GST/HST Ruling

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
Attention: XXXXX
Case Number: 113937

April 23, 2009

Subject:

GST/HST RULING
Temporary Importation - XXXXX

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the temporary importation of XXXXX and related equipment.

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

Statement of Facts

We understand the facts to be as follows:

1. The XXXXX is a non-resident located in XXXXX and is in the business of XXXXX. XXXXX.

2. The XXXXX will be holding XXXXX events in Canada. The events will be held in XXXXX from XXXXX to XXXXX and in XXXXX from XXXXX to XXXXX.

3. The XXXXX is planning to temporarily import XXXXX, trailers and conveyances for moving XXXXX, repair parts and repair equipment, tools and portable shop equipment required to maintain the XXXXX, mobile accommodations and related equipment for support staff, safety vehicles and up to XXXXX full fuel tanker trucks for the XXXXX and XXXXX. Following each XXXXX, any fuel remaining in the tanker trucks will be exported.

4. The XXXXX and related equipment are not for sale, for lease or for further manufacturing or further processing.

5. The Canada Border Services Agency has determined that the conditions of XXXXX of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations are met for the temporary importation of the XXXXX and related equipment.

Ruling Requested

You would like to know whether the temporary importation of the XXXXX and related equipment is a non-taxable importation for GST/HST purposes.

Ruling Given

Based on the facts set out above, we rule that the temporary importation of the XXXXX and related equipment is a non-taxable importation for GST/HST purposes.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, all goods imported into Canada are taxable for GST/HST purposes unless specifically relieved under section 213 XXXXX. Importations of goods relieved of tax under section 213 XXXXX are set out in Schedule VII to the ETA. Section 8 of Schedule VII to the ETA deems prescribed goods that are imported in prescribed circumstances into Canada to be non-taxable for GST/HST purposes. Sub-paragraph 3(i)(ii) of the Non-Taxable Imported Goods (GST/HST) Regulations includes goods described in XXXXX of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations when a non-resident imports the goods in circumstances where the terms and conditions of the regulations have been met.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-4294. 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,
Donato Licursi
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Enc. GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Business Number: XXXXX
Case Number: 114111
Attention: XXXXX
XXXXX
May 14, 2009

Subject:

GST/HST RULING
Importation of Freeze-Dried Fruit

Dear XXXXX:

Thank you for your XXXXX of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the importation of freeze-dried fruit.

HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

1. XXXXX is an importer of fresh fruit and vegetables and is registered for the GST/HST.

2. XXXXX is in the process of importing freeze-dried fruit (the Product) from XXXXX for human consumption.

3. The Product's ingredients contain 100% fruit with no additives. The fruit is sliced and subsequently freeze-dried. Freeze-drying or sublimation is a method of preserving food by extracting water from food while the food is still in a frozen state.

4. The Product is sealed in individual serving sized bags and labelled as "XXXXX". The Product will be imported in the following formats:

Name
IngredientsSize
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, no additivesXXXXX grams
XXXXX
XXXXX, XXXXX, no additivesXXXXX grams

Ruling Requested

You would like to know whether the GST/HST applies on the importation of the Product.

Ruling Given

The importation of the Product, in a single fruit format of XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, or XXXXX, is a non-taxable importation for GST/HST purposes pursuant to section 213 and section 6 of Schedule VII. As such, GST/HST Status Code 59 may be used in the relevant Customs documentation to identify the importation as non-taxable for GST/HST purposes.

The importation of the Product in the XXXXX and XXXXX mixed format is a taxable importation for GST/HST purposes.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, all goods imported into Canada are taxable for GST/HST purposes unless specifically relieved under section 213. Importations of goods relieved of tax under section 213 are set out in Schedule VII.

Section 6 of Schedule VII provides for the non-taxable importation of property that is zero-rated pursuant to section 1 of Part III of Schedule VI.

Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

Paragraph 1(l) of Part III of Schedule VI excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods" from zero-rating. A good consisting of fruit and at least one other ingredient (such as fruit flavouring), and that can be purchased as a snack, falls within paragraph 1(l).

The Product in a single fruit format of XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, or XXXXX is not excluded by paragraph 1(l) of Part III of Schedule VI and is accordingly zero-rated since the Product does not consist of fruit with an additional ingredient.

Paragraph 1(i) of Part III of Schedule VI excludes from zero-rating snack mixtures that contain cereal, nuts, seeds, dried fruit or any other edible product, but not including any mixture that is sold primarily as a breakfast cereal.

A "snack mixture" is described in GST/HST Info Sheet GI-021, Snack Foods, as a mixture of two or more of the ingredients noted in paragraph 1(i) of Part III of Schedule VI. Further, two or more varieties of the same kind of ingredient, such as two or more varieties of freeze-dried fruit are considered to be snack mixtures.

The supply of the Product in a multiple fruit format is considered a snack mixture. As such, the supply of the Product in the XXXXX and XXXXX mixed format is excluded from zero-rating under paragraph 1(i) of Part III of Schedule VI and is taxable at 5% GST or 13% HST, as applicable. The Product in a single fruit is not considered a snack mixture.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4294. 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,
Donato Licursi
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 110304
Attention: XXXXX
February 25, 2009

Subject:

GST/HST Notice 238 - First Nations Having a Self-Government Agreement Ending Indian Act Tax Relief - Determining Tax Relief for Indian Members Who Are Not Citizens (GST/HST Notice 238)

Dear Ms XXXXX:

Thank you for your letter of XXXXX, requesting clarification on the information contained in the GST/HST Notice 238. Specifically, you asked when is a vendor required to request certification from their customers.

The intent of the Notice is two-fold: First, to assist vendors in identifying which First Nations and their Indian members that no longer benefit from tax relief as set out in Technical Information Bulletin GST/HST Administrative Policy - Application of the GST/HST to Indians (TIB B-039R). Generally vendors are required to charge the GST on sales made to the First Nations and their citizens identified in the Appendix to GST/HST Notice 238. Secondly, to provide assurance to vendors who act in good faith and with due diligence that they will not be held liable for the tax when their Indian customers who are members of the First Nations listed in GST/HST Notice 238 provide certification indicating they are entitled to tax relief.

Your concern is that the requirement to request certification under GST/HST Notice 238 is necessary on all sales made to Indian individuals in addition to the existing documentation requirements set out in TIB B-039R.

Pleased be advised that the certification under GST/HST Notice 238 is only required where the Indian purchaser is a member, but not a citizen, of a First Nation that has a final/self government agreement under which tax relief under section 87 of the Indian Act has been extinguished for its citizens only. That is, members of those First Nations who are not citizens retain the exemption provided under section 87 of the Indian Act and, as a consequence, are still entitled to tax relief as set out in TIB B-039R. It is these members who are required to provide to the vendor the certification noted in GST/HST Notice 238.

The presenting of the Certificate of Indian Status Card by members of First Nations that have final/self-government agreements listed in the appendix to the GST/HST Notice 238 does not offer the necessary proof that they are still eligible for tax relief under the Indian Act. Therefore, members of the listed First Nations that are not citizens must provide the additional certification to the vendor in order to get relief of the GST.

It is anticipated that the certification will only be required in a few instances as most members of a self-governing First Nation would have become Citizens in order to benefit from their self-government agreement.

I hope this information clarifies when the additional certification is required.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9264. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,
Cindy Christmas
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Attention: XXXXX
Case Number: 111575
Business Number: XXXXX

Subject:

GST/HST RULING
XXXXX

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX (the Product).

HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

Our understanding of the facts is as follows:

1. The submission states that XXXXX producer of XXXXX processed meat and meal products. XXXXX.

2. XXXXX intends to capitalize on the increase in snacking amongst deli consumers by capturing a share in the ready to eat XXXXX segment with the launch of the Product. XXXXX states in the XXXXX used to promote the Product that convenience is replacing scratch preparation for meals and consumers are broadening their view of snacks beyond such items as chips, cookies, and crackers and are more likely to consider any small portion of food as a potential snacking candidate.

