanne Houlahan, Manager, Public Service Bodies at 954-7945 or Dwayne Moore, Tax Policy Officer, at 954-4206.

J.A. Venne
Director
Special Sectors
GST Rulings & Interpretations

c.c.:      D. Moore

                                                                        Telephone No.: (613) 954-8585

                                                                        Fax No.: (613) 990-3602

                                                                        File No.: 11640-3(cav)

                                                                        Sch. VI/V/7

Re:      GST Application Ruling - 'Plating Error Charge'

Dear Ms. XXXXX

I refer to your facsimile messages dated February 12, 1996 to Mr. Adrien Venne, Director, Special Sectors Division and February 13, 1996 to Mr. Adam Belyea of his staff, requesting a GST ruling concerning the tax status of XXXXX 'plating error charges' to resident and non-resident travel agents.

Statement of Facts

1. An unregistered non-resident travel agent issues a ticket to a passenger and plates the ticket to XXXXX[.]

2. If XXXXX is not carrying the passenger, XXXXX will charge the travel agent XXXXX for the plating error.

3. XXXXX[.]

Ruling Requested

The processing of plating errors, in Canada, where provided to a resident travel agent, is taxable at 7 per cent and zero-rated where provided to a non-resident travel agent.

Ruling Given

Based on the facts and the transactions set out above, we rule that the supply of the service of processing plating errors supplied by XXXXX to a resident travel agent is taxable at 7 per cent and to a non-resident travel agent is zero-rated under section 7 of Part V of Schedule VI to the Excise Tax Act (Act).

This ruling is subject to the general limitations and qualifications outlined in the GST Memoranda Series Section 1.4. We are bound by this ruling provided that none of the above issues are presently under audit, objection or appeal, there are no relevant changes in the future to the Act, and provided that you have fully described all necessary facts and transactions for which you requested a ruling.

Rationale

The processing of plating error charges is a service provided in Canada and is therefore taxable at the rate of 7 per cent to a resident travel agent. The same service provided to a non-resident travel agent is zero-rated under section 7 as the service is not considered to be primarily for the non-resident's use in Canada.

If you have any questions or require further information, please contact Carol Ann Villeneuve at (613) 957-8224 or Randy Nanner at (613) 952-8810.

Yours sincerely,

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch

                                                                        May 1995

 XXXXX

This has reference to your letter of February 20, 1995, in which you request a review of the application ruling issued to XXXXX XXXXX by our XXXXX Excise/GST District Office concerning the status of supplies of production financing. We also refer to the copy of the sample XXXXX that you sent to us by facsimile transmission on May 11, 1995.

As you are aware, the Excise Tax Act (the Act) provides that certain activities concerning specific financial instruments are considered to qualify as supplies of financial services and are exempt supplies under the Act. The direct loans made by XXXXX are an example of such an exempt supply, as is the supply of an equity security, which is defined in the Act as "a share of the capital stock of a corporation or any interest in or right to such a share". The terms of XXXXX state that, in return for the money given to the producer, XXXXX receives from the producer a supply of an undivided proportionate ownership interest in the production, which is quite different than an ownership interest in the company that is making the production. While an ownership interest in a company may be an equity security under the Act, an ownership interest in property of the company, such as a film, is a taxable supply, as was ruled by the XXXXX Excise/GST District Office.

We have carefully reviewed the documentation that you provided concerning XXXXX counterparts in other provinces. While you have pointed out their exempt position with regard to the GST on production financing, their exemption from the GST, in fact, applies to all of their purchases. However, as XXXXX , pointed out in her April 12, 1991, letter to you, your provincial counterparts are considered to be provincial crown corporations and, in accordance with the Constitution Act, enjoy protection from taxation by another level of government. The XXXXX is not a provincial crown corporation and is, therefore, subject to the requirements of the Excise Tax Act, meaning it is required to pay the GST on purchases such as an ownership interest in a production.

Funding provided by the XXXXX to XXXXX does not attract the GST. However, when XXXXX , which is not considered part of the provincial government, in turn uses these funds to acquire goods or services, there is no provision in the Excise Tax Act that serves to exempt XXXXX from paying any GST that might be exigible. The fact that XXXXX is 100 percent funded by the provincial government entitles it to claim a 50 percent rebate for any GST paid on purchases made in connection with its exempt activities.

It should be noted that, to the extent that XXXXX is making taxable supplies, it is entitled to claim input tax credits equal to the GST paid for goods and services acquired to make these supplies.

We hope that these comments will assist you in understanding the Department's position on the equity investment form of film production financing. Should you have further questions, please do not hesitate to contact Linda Burroughsford at (613) 952-3413.

J. Sitka
A/Director
Financial Institutions and Corporate Reorganizations Division
GST Rulings and Interpretations

                                                                        Telephone #: (613) 954-8585
Fax #: (613) 990-1233
XXXXX                                                                                 File #: 11680-1
XXXXX                                                                                 s. 142
XXXXX                                                                                 ss. 136(1), 165(1), 221(1), 228(2)
XXXXX                                                                                 June 3, 1996

Dear XXXXX

I refer to your facsimile messages of March 8, 1995, May 12, 1995, July 17, 1995, August 29, 1995, and April 22, 1996, your letter of June 7, 1995, my interim letter of July 6, 1995, Mr. Garry Ryhorchuk's facsimile message to you dated August 14, 1995, previous telephone conversations, and the meeting in XXXXX on February 15, 1996, concerning the application of the Goods and Services Tax (GST) to the supply of resort points by XXXXX[.] As you are aware, the Honourable Paul Martin, Minister of Finance, tabled a Notice of Ways and Means Motion to amend the Excise Tax Act (Act) on April 23, 1996. Therefore, a ruling is issued to cover transactions which are not affected by the Notice of Ways and Means Motion and an interpretation is issued to cover those transactions which are affected by the Notice of Ways and Means Motion.

We assume that none of the issues herein is being considered by a Revenue Canada Tax Services Office in connection with a GST return already filed and none of the issues is under objection or appeal.