3. XXXXX.

4. The Product consists of a round plastic tray with a XXXXX which allows the contents to be seen. The contents are a variety of popular snacking items XXXXX. The XXXXX are pre-cut into bite-sized pieces and are ready to eat. XXXXX.

5. The specific items contained in the tray are XXXXX and XXXXX. The total net weight of the tray is XXXXXg and the labelling states that it serves XXXXX.

6. The Product ingredients are given for each item and are as follows:

• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX

7. Each of the above items are XXXXX to ensure freshness and flavour. In the submission, XXXXX states: "XXXXX."

8. The product will be sold in large grocery chain stores and must be refrigerated. It is to be served fresh and not frozen. It is recommended that the Product be merchandised in the self-service deli counters.

9. The Product is not supplied under a contract for a catering service.

Ruling Requested

You would like to confirm the position that the Product is not a product which would be excluded from zero-rating by paragraph 1(o.3) of Part III of Schedule VI, but would be zero-rated under section 1 of that same Part and Schedule.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 5% GST, or 13% HST pursuant to section 165.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated.

The tax rate in respect of a zero-rated supply is 0%. Taxable supplies that are zero-rated for GST/HST purposes are described in Schedule VI.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI, zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

In particular, paragraph 1(o.3) of Part III of Schedule VI excludes from zero-rating "platters of cheese, cold cuts, fruit or vegetables and other arrangements of prepared food". Consequently, supplies of such food arrangements are subject to GST at 5% or HST at 13%.

Platters of cheese, cold cuts and other prepared foods are discussed in paragraphs 114 to 119 of GST/HST Memorandum Series 4.3 Basic Groceries (MS 4.3). Paragraph 114 of this publication states the following:

"Supplies of platters or arrangements of cheese, cold cuts, (e.g., meat, fish, or poultry), fruit or vegetables and other arrangements of prepared foods and other food are taxable whether or not they are in a form suitable for immediate consumption. For example, frozen platters of prepared foods are taxable.

In the submission, the point is made that the Product requires some assembly by the consumer as each item is individually packaged to ensure freshness and flavour. This fact does not exclude the product from being included in paragraph 1(o.3), as such arrangements will be taxable whether or not they are in a form suitable for immediate consumption.

Paragraph 116 of MS 4.3 provides examples of platters which are subject to tax. These examples include trays of appetizers including cheese, fruit, canapés and pates. Thus, a product on a tray will satisfy the requirements of paragraph 1(o.3) of Part III of Schedule VI.

The above factors lead to the conclusion that the Product is a "platter of cheese, cold cuts, fruit or vegetables and other arrangements of prepared food" for purposes of paragraph 1(o.3) of Part III of Schedule VI. As such, the Product is excluded from section 1 of Part III of Schedule VI and is therefore, a taxable supply subject to the GST at 5% or HST at 13% as applicable.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX. 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,
XXXXX
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 111605

Business Number: XXXXX
Attention: XXXXX XXXXX
December 23, 2009

Dear XXXXX:

Subject:

GST/HST RULING
Value of consideration for the sale of real property

Thank you for your XXXXX (with attachments), and additional information provided XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a particular sale of real property. Please accept my apology for the delay in providing our response.

Your submission refers to XXXXX, in which we determined that the transaction was subject to the GST. The present ruling deals with the value of the consideration on which the GST was applicable.

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

Statement of Facts

We understand the facts as follows.

1. The XXXXX (the Association) is a non-profit organization that has been registered for GST/HST purposes since XXXXX, under Business Number XXXXX.

2. Until XXXXX, the Association was the owner in fee simple of a parcel of real property legally described as XXXXX.

3. The Association suffered financial difficulties XXXXX, forcing it to seek financial assistance from XXXXX (the City) in the amount of $XXXXX. The City's assistance was conditional on the transfer of legal title of the Property to the City and the execution of a lease agreement between the parties.

4. On XXXXX, the City entered into a lease agreement (the Lease) with the Association for the Property, for a term of XXXXX years with an option to renew the Lease for an additional XXXXX years.

5. XXXXX of the Lease identifies the $XXXXX owing to the City as the XXXXX.

6. XXXXX of the Lease specifies that the Association is required to pay:

(a) XXXXX, and
(b) XXXXX.

This provision further specifies that XXXXX shall be credited on account of the Purchase Price in respect of the option to purchase (described in Fact 8 below) and shall also be deemed to be applied in reduction of XXXXX. None were actually paid.

7. XXXXX of the Lease stipulates additional amounts for which the Association was liable, including property taxes, utilities, and the cost of repairs and maintenance.

8. XXXXX of the Lease provides for an option to purchase the Property. Under XXXXX of the Lease, in consideration for the sum of $XXXXX paid by the Association to the City, the City grants the Association the sole, exclusive and irrevocable option to purchase the Property at any time during the term or renewal term of the Lease (the Option) on the condition that the Association provides written notice of its intention to accept the Option.

9. Pursuant to XXXXX of the Lease, if the Association exercises the Option, there shall be a binding agreement on the part of the City to sell and the Association to purchase the Property at the Purchase Price.

10. XXXXX of the Lease specifies that the Purchase Price shall be XXXXX.

11. XXXXX of the Lease states in part that on the closing date of the purchase, the Association shall deliver to the City XXXXX
(a) XXXXX, and
(b) XXXXX.

12. Whether or not the Association exercises the Option, XXXXX.

13. XXXXX stipulates that should the Option lapse or expire, the City is required to XXXXX.

14. XXXXX, the Lease was amended to XXXXX. However, the amendment did not change any of the conditions set out in the Lease in respect of the Option.

15. XXXXX, the Association provided written notice to the City of its intention to exercise the Option.

16. In accordance with the formula set out in XXXXX of the Lease, the Purchase Price for the Property was determined to be $XXXXX.

17. The adjustment date for the sale occurred XXXXX. In accordance with XXXXX of the Lease, the Association was required to XXXXX to the City, calculated as follows:

XXXXX.

18. The final Statement of Adjustments reflects a credit to the Association in the amount of XXXXX.

19. Title to the Property was transferred from the City to the Association XXXXX.

20. The Association calculated the GST payable on the transaction to be $XXXXX, which it reported on line 103 of the GST/HST return for its quarterly reporting period ending XXXXX, and remitted XXXXX. As of XXXXX, the Association had not claimed any input tax credits (ITCs) or other rebates or refunds in relation to this amount.

21. The Association has not made an election under section 211 with respect to the Property.

Ruling Requested

You would like to know if, for GST/HST purposes, the value of the consideration payable for the sale of the Property was XXXXX.

Ruling Given

Based on the facts set out above, we rule that for GST/HST purposes, the value of the consideration payable for the sale of the Property is $XXXXX.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

As noted in our previous correspondence to which you refer, it is important to distinguish between the entering into a lease agreement that includes a right to purchase and the actual execution of a purchase and sale agreement for real property. These are separately identifiable supplies for GST/HST purposes.

Pursuant to subsection 123(1), a sale of property includes "any transfer of the property and a transfer of possession of the property under an agreement to transfer ownership of the property". For GST/HST purposes, a transfer of real property generally refers to the legal ownership (that is "titled" ownership) of the real property.

As explained in policy statement P-164, Rent-To-Own Agreements, an agreement to transfer ownership of property may arise only where there is a binding purchase and sale agreement with the transfer of the ownership at or before the end of a specified period. A lease agreement with an option to purchase property is not a binding purchase and sale agreement.

As such, there was no agreement between the City and the Association to transfer ownership of the Property, and therefore no purchase and sale agreement for the Property, until XXXXX, when the Association exercised the Option to purchase the Property. XXXXX of the Lease stipulates that a binding agreement to sell the Property at the Purchase Price is created when the Association exercises the Option.

Having identified two distinct supplies in the case at hand, it is necessary to distinguish the consideration payable under the purchase and sale agreement from that payable under the lease.

"Consideration", as defined in subsection 123(1) of the ETA, includes any amount that is payable by operation of law. "Amount" is also defined in subsection 123(1) to mean money, property or a service, expressed in terms of the amount of money or the value in terms of money of the property or service. Under paragraph 153(1)(a) of the ETA, where the consideration or that part is expressed in money, the value of the consideration is the amount of money. It is noteworthy that the value of the consideration for a supply of real property may be an amount that is different from the purchase price of the property iFootnote 1 . A determination as to the value of the consideration must take into account all of the facts of the situation.

For the reasons that follow, we conclude that although XXXXX XXXXX of the Lease establishes a Purchase Price of $XXXXX that serves the parties' needs from an accounting perspective, it does not correctly identify the value of the consideration payable for the sale on which the GST is to be calculated.

In this case, the provisions of the Lease ensured that the Association could regain full ownership of the Property should it choose to exercise the Option to purchase the Property and repay all amounts paid or credited to the Association by the City. XXXXX.

The Association exercised the Option to purchase and fulfilled its obligation to repay the XXXXX by means of:

• XXXXX, and
• XXXXX.

The XXXXX stipulates that the Purchase Price includes XXXXX. However, these amounts were all due and payable by the Association in the ordinary course of its status as a tenant of the Property under the terms of the Lease, regardless of whether the Association ultimately exercised the Option. Despite the wording of XXXXX of the Lease and that of the Statement of Adjustments, these payments would therefore be properly characterized as forming part of the consideration payable by the Association for the City's supply of the Property by way of lease. They do not form part of the consideration for the subsequent sale of the Property to the Association.

As such, the consideration payable for the sale of the Property does not include the consideration payable for the Lease and is $XXXXX. XXXXX.

The Association was obligated to self-assess and remit the GST payable on this amount. Provided the Association acquired the Property for use or supply primarily in the course of the Association's commercial activities, the Association would have been required to report the tax payable on line 205 of its regular GST/HST return for the period ending XXXXX. In any other case, the Association would have been required to pay the tax on or before the last day of the month following the calendar month in which the tax became payable, using form GST60, GST/HST Return for Acquisition of Real Property.

Because the Association calculated its tax liability on XXXXX, it is considered to have reported and remitted an excess amount as or on account of tax for this transaction.

You had previously been advised verbally that the Association may be eligible to claim a rebate to recover this overpayment, provided it did so within two years of the original payment. We confirm that section 261 provides a rebate to a person who has paid or remitted an amount as or on account of tax where the amount was not payable or remittable by the person, where all of the conditions are satisfied. However, paragraph 261(2)(a) prevents a rebate from being paid to the extent that the amount was taken into account as tax or net tax for a reporting period of the person and the Minister has assessed the person for the period under section 296. As the Association included the excess amount in calculating its net tax for the reporting period ending XXXXX, and as the CRA has assessed the Association for that period, the Association is not eligible to claim a rebate under section 261 to recover the excess amount it remitted.

As an alternative, a person who has been assessed for a reporting period may request a reassessment pursuant to subsection 296(1) of the ETA, and this option is available to the Association. The request should be made in writing to your local tax services office and provide the details of any requested adjustments to the previously filed GST/HST return. Subsection 298(1) requires that a reassessment be made within four years after the later of the day the return was required to be filed and the date the return was filed. You may wish to attach a copy of this ruling to your request for reassessment.

ADDITIONAL COMMENTS

Although not the subject of your enquiry, you confirmed XXXXX, that the Association has not claimed any ITCs for the tax payable on the purchase of the Property as you were unsure of the governing legislation in this regard. You further indicated that, to the best of your knowledge, the Association is not a "qualifying non-profit organization" as defined in the ETA, and thus not eligible for a public service body rebate.

For your reference, GST/HST registrants may be eligible to claim ITCs for the GST/HST paid or payable by the registrant in respect of the acquisition of, or improvements to, capital real property to the extent that the property is for use or supply in the course of the registrant's commercial activity.

Special rules apply to public service bodies (such as a non-profit organization) in this regard and, as discussed below, these rules may vary depending on whether an election under section 211 is in effect for the property in question. The following discussion pertains to public service bodies such as yours that are neither a financial institution nor a government.

Primary use rules - Acquisition of capital real property

Where an election under section 211 is not in effect for capital real property acquired by a GST/HST registrant public service body, the property is subject to the rules found in subsections 199(2) to (4), subsections 200(2) and (3) and, effective February 1, 2004, section 141.2 with any modifications that the circumstances require. In these circumstances, capital real property of a public service body is treated for GST/HST purposes as if the property were capital personal property.

Personal property that is acquired or imported for use by a registrant as capital personal property primarily in commercial activities of the registrant is considered to have been acquired or imported for use exclusively in commercial activities. Conversely, where the capital personal property is for use less than primarily in commercial activities, the registrant is considered to have acquired the property for use exclusively in non-commercial activities. Primarily means more than 50%.

Because capital real property is treated as if it were capital personal property, a registrant public service body may therefore only claim ITCs in respect of the GST/HST paid or payable on acquisitions of its capital real property if it intends to use the real property primarily in its commercial activities. If the property is to be used primarily in commercial activities, the body is deemed to have acquired the real property for use exclusively in commercial activities and is eligible to include 100% of the tax paid or payable in respect of the acquisition of the real property when calculating its ITCs. If the capital real property is not acquired for use primarily in commercial activities, the body is precluded from claiming ITCs in respect of the property at the time of its acquisition. The body may nevertheless become eligible for ITCs at a later date, should it subsequently begin to use the property primarily in its commercial activities.

Primary use rules - Improvements to capital real property

In accordance with paragraph 169(b), ITCs may be claimed for tax paid or payable on property or services acquired, imported, or brought into a participating province for use in improving capital real property of the person to the extent (expressed as a percentage) to which the person was using the real property itself in the course of commercial activities of the person after it was last acquired.

This measure is uniformly applied to determine ITCs for all improvements to a particular capital property. Thus, it does not matter whether the improvement to the capital property can be attributed entirely to a commercial activity, entirely to the making of exempt supplies, or some combination thereof. Paragraph 169(b) treats all improvements acquired in respect of capital property as though they relate to every part of the capital property equally, and requires that the "extent of use" percentage used for ITC purposes be based solely on how much the capital property, as a single input, is used in commercial activities.

Unless an election under section 211 is in effect for capital real property acquired by a GST/HST registrant public service body, subsection 199(4) applies to improvements to the property as if the real property were personal property.

Therefore, where a public service body acquires, imports or brings into a participating province an improvement to capital real property and an election under section 211 is not in effect, an ITC for tax payable in respect of the improvement is only available if the underlying capital real property to which the improvement is made is being used primarily in commercial activities of the public service body at the time that tax becomes payable, or is paid without having become payable.

Where a public service body has acquired the improvement for capital real property that is being used primarily in commercial activities, the public service body is deemed to have acquired the improvement for use exclusively in commercial activities and is entitled to claim an ITC equal to 100% of the tax paid or payable in respect of the improvement.

On the other hand, no ITC is available for tax paid or payable on improvements to capital real property that is not used primarily in commercial activities.

Effect of section 211 election - Acquisition of and improvements to real property

An election under section 211 is available for public service bodies, and can be filed by registrants and non-registrants alike by means of Form GST 26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply. The election has multiple effects, some of which are one-time events, but most of which continue for as long as the public service body chooses to keep the election in effect.

One of the principal purposes of a section 211 election is to allow a public service body to opt out of the primary use rules for capital real property, and to thus qualify for ITCs based on the actual extent (expressed as a percentage) that the property is used by the body in its commercial activities. Accordingly, apportioned ITCs would be available for tax payable by the body on the acquisition of, or improvements to, capital real property even where the body's commercial activities do not constitute the primary use of the property, as long as the property is used more than 10% in commercial activities.