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

Statement of Facts

1. XXXXX is a resort developer based in XXXXX. XXXXX has developed, or is developing, resort properties in XXXXX XXXXX in Canada, and XXXXX[.]

2. XXXXX is registered for GST purposes.

4. XXXXX carries on the business of, inter alia, construction of residential condominium units for sale through resort points.

5. XXXXX is registered for GST purposes.

6. XXXXX has incorporated the XXXXX, which is a XXXXX non-profit, non-stock corporation (the Club). As resort properties are developed, XXXXX will transfer title to the properties to a trustee who will hold the same in trust for the Club and its members. In exchange, the Club will give XXXXX resort points. The resort points are created and issued by the Club. XXXXX will sell the resort points to members of the public.

7. On February 15, 1996, there were XXXXX members in the Club.

8. The Club is registered for GST purposes.

9. In your letter of June 7, 1995, and during the meeting on February 15, 1996, representatives of XXXXX and XXXXX advised that the resort points currently being sold only relate to properties in XXXXX[.] The resort points, at some future date, will also relate to properties in XXXXX (when those properties become available).

10. The purchaser of the points (who may be a Canadian or XXXXX resident, or resident elsewhere in the world), upon redeeming the points, is entitled to stay in any one of the resorts in which the Club owns units. Currently all resorts in which the Club owns units are located in Canada.

11. A person must initially purchase a minimum of XXXXX resort points. As of February 15, 1996, the cost of a resort point is XXXXX[.] The minimum initial cost to a person is, therefore, XXXXX may, however, increase, decrease, bonus or discount the purchase price for resort points at its absolute discretion.

12. Persons wishing to purchase additional resort points must purchase a minimum of XXXXX points provided there are still unsold points.

13. Generally, a person can use a particular resort point once per year. However, not all resort points have to be used at the same time. For example, if a person owns enough points to reserve resort accommodation for two weeks, that person may choose to use a portion of his or her points to reserve a week's accommodation in XXXXX during the summer and use the remaining points to reserve accommodation in XXXXX in the winter.

14. The number of resort points required to reserve accommodation depends upon the season. There are currently XXXXX[.]

15. The right to use points in a year expires at the end of that year unless the points are "banked". Unused points may be banked for use in the following year. For example, if a person owns sufficient resort points for one week of accommodation per year, he or she may bank points so that in the subsequent year he or she will have enough points for two weeks of accommodation.

16. A person is entitled to use resort points to reserve exclusive use of any one of the resort properties owned by the Club at any time in the year subject to:

•   the number of resort points purchased by the person;

•   the number of resort points previously used by the person in that year, and

•   any prior reservations of specific resort accommodations by other point owners.

Ruling Requested

Supplies of the resort points are deemed, under the provisions of section 136 of the Excise Tax Act, to be supplies of real property. Pursuant to section 133 of the Act, these supplies are deemed to be made at the time the resort points are sold to the purchasers. The resorts are to be treated as residential complexes. As a result, supplies resort of points are exempt supplies. The GST at 7% will be payable on the units in the Canadian resorts on a self-assessment basis at the time of acquisition by the Club.

Ruling Given

1. Based on the facts (and the transactions contemplated set out above), we rule that the supply of resort points by XXXXX is a supply of intangible personal property.

2. The provisions of subsection 136(1) are not applicable because the supply of resort points is not considered to be a supply of a right to use real property by way of lease, licence or similar arrangement.

3. Resort Points supplied to a Resident

The supply of the resort points is deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(i) — the supply is to a resident and the intangible personal property may be used in Canada. As the recipient of a taxable supply made in Canada, subsection 165(1) of the Act requires the resident to pay the GST at the rate of 7%. Subsection 221(1) of the Act requires XXXXX to collect the tax and subsection 228(2) of the Act requires XXXXX to remit the tax.

4. Resort Points supplied to a Registered Non-resident

The supply of the resort points is deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(i) — the supply is to a registered person and the intangible personal property may be used in Canada. As the recipient of a taxable supply made in Canada, subsection 165(1) requires the non-resident to pay the GST at the rate of 7%. Subsection 221(1) requires XXXXX to collect the tax and subsection 228(2) requires XXXXX to remit the tax.

5. Resort Points supplied to an Unregistered Non-resident - Canadian Locations only

The supply of the resort points is deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(ii) — the supply of the intangible personal property relates to real property situated in Canada. As the recipient of a taxable supply made in Canada, subsection 165(1) requires the non-resident to pay the GST at the rate of 7%. Subsection 221(1) requires XXXXX to collect the tax and subsection 228(2) requires XXXXX to remit the tax.

6. Resort Points supplied to an Unregistered Non-Resident - Canadian and Foreign Locations

(a) The supply of the resort points will be considered to be made in Canada when the non-resident purchases the points in Canada (i.e., the contract is concluded in Canada). As the recipient of a taxable supply made in Canada, subsection 165(1) requires the non-resident to pay the GST at the rate of 7%. Subsection 221(1) requires XXXXX to collect the tax and subsection 228(2) requires XXXXX to remit the tax.

(b) The supply of the resort points will be considered to be made outside Canada and not subject to the tax under Division II if the non-resident purchases the points outside Canada (i.e., the contract is concluded outside Canada).

This ruling is subject to the general limitations and qualifications outlined in Section 1.4 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection or appeal, there are no relevant changes in the future to the Act, and you have fully described all necessary facts and transactions for which you requested a ruling.

The proposed amendments to the Act contained in the Notice of Ways and Means Motion dated April 23, 1996, do not affects the rulings in 1 and 2 above, and do not appear to affect the rulings contained in 3, 4 and 5 above.

Interpretation Given

The proposed amendment to subparagraph 142(1)(c)(i) affects the ruling contained in 6 above. Effective April 24, 1996, the supply of resort points to an unregistered non-resident, where the resort points relate to Canadian and foreign locations, will be deemed to be made in Canada because they may be used in whole or in part in Canada. As the recipient of a taxable supply made in Canada, subsection 165(1) requires the non-resident to pay the GST at the rate of 7%. Subsection 221(1) requires XXXXX to collect the tax and subsection 228(2) requires XXXXX to remit the tax.