Determining extent of use

The CRA's published policy iiFootnote 2 for determining if capital real property is used primarily in a business for purposes of paragraph 9(2)(a) of Part I of Schedule V sets out a multi-factor approach to determining the extent of use of capital real property. Such a multi-stage approach may be equally applicable to the matter at hand.

A "space-based" method may be recognized as an acceptable method of determining the extent to which certain portions of capital real property are dedicated to either commercial or non-commercial activities. In some cases other (non-space-based) factors may need to be introduced to arrive at a fair and reasonable method of measuring the extent of use of the capital real property. This would occur, for example, where all square meters of the property are not equal in terms of expressing the extent of use of the property in commercial activities, or where there are time-based considerations. Where this is the case, the CRA's policy is to permit the use of additional factors necessary to provide an accurate measurement of the extent of use of the capital real property in commercial activities. Some of the additional factors mentioned include time spent, value of unimproved land used, and value of improvements previously made.

Regardless of whether an election under section 211 is in effect, the method used by a public service body in a fiscal year to determine the extent to which capital real property is used, or is intended to be used in the course of the body's commercial activities must be fair and reasonable and must be used consistently by the body throughout the year.

Recovering previously unclaimed ITCs

Provided that the Association intended to use the Property primarily in its commercial activities, the Association would have been entitled to claim as an ITC on its GST/HST return for the period ending XXXXX, 100% of the tax payable by the Association on the value of the consideration payable for its purchase XXXXX.

You indicated that you will now establish whether the Association was eligible for an ITC in this regard. If the Association is entitled to claim an ITC, the Association may claim the ITC in a future GST/HST return, as long as it is filed by the due date of the return for the last reporting period that ends within four years after the end of the reporting period in which the ITC could have first been claimed.

With the exception of the ruling above, the foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX. 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,
XXXXX
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

i 1. Refer to paragraph 52 of GST/HST Memorandum 19.1, Real Property and the GST/HST
ii 2. GST/HST Memorandum 19.5 - Land and Associated Real Property - Appendix A - Guidelines for determining if capital real property is used primarily in a business
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UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 109407
Attention: XXXXX
March 31, 2009

Subject:

GST/HST RULING
Lease of XXXXX Long-term Care Facility

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain lease payments made by XXXXX (OPCO) and the application of the legislative changes made further to Budget 2008 which was announced on February 26, 2008.

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

Statement of Facts

We understand as follows:

1. OPCO is registered for GST/HST purposes.

2. OPCO entered into a head lease agreement (the Headlease) with XXXXX (LESSEE) whereby certain real property (the Property) was leased to LESSEE for a term of XXXXX years commencing XXXXX.

3. The Property is legally described as XXXXX.

4. Basic Rent of $XXXXX was paid by LESSEE to OPCO for the term of the lease at the time the Headlease was entered into, in accordance with Article XXXXX of the Headlease. GST of $XXXXX was paid by LESSEE to OPCO in respect of the Basic Rent.

5. LESSEE completed, or engaged others (including OPCO) to complete, the construction of a long-term care facility (the Facility) on the Property.

6. LESSEE then subleased the Property to OPCO for a term of XXXXX years and XXXXX days, beginning on XXXXX. The annual lease payment is $XXXXX. OPCO paid GST to LESSEE in respect of these lease payments. The total GST paid in respect of the annual lease payments from XXXXX to XXXXX is $XXXXX. In addition, the total GST paid by OPCO to LESSEE in respect of the net property taxes that were treated as additional rent is $XXXXX. In total, GST of $XXXXX was paid in respect of the sublease by OPCO to LESSEE.

7. The Facility is a nursing home licenced under the XXXXX. All supplies made by OPCO at the Facility that include the provision of a unit in the Facility are made under a Resident Admission Agreement.

8. LESSEE charged and collected the GST on the lease payments made by OPCO for the Property for all lease intervals ending prior to February 29, 2008. OPCO did not claim input tax credits (ITCs) for the GST paid to LESSEE in respect of the lease payments.

9. OPCO is not a "public service body" as that phrase is defined in subsection 123(1).

10. LESSEE has not made an election under section 236.4 in respect of the Facility.

11. LESSEE is registered for GST/HST purposes.

12. LESSEE and OPCO did not make any improvements to the Facility or additions to the residential complex, after the construction of the residential complex was complete.

13. OPCO did not apply for any rebates under the ETA for all, or any part, of the GST paid in respect of the lease payments.

Ruling Requested

You would like to know whether OPCO can adjust its previously filed GST/HST returns to receive credit for the amount of GST it paid to LESSEE in respect of the lease payments for the Property that were made prior to February 29, 2008.

Ruling Given

Based on the information provided, we rule that LESSEE's supplies of the Property made by way of lease are taxable supplies where the lease payment for the supply became due on or before February 26, 2008, or was paid on or before that date without having become due. OPCO is not permitted to adjust its previously filed GST/HST returns to receive credit for the tax paid to LESSEE in respect of these lease payments.

We also rule that the supplies made by LESSEE, by way of lease, of the part of the Property that is a residential complex are exempt supplies where the lease payment for the supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due.

We also rule that the supplies made by LESSEE, by way of lease, of the part, if any, of the Property that does not form part of a residential complex as defined in subsection 123(1) are taxable supplies where the lease payment for the particular supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due iFootnote 1.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation
Combined supply of a residential complex and other real property

Subsection 136(2) provides, in part, that where a lease of real property includes a residential complex and other real property that is not part of the residential complex, the residential complex and the other real property are deemed to be separate properties and the supply of each property is separate from the other, neither supply being incidental to the other.

A residential complex is defined in subsection 123(1) to include that part of a building in which one or more residential units are located, together with
(a) that part of any common areas and other appurtenances to the building, as well as land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and
(b) that portion of the subjacent land that the residential units and related common areas represent of the entire building. iiFootnote 2

It is a question of fact as to whether the lease of the Property made by LESSEE to OPCO is a supply of a residential complex only or supplies of a residential complex and other real property that is not part of the residential complex. For example, any part of the Property that is leased to a third party for the operation of a hair/barber shop would not form part of the residential complex. As discussed below, it is only the supply of the residential complex by way of lease that may be exempt under section 6.1, or new section 6.11, of Part I of Schedule V to the ETA. If the supply by LESSEE is that of a residential complex and other real property, the supply is deemed to be two separate supplies and the supply of the real property that is not a residential complex will not be exempt under section 6.1, nor under any other exempting provision, and will be subject to tax. We have not been provided with any information to conclude whether any part of any of the Property is not a residential complex. Should you require assistance with this determination, please provide us with a detailed description of the Property and the use of all area/rooms that are not residential units that are provided to residents under a Resident Admission Agreement.

OPCO's supplies to residents of the Facility

Section 6 of Part I of Schedule V to the ETA, in part, exempts the supply of a residential unit in a residential complex by way of lease for the purpose of its occupancy as a place of residence by an individual, where the period throughout which continuous occupancy of the unit is given to the same individual is at least one month.

It is our view that the supply by OPCO to a resident made under a Resident Admission Agreement that includes a residential unit is not exempt under section 6 of Part I of Schedule V to the ETA iiiFootnote 3. Provided that the Resident Admission Agreement is representative of all admissions to the Facility, we consider none of the supplies made under these agreements that include a residential unit to be exempt under section 6 of Part I of Schedule V to the ETA.

Head lease of the residential complex portion of the Facility prior to the amendments

With respect to supplies for which consideration became due on or before February 26, 2008, or was paid on or before that date without having become due, section 6.1 of Part I of Schedule V to the ETA provided, in part, that the head lease of a residential complex may have been exempt for each lease interval ivFootnote 4. The head lease of the complex for each lease interval was exempt if, throughout the lease interval, the lessee made, or held the complex for the purpose of making, supplies of the complex or parts of the complex and all or substantially all (90% or more) of those supplies were exempt under section 6 of Part I of Schedule V to the ETA.

In determining whether the exemption in section 6.1 of Part I of Schedule V to the ETA applies to any particular lessor's supply, it is necessary to distinguish between the lessee's supplies of property (i.e., rooms in the residential complex) and supplies of services that include the provision of residential units in the complex. It is only the lessee's supplies of property (i.e., residential units) that must be considered in determining whether all or substantially all of the lessee's supplies of property are supplies of the complex that are exempt under section 6 of Part I of Schedule V to the ETA. For purposes of the "all or substantially all" test in section 6.1, supplies of services by the lessee, whether or not they include the provision of residential units, are not taken into account in determining whether the head lease is exempt under section 6.1.

OPCO's supply made under a Resident Admission Agreement, that includes the provision of a residential unit, is characterized as a supply of a service. While the supply of the service includes the provision of a room in the Facility, the supply is nonetheless a service and as such, would not enter into the determination as to whether all or substantially all of OPCO's supplies of the complex, or parts of the complex, are exempt under section 6 of Part I of Schedule V to the ETA. Since OPCO does not make any supplies that are exempt under section 6, section 6.1 of Part I of Schedule V to the ETA does not apply to any of the lease payments for the Facility that became due on or before February 26, 2008, or were paid on or before that date without having become due. As no other exemptions apply, these lease payments are in respect of taxable supplies. vFootnote 5 As the recipient of these taxable supplies made by LESSEE, OPCO was required to pay the tax to LESSEE. The legislation does not provide any means for OPCO to adjust its previously filed GST/HST returns to receive credit for the tax that was properly payable to LESSEE.

Head lease of the residential complex portion of the Facility after the amendments

LESSEE's supplies of the residential complex portion of the Facility will be exempt under section 6.11 of Part I of Schedule V to the ETA for each lease interval in respect of which consideration becomes due after February 26, 2008, and was not paid on or before that date or is paid after that date without becoming due.

Interpretation Given

The ETA contains change in use provisions that may apply where a registrant last acquired capital real property for use in commercial activities and the registrant begins to use the property exclusively for other purposes. Of particular importance in this case is that the change in use provisions apply only in respect of capital property. It should also be noted that the change in use rules, if they apply in this case, would apply only to the residential complex portion of the Property. Supplies of any part of the Property that is not part of the residential complex were subject to tax before the legislative changes were made and will continue to be taxable under the legislation.

Section 195.1 provides (other than for certain purposes that are not relevant to this case) that a residential complex is not capital property of a builder of the complex at any particular time unless construction of the complex is substantially complete and at or after the time of substantial completion and at or before the particular time, the builder has received an exempt supply of the complex or was deemed to have made a taxable supply (i.e., a self-supply) of the complex under section 191. Accordingly, the residential complex portion of the Property will be capital property of LESSEE, and the change in use provisions will apply to LESSEE, only if LESSEE is a builder of the residential complex and LESSEE was deemed to have made a self supply of the residential complex portion of the Property prior to LESSEE's supplies of the residential complex portion of the Property becoming exempt under section 6.11 of Part I of Schedule V to the ETA viFootnote 6.

Whether LESSEE is a builder

A builder of a residential complex includes a person who, at a time when the person has an interest in the real property on which the complex is situated, carries on, or engages another person to carry on for the person, the construction of the residential complex. A builder also includes a person who acquires an interest in a residential complex at a time when the complex is under construction.

Accordingly, LESSEE is a builder of that portion of the Property that is a residential complex.

Whether the self-supply rules apply to LESSEE

Prior to the legislative changes announced on February 26, 2008, subsection 191(10) provided, in part, that the self-supply rules in section 191 apply to a builder who makes a supply of a residential complex by way of lease that is an exempt supply under section 6.1 of Part I of Schedule V to the ETA to a recipient who is acquiring the complex or units in the complex for the purpose of making supplies that are exempt under section 6 of Part I of Schedule V to the ETA and gives possession of the complex to the recipient. As OPCO made no supplies with respect to the Facility that were exempt under section 6, subsection 191(10), as it read prior to its amendment, does not provide that the self-supply rules apply to LESSEE.

If OPCO initiated the construction of a residential complex prior to leasing the real property to LESSEE, OPCO is also considered a builder for GST/HST purposes. However, the self-supply rules would not apply to OPCO since the conditions of section 191, as it read prior to its amendment, were not met in the circumstances at hand.

Application of section 195.1

As a result, section 195.1 deems the residential complex portion of the Property not to be capital property of LESSEE and the change in use rules do not apply to LESSEE when the supply of the residential complex from LESSEE to OPCO became exempt under section 6.11 of Part I of Schedule V to the ETA.

Sale of the Facility

Section 5 of Part I of Schedule V to the ETA exempts the sale of a multiple unit residential complex, or an interest therein, by a person who is a builder of the complex, or an addition thereto, where:

=>the last supply of the complex, or addition, by way of sale to the builder was either an exempt supply or a deemed taxable sale of the complex, or addition, under the self-supply rules in subsection 191(3) or 191(4), unless
• the builder substantially renovated the complex after the complex was last supplied to the builder, or
• the builder claimed an ITC in respect of that last acquisition of the complex or addition, or in respect of an improvement thereto since that last acquisition, other than an ITC in respect of the construction of an addition to the complex.

With respect to a future sale of the Facility, or an interest therein, the sale will be taxable if the conditions of section 5 of Part I of Schedule V to the ETA are not met.

The foregoing comments represent our general views with respect to the subject matter. These comments included in this part of our letter are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4393. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

i 1. For lease payments that were made on or before February 26, 2008, or that became due on or before that date, the lease payments relating to the part of the Property that does not form part of the residential complex were also payments for taxable supplies of the Property as indicated in the first ruling.

ii 2. The definition of residential complex contains certain exclusions, i.e., buildings or parts of buildings that would otherwise be residential complexes can be excluded from the definition. The exclusions are not relevant in this case. A complete discussion of the definition of "residential complex" is set out in GST/HST Memoranda Series Chapter 19.2, Residential Real Property. For a discussion on the land included in a residential complex, see policy statement P-069, Land Allowance For Residential Complexes.

iii 3. The supplies made under a Resident Admission Agreement that include a residential unit in the Facility, or that part thereof, that is licenced as a nursing home under the XXXXX are exempt under section 2 of Part II of Schedule V to the ETA. However, the property and services provided and charged for on a "per occurrence" basis as set out in XXXXX to the Resident Admission Agreement used by OPCO are likely separate supplies that may be subject to tax.

iv 4. A lease interval is generally the period of time (e.g., a month) under a lease for which possession or use of the property is given and to which a lease payment is attributable.

v 5. Paragraph 6.11(b) of Part I of Schedule V to the ETA, as introduced in the legislative changes announced in the budget of February 26, 2008, provides, in part, that the head lease of a residential complex is exempt where the lessee uses the complex in the course of making exempt supplies and as part of the supplies, gives possession or use of all or substantially all of the residential units in the complex under leases, licences or similar arrangements for the purpose of occupancy as a place of residence by an individual. However, where the supplier (e.g., LESSEE) charged, collected or remitted tax on lease payments that became due or were paid on or before February 26, 2008, section 6.11 does not apply to those supplies. In such a case, the coming into force provisions for section 6.11 provide that the section applies only to those supplies for which consideration becomes due after February 26, 2008, without having been paid on or before that date, or is paid after that date without having become due. Supplies for which consideration becomes due, or was paid, on or before February 26, 2008, will not be exempt under section 6.11.

vi 6. LESSEE did not receive an exempt supply of the residential complex portion of the Property and therefore it is only necessary to determine whether LESSEE was deemed to have made a self-supply of the complex.