The foregoing comments represent our general views with respect to the proposed amendments to the Act relating to the subject matter of your letters. These comments are not rulings and, in accordance with the guidelines set out in Section 1.4 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.

If you have any questions, please contact Mr. Ryhorchuk at (613) 952-6743, Mr. Randy Nanner at (613) 952-8810 or Mr. John Bain at (613) 954-3772.

Yours sincerely,

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch

Dear XXXXX

This is in reply to your correspondence of May 11, 1994, in which you advised Revenue Canada of certain facts and proposed transactions relevant to the subject matter of the GST ruling issued on September 28, 1993. You have requested certain rulings regarding those transactions, as well as confirmation of the various rulings contained in the September 1993 ruling upon the occurrence of the proposed transactions. This request is prompted as a result of the admission of another corporate entity, XXXXX into the Project.

In your letter of January 12, 1995 you have requested a status report on both the above noted ruling as well as one requested in your letter of October 15, 1993. With respect to the latter we currently anticipate being able to provide you with a response by mid to late February 1995.

Please note that unless defined within this ruling, capitalized words are those defined in a relevant Project Agreement or in Schedule A, which is appended to all agreements dealing with the Project.

Background

The federal government (the Government), through the Minister of Government Services, entered into agreements with XXXXX for the development of a fixed crossing of the XXXXX . Financial Closing for the Project took place on XXXXX The various agreements relating to the Project were entered into and the Subsidy Bonds were issued on that date. Work has commenced in connection with various matters pertaining to the Project, including the construction of the Yard Facility.

Statement of Facts

Based on correspondence provided by XXXXX and on verbal conversations between representatives of that company and our officials, our understanding of the material changes to the facts included in the application ruling (copy attached) dated September 28, 1993 is as follows:

1. XXXXX is a Canadian corporation as defined in paragraph 89(1)(a) of the Income Tax Act and a private corporation as defined in paragraph 89(1)(f) of that Act. XXXXX was incorporated on August 23, 1993 under the XXXXX

2. XXXXX is a wholly owned, indirect subsidiary of XXXXX a corporation incorporated under the laws of the XXXXX

3. XXXXX GST registration number is XXXXX

4. During the months preceding Financial Closing, the members of the Construction Consortium had detailed discussions with XXXXX concerning their potential involvement in a number of aspects of the Project, including becoming a member of the Construction Consortium and a shareholder of XXXXX . Although discussions were substantially advanced at Financial Closing, XXXXX 's involvement in the Project was not finalized at that time to ensure that Financial Closing was not delayed.

5. Before the entry of XXXXX into the Project, XXXXX held all of the issued and outstanding shares of XXXXX as follows:

XXXXX

Total 1000 shares (100%)

6. XXXXX also held corresponding proportionate interests in the Construction Consortium, a joint venture.

7. The Joint Venture Agreement was amended effective XXXXX XXXXX , the date of Financial Closing, to add XXXXX as a Joint Venturer with XXXXX rights and obligations to be the same as those of XXXXX and XXXXX (except as to proportionate shares).

8. It is the intention of XXXXX that the agreements and amendments to agreements related to the admission of XXXXX as a Joint Venturer in the Construction Consortium take effect in their application to the Construction Consortium from Financial Closing and that XXXXX be treated as if it had been a member of the Construction Consortium from Financial Closing.

9. Prior to the closing of the transactions (Closing) provided for in the XXXXX common shares of XXXXX, constituting 11% of the issued and outstanding common shares will have been transferred by XXXXX to XXXXX, a wholly owned indirect subsidiary of XXXXX the corporation which owns all of the outstanding shares of XXXXX[.]

10. Pursuant to the Admission Agreement, at XXXXX will acquire 200 shares of XXXXX , constituting 20% of the 1000 issued and outstanding common shares.

11. XXXXX will acquire a 20% proportionate share of the XXXXX assets, including a 20% interest in the funds in the XXXXX and will assume a 20% proportionate share of the obligations of the XXXXX under the Construction Contract and other Principal Project Agreements referred to in paragraph 19 below.

12. The 200 issued and outstanding common shares of XXXXX to be acquired by XXXXX will be obtained as follows:

•   At Closing, 110 shares from XXXXX (which XXXXX acquired from XXXXX) at a price of XXXXX per share for a total purchase price of XXXXX. This amount was payable by a cash payment on closing of XXXXX with the balance due and payable on the earlier of May 31, 1998 and the Date of Final Completion.

•   On September 30, 1994, a further 90 shares from XXXXX at a price of XXXXX per share for a total purchase price of XXXXX[.] This amount was payable by a cash payment on closing of XXXXX with the balance due and payable on the earlier of May 31, 1998 and the Date of Final Completion.

13. At XXXXX and XXXXX will hold all of the issued and outstanding shares of XXXXX as follows:

 XXXXX
Total 1000 shares (100%)

14. XXXXX obligation to pay the balance of the purchase price to XXXXX and XXXXX is secured by promissory notes (the Notes) issued by XXXXX in the amounts o XXXXX to XXXXX and XXXXX respectively. Each of the Notes is on the same terms and bears interest at the rate of 7% per annum, compounded annually. Interest and principal are payable on the earlier of May 31, 1998 and the Date of Final Completion.

15. Pursuant to paragraph 2 of the Admission Agreement, XXXXX will be entitled, but not obliged, to purchase 55 common shares in the capital of XXXXX from XXXXX and XXXXX will be entitled, but not obliged, to purchase 45 common shares in the capital of XXXXX from XXXXX at a price of XXXXX per share in each case once distributions of dividends on the shares held by XXXXX have reached prescribed levels.

16. The Admission Agreement provides that XXXXX will acquire a 20% interest in the Construction Consortium. Upon such acquisition, the interest of each of XXXXX and XXXXX in the Project will be correspondingly reduced and the proportionate interests in the Construction Consortium of each member will be as follows:

 XXXXX

17. XXXXX and XXXXX have concluded that the value of the rights and entitlements with respect to the Construction Contract and the burden of the obligations thereunder are equal, with the result that the right of XXXXX to participate in the Construction Consortium has no net value.

18. As a consequence of the arrangements set out in paragraphs 1 to 17 above, the following amendments will be made to the agreements and related documents referred to in the ruling of September 28, 1993.

(a) The Principal Project Agreements will be amended, in the case of agreements to which the Construction Consortium is a party, to amend the definition of a member of the Construction Consortium to include XXXXX as a member having joint and several liability with the original members for the obligations of the Construction Consortium.

The Principal Project Agreements are as follows:

Development Agreement
Developer Security Agreement
Construction Contract
Contractor Security Agreement
Regional Benefit Agreement
Project Trust Agreement
Insurance Trust Agreement
Maintenance Trust Agreement

(b) The Parent Companies' Development Guarantee and the Parent Companies' Construction Guarantee will be amended to provide for XXXXX to be jointly and severally liable for Developer and Contractor Obligations with the original Parent Companies, XXXXX

(c) XXXXX as the holder of XXXXX shares, will guarantee the Developer's obligations and pledge its XXXXX shares to secure the guarantee on a limited recourse basis, as did the other shareholders of XXXXX at Financial Closing.

(d) XXXXX will enter into a supplementary debenture with the other members of the Construction Consortium and the Security Trustee to include XXXXX as a joint and several obligor under the debenture granted by the original members, and amended security registrations will be recorded to register the security interests against XXXXX assets.

(e) XXXXX and XXXXX will enter into indemnification agreements with XXXXX and XXXXX to arrange for a pro rata sharing of losses in the event any demand is made on any of them by the surety companies or by the Bank which issued the Letter of Credit.

(f) The shareholder agreement among the shareholders of XXXXX will be amended to include XXXXX on a pro rata basis.

The joint venture agreement among the members of the Construction Consortium also will be amended to include XXXXX on a pro rata basis in the undertaking, assets and liabilities of the Construction Consortium.

19. Paragraph 8 of the Admission Agreement provides that XXXXX shall be obliged to provide its proportionate share of any working capital contributed by the joint venturers before the closing date.

20. It is an assumed fact that the activity of the Construction Consortium is the construction of real property for the purposes of section 273 of the Excise Tax Act and paragraph 3(1)(a) of the Joint Venture (GST) Regulations.

Rulings Requested

You asked that we confirm the following.

1. The original rulings dated September 28, 1993 with respect to the Project remain in place notwithstanding the addition of a fourth participant in the Construction Consortium and a fourth shareholder in XXXXX

2. XXXXX, by virtue of subsection 273(2) of the Excise Tax Act, is deemed to have entered into the joint venture election between the original participants in the Construction Consortium and all GST accounting with respect to the joint venture operations may continue to be the responsibility of the "operator" of the joint venture.

3. The acquisition by XXXXX of 20% of the issued and outstanding shares of XXXXX from XXXXX and XXXXX (as applicable), is a financial transaction and exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

4. The reacquisition by XXXXX of 20% of the shares of XXXXX pursuant to paragraph 2 of the Agreement is a financial transaction and exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

5. Pursuant to elections made, by XXXXX and XXXXX and XXXXX and XXXXX , under section 167 of the Excise Tax Act, the acquisition of a 20% interest in the joint venture by XXXXX will not be subject to GST. (The vendor parties are selling part of their interest in the joint venture to XXXXX who is acquiring sufficient assets from each vendor individually to be able to carry on a business).

Rulings Given

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

1. The facts and transactions listed above do not change the eleven rulings, interpretations and opinions provided in the attached GST ruling dated September 28, 1993. Each such ruling, interpretation and opinion shall continue in effect following those transactions.

2. As a result of acquiring the interests in the joint venture from XXXXX and XXXXX is deemed to have made any election that was made by XXXXX and XXXXX appointing an operator pursuant to section 273 of the Act, provided that the other requirements of subsection 273(2) have been met.

3(a). The acquisition by XXXXX of 90 of the issued and outstanding shares of XXXXX from XXXXX is a financial service exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

3(b). The acquisition by XXXXX of 110 of the issued and outstanding shares of XXXXX from XXXXX is a financial service exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

4. The acquisition by XXXXX and XXXXX of shares of XXXXX from XXXXX pursuant to paragraph 2 of the Admission Agreement is exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

5. Elections may be filed by XXXXX and XXXXX and by XXXXX and XXXXX under section 167 of the Excise Tax Act such that GST will not be payable in respect of the acquisition by XXXXX of part of the interests of XXXXX and XXXXX in the Construction Consortium.

This ruling is subject to the general limitations and qualifications outlined in the GST Memorandum 100-3. We are bound by this ruling provided that none of the above issues are presently under audit, objection or appeal, there are no relevant changes in the future to the Excise Tax Act, and provided that you have fully described all necessary facts and transactions for which you requested a ruling.

To the extent that the statements of fact contained in the ruling are not supported or are contradicted by documents to which Revenue Canada has not had access, this ruling will not be considered binding upon the Department.

Should you require additional information, please contact XXXXX

Yours truly,

W. McCloskey
Director General
GST Policy and Legislation
Revenue Canada

 XXXXX Leg. Ref: s. 152, 155, 168, 169, 182, 273, Sch V, Sch VII

 XXXXX

Analysis DOMUS XXXXX

ADDITION OF XXXXX TO CONSORTIUM

1. The facts and transactions listed above do not change the rulings, interpretations and opinions provided in the GST ruling dated September 28, 1993. Each such ruling, interpretation and opinion shall continue in effect following those transactions.

2. As a result of it acquiring the interests in the joint venture from Northern and XXXXX is deemed to have made any election that was made by XXXXX and XXXXX appointing an operator pursuant to section 273 of the Act, provided that the other requirements of subsection 273(2) have been met.

Analysis

It is our view that XXXXX has become a participant in the joint venture by acquiring the interests in the joint venture in the manner described in the documentation. Consequently, subsection 273(2) would be applicable and XXXXX is deemed to have made the joint venture election that was presumably made by the other members of the Construction Consortium.