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UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 109409
Attention: XXXXX
XXXXX
March 31, 2009

Subject:

GST/HST RULING
Lease of the XXXXX Long-term Care Facility

Dear XXXXX:

Thank you for the information that was provided to us through your communications with XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain lease payments made by XXXXX (OPCO) and the application of the legislative changes made further to Budget 2008 which was announced on February 26, 2008.

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

Statement of Facts

We understand as follows:

1. The XXXXX owns certain real property located in XXXXX (the Property) and leases the Property to XXXXX (Landlord).

2. Landlord was awarded the right to develop a longterm care facility (the Facility) in XXXXX by XXXXX.

3. Landlord entered into a head lease agreement (the Headlease) with XXXXX (LESSEE) whereby the Property was leased to LESSEE for a term of XXXXX years commencing XXXXX.

4. Landlord assigned its right to develop the Facility to OPCO. OPCO agreed to assume the obligations of Landlord in respect of the Headlease.

5. OPCO is a "charity" and a "public service body" as those phrases are defined in subsection 123(1) and is registered for GST/HST purposes.

6. The Property is legally described as XXXXX.

7. Basic Rent of $XXXXX for the term was paid by LESSEE to Landlord at the time the agreement was entered into, in accordance with XXXXX of the Headlease.

8. LESSEE completed, or engaged others to complete, the construction of the Facility on the Property.

9. LESSEE then subleased the Property to OPCO for a period of XXXXX years, commencing XXXXX.

10. OPCO entered into an agreement with XXXXX for the management and operation of the day-to day activities of the XXXXX Facility; however the supplies made to the residents are made by OPCO.

11. The Facility is licensed under the XXXXX. All supplies made by OPCO at the Facility that include the provision of a unit in the Facility are made under a Resident Admission Agreement.

12. LESSEE charged and collected the GST on the lease payments made by OPCO for the Property for all lease intervals ending prior to February 29, 2008. OPCO did not claim input tax credits (ITCs) for the GST paid to LESSEE in respect of the lease payments. OPCO claimed public service body rebates under section 259 with respect to 50% of the GST paid to LESSEE in respect of the lease payments.

13. LESSEE has not made an election under section 236.4 in respect of the Facility.

14. LESSEE is registered for GST/HST purposes.

15. LESSEE and OPCO did not make any improvements to the Facility or additions to the residential complex, after the construction of the residential complex was complete.

Ruling Requested

You would like to know whether OPCO can adjust its previously filed GST/HST returns to receive credit for the amount of GST it paid to LESSEE in respect of the lease payments for the Property that were made prior to February 29, 2008.

Ruling Given

Based on the information provided, we rule that LESSEE's supplies of the Property made by way of lease are taxable supplies where the lease payment for the supply became due on or before February 26, 2008, or was paid on or before that date without having become due. OPCO is not permitted to adjust its previously filed GST/HST returns to receive credit for the tax paid to LESSEE in respect of these lease payments.

We also rule that the supplies made by LESSEE, by way of lease, of the part of the Property that is a residential complex are exempt supplies where the lease payment for the supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due.

We also rule that the supplies made by LESSEE, by way of lease, of the part, if any, of the Property that does not form part of a residential complex as defined in subsection 123(1) are taxable supplies where the lease payment for the particular supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due. iFootnote 1

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation
Combined supply of a residential complex and other real property

Subsection 136(2) provides, in part, that where a lease of real property includes a residential complex and other real property that is not part of the residential complex, the residential complex and the other real property are deemed to be separate properties and the supply of each property is separate from the other, neither supply being incidental to the other.

A residential complex is defined in subsection 123(1) to include that part of a building in which one or more residential units are located, together with
(a) that part of any common areas and other appurtenances to the building, as well as land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and
(b) that portion of the subjacent land that the residential units and related common areas represent of the entire building. iiFootnote 2

It is a question of fact as to whether the lease of the Property made by LESSEE to OPCO is a supply of a residential complex only or supplies of a residential complex and other real property that is not part of the residential complex. For example, any part of the Property that is leased to a third party for the operation of a hair/barber shop would not form part of the residential complex. As discussed below, it is only the supply of the residential complex by way of lease that may be exempt under section 6.1, or new section 6.11, of Part I of Schedule V to the ETA. If the supply by LESSEE is that of a residential complex and other real property, the supply is deemed to be two separate supplies and the supply of the real property that is not a residential complex will not be exempt under section 6.1, nor under any other exempting provision, and will be subject to tax. We have not been provided with any information to conclude whether any part of any of the Property is not a residential complex. Should you require assistance with this determination, please provide us with a detailed description of the Property and the use of all area/rooms that are not residential units that are provided to residents under a Resident Admission Agreement.

OPCO's supplies to residents of the Facility

Section 6 of Part I of Schedule V to the ETA, in part, exempts the supply of a residential unit in a residential complex by way of lease for the purpose of its occupancy as a place of residence by an individual, where the period throughout which continuous occupancy of the unit is given to the same individual is at least one month.

It is our view that the supply by OPCO to a resident made under a Resident Admission Agreement that includes a residential unit is not exempt under section 6 of Part I of Schedule V to the ETA. iiiFootnote 3 Provided that the Resident Admission Agreement is representative of all admissions to the Facility, we consider none of the supplies made under these agreements that include a residential unit to be exempt under section 6 of Part I of Schedule V to the ETA.

Head lease of the residential complex portion of the Facility prior to the amendments

With respect to supplies for which consideration became due on or before February 26, 2008, or was paid on or before that date without having become due, section 6.1 of Part I of Schedule V to the ETA provided, in part, that the head lease of a residential complex may have been exempt for each lease interval. ivFootnote 4 The head lease of the complex for each lease interval was exempt if, throughout the lease interval, the lessee made, or held the complex for the purpose of making, supplies of the complex or parts of the complex and all or substantially all (90% or more) of those supplies were exempt under section 6 of Part I of Schedule V to the ETA.

In determining whether the exemption in section 6.1 of Part I of Schedule V to the ETA applies to any particular lessor's supply, it is necessary to distinguish between the lessee's supplies of property (i.e., rooms in the residential complex) and supplies of services that include the provision of residential units in the complex. It is only the lessee's supplies of property (i.e., residential units) that must be considered in determining whether all or substantially all of the lessee's supplies of property are supplies of the complex that are exempt under section 6 of Part I of Schedule V to the ETA. For purposes of the "all or substantially all" test in section 6.1, supplies of services by the lessee, whether or not they include the provision of residential units, are not taken into account in determining whether the head lease is exempt under section 6.1.

OPCO's supply made under a Resident Admission Agreement, that includes the provision of a residential unit, is characterized as a supply of a service. While the supply of the service includes the provision of a room in the Facility, the supply is nonetheless a service and as such, would not enter into the determination as to whether all or substantially all of OPCO's supplies of the complex, or parts of the complex, are exempt under section 6 of Part I of Schedule V to the ETA. Since OPCO does not make any supplies that are exempt under section 6, section 6.1 of Part I of Schedule V to the ETA does not apply to any of the lease payments for the Facility that became due on or before February 26, 2008, or were paid on or before that date without having become due. As no other exemptions apply, these lease payments are in respect of taxable supplies vFootnote 5. As the recipient of these taxable supplies made by LESSEE, OPCO was required to pay the tax to LESSEE. The legislation does not provide any means for OPCO to adjust its previously filed GST/HST returns to receive credit for the tax that was properly payable to LESSEE.

Head lease of the residential complex portion of the Facility after the amendments

LESSEE's supplies of the residential complex portion of the Facility will be exempt under section 6.11 of Part I of Schedule V to the ETA for each lease interval in respect of which consideration becomes due after February 26, 2008, and was not paid on or before that date or is paid after that date without becoming due.

Interpretation Given

The ETA contains change in use provisions that may apply where a registrant last acquired capital real property for use in commercial activities and the registrant begins to use the property exclusively for other purposes. Of particular importance in this case is that the change in use provisions apply only in respect of capital property. It should also be noted that the change in use rules, if they apply in this case, would apply only to the residential complex portion of the Property. Supplies of any part of the Property that is not part of the residential complex were subject to tax before the legislative changes were made and will continue to be taxable under the legislation.