3(a). The acquisition by XXXXX of 90 of the issued and outstanding shares of XXXXX from XXXXX is a financial service exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

3(b). The acquisition by XXXXX of 110 of the issued and outstanding shares of XXXXX from XXXXX is a financial service exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

4. The reacquisition by XXXXX and XXXXX of shares of XXXXX from XXXXX pursuant to paragraph 2 of the Admission Agreement is exempt from GST pursuant to Section 1 of Part VII of Schedule V to the Excise Tax Act.

Analysis for 3 & 4

There are two issues to be addressed in providing our rulings on these transactions.

First Issue

It appears that the transactions have not been structured as described in the statement of facts in the income tax rulings request which was submitted by XXXXX have requested that we rely on this statement of facts and proposed transactions in providing the GST rulings.

The 200 shares in XXXXX to be acquired by XXXXX will be acquired as follows: 90 from XXXXX as per April 29, 1994 XXXXX submission) 110 from XXXXX

The April 29, 1994 income tax ruling request indicated that these 110 shares would be acquired from XXXXX It appears that as an income tax planning measure, these 110 shares were transferred from XXXXX to XXXXX prior to the closing of the transactions admitting XXXXX into the project. Per discussions with XXXXX is a wholly owned indirect subsidiary of XXXXX which is ultimately the parent of XXXXX

It is XXXXX understanding that the purpose of transferring the shares of XXXXX from XXXXX to XXXXX is to utilize losses of XXXXX against capital gains which would be realized on the disposition of shares of XXXXX to XXXXX . XXXXX transferred the shares to XXXXX and took back preferred shares in XXXXX Subsection 85(1) of the Income Tax Act was used to freeze XXXXX investment in XXXXX and transfer any gains on the ultimate disposition of the shares to XXXXX No income tax or GST rulings have been requested in respect of the transfer of shares from XXXXX to XXXXX In their response, Taxation have simply accepted this transfer as fact.

We have received a copy of the revised income tax ruling request dated August 31, 1994 which makes reference to the transfer from XXXXX to XXXXX For the purposes of the GST ruling, we should also accept this transfer as a fact and rule on the sale of shares from XXXXX to XXXXX and possible subsequent re-acquisition of the shares by XXXXX from XXXXX

Second Issue

This involves the ruling provided by taxation concerning whether or not the share transfer arrangement would constitute a dividend rental arrangement as that term is defined for income tax purposes.

A dividend rental arrangement is defined in subsection 248(1) of the ITA as an arrangement the main purpose of which is to enable a person to receive dividends on shares of capital stock of a corporation but the person receiving the dividends bears no risk with respect to fluctuations in the value of the shares. ITA subsection 112(2.3) denies a corporation the normal subsection 112(1) deduction of taxable dividends received where the dividends are received under a dividend rental arrangement.

Traditionally, dividend rental arrangements had been used to enable taxable and non-taxable entities to earn greater after-tax returns on investment. If a taxable corporation (A) has surplus funds on which it earns a 10% pre-tax return and pays income tax at a rate of 40%, A realizes an after tax return of 6%. If a non-taxable corporation (B) holds shares in another corporation which pays dividends which yield an 8% pre-tax return, there is incentive for the two corporations to form an arrangement whereby A would receive the dividends and B would receive the interest A would have received on its surplus funds.

A would purchase the shares from B and hold them until the dividends are received after which time the shares would be sold back to B for the same amount for which they had been purchased. In this manner, any capital gains accruing on the shares remain with B. In the absence of subsection 112(2.3), the dividends received by A would be deductible for income tax purposes under subsection 112(1) and A would earn an after tax return of 8% rather than the 6% it would have earned investing its surplus funds. B has the surplus funds temporarily available to invest and earns a 10% return which is its after tax return since B is not taxable. Had B simply held the shares, it would have realized a return of 8%.

The denial of the normal 112(1) deduction in these situations removes the possibility that the preferential treatment given to dividend income under the ITA can be used to generate greater after tax returns.

In the XXXXX case, it could appear that the sale of shares to XXXXX and subsequent re-acquisition for the same price after dividends have reached certain levels could be viewed to cause income to be treated as dividends in the hands of XXXXX when in substance the income is not dividends. Since XXXXX initially acquires 20% of XXXXX and this interest may subsequently be reduced to 10%, it may appear that XXXXX is being paid to play a specific role in the project and is being paid to do so with dividends.

Per discussions with XXXXX , this issue was reviewed from a XXXXX and valuations perspective at Taxation with the XXXXX having ultimately been consulted. The question was whether this was really a share purchase or something else (e.g. disposition of goodwill in Joint Venture Interests) which would cause the Department to look through the form of the transaction.

It was determined that their was no basis to take such a position. The income tax rulings requested by XXXXX were confirmed.

Had Taxation taken such a position with respect to the share transfers and dividend payments, this may have impacted on our determination of whether the share transfers could be financial services for GST purposes.

Conclusion:

Based on my discussions with XXXXX and the rulings provided by Taxation in their response dated September 23, 1994, the transfers of shares in XXXXX to XXXXX and the subsequent re-acquisition of the shares by XXXXX and XXXXX are financial services exempt from GST.

The only change to the rulings requested by XXXXX is to substitute XXXXX for XXXXX as the person transferring 110 shares in XXXXX to XXXXX

5. Elections may be filed by XXXXX and XXXXX and by XXXXX and XXXXX under section 167 of the Excise Tax Act such that GST will not be payable in respect of the acquisition by XXXXX of part of the interests of XXXXX and XXXXX in the Construction Consortium.

Analysis

 XXXXX will acquire a 20% interest in the joint venture, with XXXXX and XXXXX reducing their interests by 9% and 11% respectively.

It is submitted by the parties that the joint venture interest has no value - i.e. that the rights and entitlements with respect to the Construction Contract and the burdens and obligations thereunder are equal. No amount would therefore be payable by XXXXX to XXXXX or XXXXX in respect of the joint venture interests.

Basically, they are saying that there is no commercial (or accounting) equity in the joint venture at the time XXXXX is to be admitted. No profit will have been earned on the construction contract although it appears from financial analysis prepared for illustrative purposes x by XXXXX August 25, 1994 memorandum to file) that amounts will have been drawn from the construction price trust to cover costs incurred to that date.