Section 195.1 provides (other than for certain purposes that are not relevant to this case) that a residential complex is not capital property of a builder of the complex at any particular time unless construction of the complex is substantially complete and at or after the time of substantial completion and at or before the particular time, the builder has received an exempt supply of the complex or was deemed to have made a taxable supply (i.e., a self-supply) of the complex under section 191. Accordingly, the residential complex portion of the Property will be capital property of LESSEE, and the change in use provisions will apply to LESSEE, only if LESSEE is a builder of the residential complex and LESSEE was deemed to have made a selfsupply of the residential complex portion of the Property prior to LESSEE's supplies of the residential complex portion of the Property becoming exempt under section 6.11 of Part I of Schedule V to the ETA viFootnote 6.

Whether LESSEE is a builder

A builder of a residential complex includes a person who, at a time when the person has an interest in the real property on which the complex is situated, carries on, or engages another person to carry on for the person, the construction of the residential complex. A builder also includes a person who acquires an interest in a residential complex at a time when the complex is under construction.

Accordingly, LESSEE is a builder of that portion of the Property that is a residential complex.

Whether the self-supply rules apply to LESSEE

Prior to the legislative changes announced on February 26, 2008, subsection 191(10) provided, in part, that the self-supply rules in section 191 apply to a builder who makes a supply of a residential complex by way of lease that is an exempt supply under section 6.1 of Part I of Schedule V to the ETA to a recipient who is acquiring the complex or units in the complex for the purpose of making supplies that are exempt under section 6 of Part I of Schedule V to the ETA and gives possession of the complex to the recipient. As OPCO made no supplies with respect to the Facility that were exempt under section 6, subsection 191(10), as it read prior to its amendment, does not provide that the self-supply rules apply to LESSEE.

If OPCO initiated the construction of a residential complex prior to leasing the real property to LESSEE, OPCO is also considered a builder for GST/HST purposes. However, the self-supply rules would not apply to OPCO since the conditions of section 191, as it read prior to its amendment, were not met in the circumstances at hand.

Application of section 195.1

As a result, section 195.1 deems the residential complex portion of the Property not to be capital property of LESSEE and the change in use rules do not apply to LESSEE when the supply of the residential complex from LESSEE to OPCO became exempt under section 6.11 of Part I of Schedule V to the ETA.

Sale of the Facility

Section 5 of Part I of Schedule V to the ETA exempts the sale of a multiple unit residential complex, or an interest therein, by a person who is a builder of the complex, or an addition thereto, where:

=>the last supply of the complex, or addition, by way of sale to the builder was either an exempt supply or a deemed taxable sale of the complex, or addition, under the self-supply rules in subsection 191(3) or 191(4), unless
=> the builder substantially renovated the complex after the complex was last supplied to the builder, or
=> the builder claimed an ITC in respect of that last acquisition of the complex or addition, or in respect of an improvement thereto since that last acquisition, other than an ITC in respect of the construction of an addition to the complex.

With respect to a future sale of the Facility, or an interest therein, the sale will be taxable if the conditions of section 5 of Part I of Schedule V to the ETA are not met.

The foregoing comments represent our general views with respect to the subject matter. These comments included in this part of our letter are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4393. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

i 1. For lease payments that were made on or before February 26, 2008, or that became due on or before that date, the lease payments relating to the part of the Property that does not form part of the residential complex were also payments for taxable supplies of the Property as indicated in the first ruling.

ii 2. The definition of residential complex contains certain exclusions, i.e., buildings or parts of buildings that would otherwise be residential complexes can be excluded from the definition. The exclusions are not relevant in this case. A complete discussion of the definition of "residential complex" is set out in GST/HST Memoranda Series Chapter 19.2, Residential Real Property. For a discussion on the land included in a residential complex, see policy statement P-069, Land Allowance For Residential Complexes.

iii 3. The supplies made under a Resident Admission Agreement that include a residential unit in the Facility, or that part thereof, that is licenced as a nursing home under the XXXXX are exempt under section 2 of Part II of Schedule V to the ETA. However, the property and services provided and charged for on a "per occurrence" basis as set out in XXXXX to the Resident Admission Agreement used by OPCO are likely separate supplies that may be subject to tax.

iv 4. A lease interval is generally the period of time (e.g., a month) under a lease for which possession or use of the property is given and to which a lease payment is attributable.

v 5. Paragraph 6.11(b) of Part I of Schedule V to the ETA, as introduced in the legislative changes announced in the budget of February 26, 2008, provides, in part, that the head lease of a residential complex is exempt where the lessee uses the complex in the course of making exempt supplies and as part of the supplies, gives possession or use of all or substantially all of the residential units in the complex under leases, licences or similar arrangements for the purpose of occupancy as a place of residence by an individual. However, where the supplier (e.g., LESSEE) charged, collected or remitted tax on lease payments that became due or were paid on or before February 26, 2008, section 6.11 does not apply to those supplies. In such a case, the coming into force provisions for section 6.11 provide that the section applies only to those supplies for which consideration becomes due after February 26, 2008, without having been paid on or before that date, or is paid after that date without having become due. Supplies for which consideration becomes due, or was paid, on or before February 26, 2008, will not be exempt under section 6.11.

vi 6. LESSEE did not receive an exempt supply of the residential complex portion of the Property and therefore it is only necessary to determine whether LESSEE was deemed to have made a self-supply of the complex.

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UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

Case Number: 109411
Attention: XXXXX
XXXXX
March 2, 2009

Subject:

GST/HST RULING
Lease of Long-term Care Facilities

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain lease payments made by various longterm care facilities and the impact of the legislative changes made further to Budget 2008 which was announced on February 26, 2008.

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

Statement of Facts

We understand as follows:

1. XXXXX and each of its affiliates (hereafter referred to as "each LESSOR" unless specifically named) are all subsidiaries of XXXXX.

2. Each LESSOR is registered for GST/HST purposes and each LESSOR is not a "public service body" as that phrase is defined in subsection 123(1).

3. On XXXXX, XXXXX (OPCO#XXXXX) sold all of its interests in XXXXX parcels of real property located in XXXXX to XXXXX (LESSOR#XXXXX). Prior to the sales, OPCO#XXXXX had begun construction of a long-term care facility on XXXXX of the parcels. The facilities are located in XXXXX and XXXXX, and are referred to in this letter, in the singular, as "a Facility", and in the plural as "the Facilities". Where reference is made to a particular facility, the facility is referred to by its location.

4. OPCO#XXXXX did not collect GST in respect of the sale of the land that formed part of each longterm care facility on the understanding that LESSOR#XXXXX was responsible for paying the tax directly to the Canada Revenue Agency (CRA) iFootnote 1. However, OPCO#XXXXX collected GST from LESSOR#XXXXX in respect of the partially constructed buildings on the parcels at the time of the sale.

5. OPCO#XXXXX also entered into a head lease agreement with XXXXX (LESSOR#XXXXX) whereby real property located in XXXXX was leased to LESSOR#XXXXX for a term of XXXXX years commencing XXXXX.

6. The XXXXX owns certain real property located in XXXXX and leases the property to XXXXX (Landlord). Landlord assigned its rights as landlord to XXXXX (OPCO#XXXXX). OPCO#XXXXX entered into a head lease agreement with XXXXX (LESSOR#XXXXX) whereby the property was leased to LESSOR#XXXXX for a term of XXXXX years commencing XXXXX.

7. XXXXX (OPCO#XXXXX) entered into a head lease agreement with XXXXX (LESSOR#XXXXX) whereby certain real property located in XXXXX was leased to LESSOR#XXXXX for a term of XXXXX years commencing XXXXX.