The main benefit acquired by XXXXX on joining the project is to participate in the construction contract and share in the profits earned. No value has been assigned to this right (at least explicitly). It has not been made clear whether the construction contract has been structured to generate an internal profit for the project participants.

Per discussions with XXXXX , Rulings Directorate, Taxation is under the impression that the construction phase does not generate significant profits for the participants except to the extent that they can make money as subcontractors on the project.

It seems that the XXXXX group has a vessel available which is suitable for use in the construction of the bridge and that will require minimal refitting and renovations. This will result in significant cost savings on the project as it had been planned to acquire and substantially renovate a barge specifically for the project.

Per XXXXX the issue of valuation of the joint venture interest was examined in the course of providing the income tax rulings related to the admission of XXXXX to the project. No basis was found to allocate any of the purchase price of shares in XXXXX to the joint venture interest. (see Issue Sheet prepared in Rulings Directorate).

Ruling requested

A ruling is requested confirming that ETA subsection 167(1) will apply to the acquisition of the joint venture interest by XXXXX such that GST will not apply to otherwise taxable supplies of property (i.e. undivided interest in joint venture assets) received by XXXXX .

It is unclear in this case what property might be transferred other than the right to participate in the Construction Contract.

Since XXXXX is assuming a % of the benefits and obligations of the joint venturers on the same terms as the other venturers, and the admission agreement provides that XXXXX will acquire an interest in all property of the joint venture, the transfer of joint venture interests from XXXXX and XXXXX can be viewed as a supply of a business. See enclosed policy position P-103 Transfer of an Undivided Interest in a Joint Venture). The transaction contemplated in this case meets the criteria set out in the policy statement.

In discussions with XXXXX of XXXXX in XXXXX I asked why they were concerned with getting a ruling on section 167 when no money was going to change hands. XXXXX responded that since there might be property held in the joint venture an undivided interest in which would be transferred to XXXXX , a ruling on section 167 was sought.

Consideration

There is a further issue of whether or not there is consideration for the joint venture interest.

The illustrative analysis in the XXXXX memo assumes no property other than accounts receivable and work in progress on the joint venture's balance sheet at the time XXXXX would acquire the joint venture interest.

The admission agreement does, however, require XXXXX to make up its share of working capital contributed by the other venturers prior to the admission of XXXXX

The main adjustments required as a result of the admission of XXXXX seem to arise from the existence of income tax equity in the joint venture. While no income or equity exists from an accounting perspective, the joint venturers will have reported taxable income from the joint venture. This means that there are expenses deferred for income tax purposes which will be deducted against income earned in future years. If XXXXX is to share in the future income of the joint venture, they will need to have access to their share of these deferred expenses to deduct against this future income.

To this end, the income tax reporting will be adjusted so that XXXXX will report as income its share of the income tax based equity in the joint venture at the time of admission. GT and XXXXX who are transferring part of their JV interests to XXXXX will reduce their shares of income reported by their share of the amount to be reported by XXXXX In this manner, the income tax cost associated with there having been taxable income realized in the joint venture is transferred to XXXXX as consideration for XXXXX being able to deduct their share of the deferred expenses from future income(see XXXXX memo at page 5 - these deferred charges are prepaid insurance and UCC of property written off for accounting purposes but capitalized for income tax purposes. WIP has been included in revenue for accounting purposes but is not included in income for tax purposes. Holdbacks payable are deducted for accounting purposes but not for tax purposes).

We are unable to determine at this point whether or not consideration other than assumption of joint venture obligations will be paid for the joint venture interest. A ruling on section 167, however does not require that the amount of consideration be established.

It would be prudent, however, to structure the statement of facts so as not to give the impression that we accept that there is no consideration paid for the joint venture interest.

Conclusion:

The ruling request concerning the application of section 167 to the acquisition of the joint venture interest should be confirmed.

                                                                        Telephone #: (613) 954-8585

                                                                        Fax #: (613) 990-1233

                                                                        File #: 11640-4(glr)

                                                                        Sch. VI/V/1

Dear Mr. XXXXX

I refer to your letter of January 22, 1996, addressed to Mr. Garry Ryhorchuk of my staff, concerning the application of the Goods and Services Tax (GST) to the supply of coloured toner by your client, XXXXX for subsequent export to XXXXX[.] Our understanding of the facts (the transactions and the purpose of the transactions) is as follows:

Statement of Facts

1. XXXXX is a corporation which carries on business as a manufacturer and distributor of office equipment and business products (the Business).

2. The head office of XXXXX is located at XXXXX[.]

3. XXXXX is registered for GST purposes - GST Registration No. XXXXX[.]

4. XXXXX is a subsidiary of XXXXX[.]

5. XXXXX[.]

6. In carrying on the Business, XXXXX sells coloured toner it manufactures at its XXXXX[.]

7. At present, coloured toner sold to XXXXX is exported directly to XXXXX warehouse in XXXXX has been zero-rating these supplies under the provisions of Schedule VI, Part V, section 1 to the Excise Tax Act.

8. XXXXX is experiencing storage capacity problems at its XXXXX warehouse.

9. As a result, XXXXX has been reshipping the coloured toner purchased from XXXXX to an off-site third party warehouse (also located in XXXXX[)] for storage.

10. The coloured toner is subsequently shipped back to XXXXX XXXXX warehouse for onward shipment XXXXX distribution centres.

11. XXXXX has determined that continuing to operate in the manner described in paragraphs 9 and 10 above is economically unfeasible due to the significant costs involved in multiple shipments of coloured toner to and from the XXXXX warehouse and then to XXXXX distribution centres.

12. XXXXX has also determined that the most economically feasible way in which to operate its coloured toner distribution activities is to have the toner remain in Canada until it is to be shipped to XXXXX distribution centres.

13. XXXXX does not have sufficient space available at its XXXXX for storage of coloured toner sold to XXXXX[.]

Summary of Proposed Transactions

14. In future, all sales of coloured toner by XXXXX which are destined for foreign markets XXXXX will be stored at a public warehouse in Canada until such time as the goods are ready to be exported.

Proposed Transactions

15. XXXXX will sell coloured toner to XXXXX[.]

16. XXXXX will take delivery of the coloured toner in Canada.

17. The coloured toner will be shipped to a public warehouse where it will be stored until subsequent export to XXXXX distribution centres outside Canada or to XXXXX warehouse for onward shipment to distribution centres.

18. It is anticipated that the length of time between delivery of the coloured toner to XXXXX (in Canada) and export of the coloured toner will not exceed XXXXX months.

19. After the coloured toner is sold by XXXXX and before exportation by XXXXX the toner will not be further processed, transformed or altered.

20. XXXXX will maintain evidence of the exportation of the toner.

21. The circumstances described in paragraphs 15 to 20 above will become the normal business practice of XXXXX[.]

Reasons for Transactions

22. XXXXX desires to eliminate the multiple handling and storage charges it currently incurs with respect to its distribution of coloured toner destined for outside Canada.

Ruling Requested

23. The supplies of coloured toner by XXXXX in the circumstances described in paragraphs 15 to 21 above will be considered zero-rated supplies of tangible personal property under the provisions of Schedule VI, Part V, section 1.

Ruling Given

The supplies of coloured toner by XXXXX will qualify for zero-rating under the provisions of Schedule VI, Part V, section 1.

This ruling is subject to the general limitations and qualifications outlined in Section 1.4 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues are presently under audit, objection or appeal, there are no relevant changes in the future to the Act, and provided that you have fully described all necessary facts and transactions for which you requested a ruling.

If you have any questions or require further information, please contact Mr. Ryhorchuk at (613) 952-6743 or Mr. Randy Nanner at (613) 952-8810.

Yours sincerely,

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 207041

Dear [Client]

Subject: GST/HST RULING
Application of the GST/HST to online vouchers

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to online vouchers issued by […][the Company] to its customers.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand that:

1. [The Company] is a GST/HST registrant located in Canada.

2. [The Company] has an online website where customers can purchase products.

3. An online voucher is sent by email to […] customers [of the Company] when certain conditions are met, […]

4. The online voucher has an expiration date and cannot be combined with any other offer.

5. The online voucher has a fixed amount and cannot be re-loaded with additional funds.

6. The online voucher has a monetary value. The specified amount may be applied against […][web site] purchases […].

7. […].

8. The online voucher contains a unique promo code. Customers have to type in the promo code at checkout before proceeding with the payment.

9. The online voucher is funded by [the Company] and is an offset to its sales. [The Company] is not reimbursed by its suppliers for the value of the promo code.

RULING REQUESTED

You would like to know whether the online voucher is considered a coupon, and if not, can the voucher be considered a price reduction.

RULING GIVEN

Based on the facts set out above, we rule that the online voucher is considered a coupon under subsection 181(1) and tax is to be applied in accordance with subsection 181(4).

EXPLANATION

Subsection 181(1) defines a “coupon” to include “a voucher, receipt, ticket or other device but does not include a gift certificate or a barter unit (within the meaning of section 181.3).

The Canada Revenue Agency (CRA) has taken the position that the definition of a “coupon” encompasses an intangible device that has the characteristics of a traditional paper coupon, including the presentation of the device (by way of a card or other identifiable characteristics) by the purchaser and the acceptance of the device by the retailer. An electronic coupon that is provided to a purchaser in respect of a product in replacement of a printed coupon will be treated in the same manner as the printed coupon, if the manner in which the electronic coupon is presented, accepted and treated by all parties mirrors the treatment of a printed coupon.

Under subsection 181(4), when a registrant accepts, in full or partial consideration for a supply of property or a service, a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and subsection 181(2) does not apply in respect of the coupon, the value of the consideration for the supply is deemed to be the amount, if any, by which the value of the consideration for the supply exceeds the discount or exchange value of the coupon. In other words, the recipient of the supply would be required to pay tax on the net consideration for the supply; that is, after deducting the value of the coupon.

In this situation, since the non-reimbursable fixed dollar coupon can be used for the purchase of taxable and zero-rated items, subsection 181(4) applies. Accordingly, the coupon is to be pro-rated among each of the items purchased based upon the value of the consideration for each item, and as such, the coupon is accepted in part against zero-rated supplies, as well as taxable supplies. GST/HST at the applicable rate then applies on the reduced consideration attributable to each of the taxable items.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 819 271 8708. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Joseph Zeidan
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]
Case Number: 223571

Dear [Client]:

Subject: GST/HST RULING
Supply of a temporary easement

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of a temporary easement over your property.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following from the documents and information you provided on [mm/dd/yyyy], […]:

1. […](the “Owners”) are the legal owners of the property known municipally as […](the “Property”).

2. […].

3. On [mm/dd/yyyy], the Owners signed an agreement (the “Agreement”) with the City, granting them a temporary easement over part of the Property (the “Temporary Easement”). The relevant terms and conditions of the Agreement for purposes of this ruling may be summarized as follows:

a. The Temporary Easement is for a period of [...]which commenced on [mm/dd/yyyy] and will expire on [mm/dd/yyyy].

b. The Temporary Easement is conveyed over Part of Lot […](the “Easement Lands”). It consists of the side laneway and rear yard of the Property.

c. The Temporary Easement is provided exclusively for the following purpose: […][description of construction to be completed].

d. Upon completion of […][construction], the City must remove all chattels and equipment from the Easement Lands, and restore them to the condition existing immediately prior to the construction […].

e. In consideration for the transfer of the Temporary Easement, the owners received a lump-sum of $[…] on the closing date of the agreement. This payment is accepted by the Owners without prejudice to any of their rights to claim additional compensation for the market value of the transfer.

4. The Property is held in joint tenancy by the Owners.

5. […](“Owner 1”) is not a GST/HST registrant.

6. […](“Owner 2”) is a GST/HST registrant for the purposes of his business, which does not involve any activity related to real property.

7. The Property is not being used primarily for commercial activities.

8. The Easement Lands were not used in any commercial activities prior to the Agreement.

RULING REQUESTED

You would like to know whether the supply of the Temporary Easement made under the Agreement should be treated as a supply of real property by way of sale or a supply of real property by way of lease, licence or similar arrangement.

You would also like to know if the supply of the Temporary Easement is a taxable supply subject to GST/HST.

Finally, in the case where the supply of the Temporary Easement is a taxable supply subject to the GST/HST, you would like to know who is responsible for the collection and remittance of GST/HST.

RULING GIVEN

Based on the facts set out above, we rule that the supply of the Temporary Easement is a taxable supply of real property by way of lease, licence or similar arrangement, and is subject to the GST/HST.

EXPLANATION

Nature of the supply

The supply of an easement over real property is a supply of real property for GST/HST purposes and as such is subject to the provisions in the ETA that apply to a supply of real property.

For the purposes of GST/HST, the supply of an easement could either be considered a supply by way of lease, licence or similar arrangement or, alternatively, a supply by way of sale. Factors to consider in making this determination are the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, and the actual dealings among the parties involved.

Where the easement gives the recipient the use or right to use real property without legal ownership in the underlying property over a specified period of time, the supply would normally be considered to made by way of an arrangement similar to a lease or license.

Where the consideration for the supply of an easement relates to the actual grant or transfer of the equitable interest in the property and not to the use or right to use the property, the supply would normally be considered as being in respect of the sale of real property.

In the case at hand, the terms of the Agreement are not indicative of a sale of an interest in the property given the nature of the interest transferred to the City, and the specified period of use under the Agreement.

More specifically, the Agreement states the Temporary Easement has a term of […], and is conveyed for specific uses, as described above, with no legal ownership over the Easement Lands. Additionally, once the City has completed [construction], it will to remove all chattels and equipment, and restore the Easement Lands to the condition existing immediately prior to the construction […].

Consequently, the supply of the Temporary Easement to the City under the Agreement is considered a supply of real property by way of lease, licence, or similar arrangement.

Tax status of the supply

Section 165 provides that every recipient of a taxable supply made in Canada shall pay to her Majesty in right of Canada tax in respect of the supply. A “taxable supply” is defined in subsection 123(1) as a “supply that is made in the course of a commercial activity”.

A “commercial activity”, as defined in subsection 123(1), includes the making of a supply of real property.

As such, supplies of real property made in Canada are taxable supplies for which GST/HST is collectible unless a specific relieving provision applies. In the present case, there is no exempting provision that applies to the supply of the Temporary Easement to the City.

Therefore, the supply of the Temporary Easement is a taxable supply of real property, and is subject to GST/HST.

Requirement to collect GST

It is important to recognize that the fact that real property is owned in joint tenancy has a bearing on the GST/HST implications of a supply of the property. This stems from the nature of joint tenancy at common law.

When real property held in joint tenancy is supplied by way of sale, or by way of lease, licence or similar arrangement, the supply is a single supply made by all of the joint tenants. In turn, a payment of consideration and tax made by the recipient of a supply of real property that is held in joint tenancy is a payment made to all of the joint tenants.

As a general rule, every person who makes a taxable supply in Canada is required to collect the tax payable by the recipient in respect of the supply. However, section 166 excludes any part of the consideration for a taxable supply that becomes due, or is paid before it becomes due, when the supplier is a small supplier from the calculation of tax payable in respect of the taxable supply. The effect of section 166 is to relieve small suppliers who are not registrants from the requirement under subsection 221(1) to collect GST/HST in respect of their taxable supplies, with the exception of sales of real property and certain sales of capital property.

In light of section 166, Owner 1 would be relieved from collecting HST in respect of the taxable supply made to the City under the Agreement as long as she qualifies as a small supplier.

On the other hand, given that Owner 2 is a GST/HST registrant, the City would be required to pay and Owner 2 would be required to collect HST at the applicable rate on the value of the consideration payable for the taxable supply made under the Agreement.

Liability to report and remit GST

The final issue stemming from your query is the Owners’ respective obligation to report and account for amounts collectible or collected as or on account of GST/HST in their respective net tax calculation and to remit any positive amounts of net tax.

As explained above, Owner 2 was required to collect HST in respect of the taxable supply of real property made to the City. Subsection 225(1) therefore required him to include amounts that became collectible by him and amounts he collected as or on account of tax in a particular reporting period, when determining his net tax for that reporting period.

Provided that Owner 1 was, in fact, a small supplier, Owner 1 was not required to collect

HST in respect of these taxable supplies. Despite this, in light of the common-law principles of unity that apply in respect of real property that is held in joint tenancy, both Owners would be viewed as having collected amounts actually paid by the City as or on account of tax. Subsection 225(1) requires a person such as Owner 1 who collects amounts as or on account of tax to include the amounts collected in her net tax calculation. Further, subsection 222(1) deems Owner 1 to hold the amounts collected as or on account of tax in trust for the Crown until the amounts are remitted to the Receiver General or withdrawn as an input tax credit or net tax deduction under subsection 222(2).

Ordinarily, amounts collected by a non-registrant as or on account of tax are to be reported on GST/HST returns, each reflecting the amounts collected during a particular calendar month. A non-registrant is required to file its returns and remit the net tax by the end of the month following the month in which the tax was collected.

Where the Owners are both required to account for amounts collected as or on account of tax, the accounting of the amount and the remittance of any resulting positive amount of net tax by one of the parties will discharge the liability of both parties. As such, where Owner 2 reports the amounts of HST in respect of the taxable supplies in his GST/HST returns and remits any resulting positive amounts of net tax, Owner 1’s liability to remit the amounts collected as or on account of GST/HST will be discharged.

That is, as the Owners hold the property in joint tenancy, GST/HST is required to be collected and remitted to the CRA on the total consideration for the supply of the Temporary Easement. This may be remitted by either Owner 1 or Owner 2. Once the GST/HST has been reported and remitted the GST/HST on the total consideration by one Owner, the other owner is relieved of this liability.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 514-213-6075. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Stéphanie Blanchette
Real Property Unit 2
Financial Institutions and Real Property Division
GST/HST Rulings Directorate