8. XXXXX (OPCO#XXXXX) entered into a head lease agreement with XXXXX (LESSOR#XXXXX) whereby certain real property located in XXXXX was leased to LESSOR#XXXXX for a term of XXXXX years commencing XXXXX.

9. Each LESSOR completed, or engaged others to complete, the construction of the respective Facility, including the XXXXX and XXXXX Facilities. Each LESSOR claimed input tax credits (ITCs) for the GST it paid to acquire the partially constructed buildings or in respect of the lease payments made to the respective OPCO in accordance with the respective head lease agreement. In addition, each LESSOR claimed ITCs with respect to the construction costs incurred to complete the construction of the respective Facility.

10. Each LESSOR then leased each respective Facility to the respective OPCO beginning on a specified date, which was based on the completion date of the respective Facility. Each lease agreement called for monthly lease payments to be made in arrears on the last day of each month for the term of the respective lease.

11. OPCO#XXXXX entered into an agreement with OPCO#XXXXX for the management and operation of the day-to day activities of the XXXXX Facility; however the supplies made to the residents are made by OPCO#XXXXX.

12. XXXXX of the Facilities (XXXXX) are nursing homes licenced under the XXXXX. All supplies made by each respective OPCO at these Facilities that include the provision of a room in the respective Facility were made under a Resident Admission Agreement.

13. With respect to the XXXXX and XXXXX Facilities, one part of each building is licenced as a nursing home under the XXXXX. All supplies made by OPCOXXXXX that include the provision of a unit in the nursing home part of the XXXXX and XXXXX Facilities were made under a Resident Admission Agreement.

14. With respect to the XXXXX and XXXXX Facilities, the other separate part of each building is used by OPCOXXXXX to provide assisted living units. For both Facilities, this part of the building is not licenced as a nursing home and is instead governed by the XXXXX. Supplies of the assisted living units by OPCOXXXXX are made under a Tenancy Residency Agreement.

15. Under the Tenancy Residency Agreement, a tenant is entitled to receive the elements listed under "Residential Facilities" in XXXXX to the agreement. Section XXXXX of the agreement provides that an amount (Accommodation Fee) is payable by the tenant for those elements. The tenant also has the option to receive the "XXXXX" set out in XXXXX to the agreement. If the tenant chooses to receive the XXXXX, an additional amount, over and above the Accommodation Fee is payable. This additional amount is set out in section XXXXX of the agreement as the "XXXXX" Fee.

16. Each LESSOR charged and collected GST on the lease payments made by each OPCO for each Facility for all lease intervals ending prior to February 29, 2008. None of the OPCOs claimed ITCs for the GST paid to a LESSOR in respect of the lease payments.

17. OPCO#XXXXX is not a "public service body" as that phrase is defined in subsection 123(1). OPCO#XXXXX, OPCO#XXXXX and OPCO#XXXXX are each a "charity" and a "public service body" as those phrases are defined in subsection 123(1). Each OPCO is registered for GST/HST purposes.

18. The LESSORs did not account for GST calculated on the fair market value of the respective Facility at the time of substantial completion of the construction of the respective Facility or at the time that a unit in the respective Facility was first occupied by a resident/tenant.

19. The LESSORs have not made an election under section 236.4 in respect of any of the Facilities.

20. Post construction, OPCO#XXXXX made improvements to the XXXXX Facility, paid GST in respect of these improvements, did not claim ITCs for the GST paid on these improvements and did claim public service body rebates for 50% of the GST paid on these improvements.

21. The LESSORs and the OPCOs (other than OPCO#XXXXX) did not make any improvements to the Facilities subsequent to the substantial completion of their construction. The LESSORs and the OPCOs did not make any additions to the Facilities after the construction of each Facility was substantially complete.

22. OPCO#XXXXX did not apply for any rebates under the ETA for all, or any part, of the GST paid in respect of the lease payments. OPCO#XXXXX, OPCO#XXXXX and OPCO#XXXXX claimed public service body rebates of 50% of the GST paid in respect of the lease payments made to the respective LESSOR.

Rulings Requested

You would like confirmation that each LESSOR was required to collect GST with respect to the lease payments made by the respective OPCO prior to February 29, 2008, for all of the Facilities.

You would like confirmation that each LESSOR is not required to collect GST with respect to the lease payments made by the respective OPCO after February 28, 2008, for all of the Facilities.

You would like to know if, as a result of the legislative amendments made to the ETA further to Budget 2008, each LESSOR is required to account for tax equal to the basic tax content of the respective real property of each Facility in determining its net tax.

You would also like to know if a particular LESSOR who is required to account for tax equal to the basic tax content of a particular real property can reduce the amount of tax that it is required to include in its net tax by the amount of GST it collected from the respective OPCO in respect of the lease payments made for that particular property.

Rulings Given

Based on the information provided, we rule that the supplies made by each LESSOR of the following Facilities: XXXXX and XXXXX, by way of lease, are taxable supplies where the lease payment for the particular supply became due on or before February 26, 2008, or was paid on or before that date without having become due. Each LESSOR was required to collect GST in respect of these taxable supplies.

We also rule that the supplies made by LESSOR#XXXXX, by way of lease, of the parts, if any, of the following Facilities: XXXXX and XXXXX, that do not form part of a residential complex as defined in subsection 123(1) are taxable supplies. LESSOR#XXXXX is required to collect GST in respect of these taxable supplies.

We also rule that the supplies made by LESSOR#XXXXX, by way of lease, of the parts of the following Facilities: XXXXX and XXXXX, that are residential complexes iiFootnote 2, are exempt supplies regardless of when the lease payment becomes due or is made iiiFootnote 3 LESSOR#XXXXX is not required to collect GST in respect of these exempt supplies.

We also rule that, subject to the time limitations and conditions of section 232, LESSOR#XXXXX may refund or credit the amount paid by OPCO#XXXXX as or on account of tax with respect to LESSOR#XXXXX's exempt supplies made to OPCO#XXXXX of the residential complex parts of the XXXXX and XXXXX Facilities and LESSOR#XXXXX may deduct the amount of the refund or credit in determining its net tax.

We also rule that the supplies made by each LESSOR of the respective parts of the Facilities that are residential complexes, by way of lease, are exempt supplies where the lease payment for the particular supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due.

We also rule that the supplies made by each LESSOR of the respective parts of the Facilities, if any, that do not form part of a residential complex as defined in subsection 123(1), by way of lease, are taxable supplies where the lease payment for the particular supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due. ivFootnote 4

We also rule that each LESSOR is not deemed to have paid and collected tax equal to the basic tax content of the real property that includes the respective Facility where the supplies by way of lease of the respective Facility by the respective LESSOR were taxable supplies prior to the amendment and are now exempt supplies where the lease payment for the particular supply becomes due after February 26, 2008, and was not paid on or before that date, or was paid after that date without having become due.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation
Combined supply of a residential complex and other real property

Subsection 136(2) provides, in part, that where a lease of real property includes a residential complex and other real property that is not part of the residential complex, the residential complex and the other real property are deemed to be separate properties and the supply of each property is separate from the other, neither supply being incidental to the other.

A residential complex is defined in subsection 123(1) to include that part of a building in which one or more residential units are located, together with
(a) that part of any common areas and other appurtenances to the building, as well as land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and
(b) that portion of the subjacent land that the residential units and related common areas represent of the entire building vFootnote 5.

It is a question of fact as to whether the lease of a Facility made by a particular LESSOR to a particular OPCO is a supply of a residential complex only or supplies of a residential complex and other real property that is not part of the residential complex. For example, any part of any Facility that is leased to a third party for the operation of a hair/barber shop would not form part of the residential complex. As discussed below, it is only the supply of a residential complex by way of lease that may be exempt under section 6.1, or new section 6.11, of Part I of Schedule V to the ETA. If the supply by a particular LESSOR is that of a residential complex and other real property, the supply is deemed to be two separate supplies and the supply of the real property that is not a residential complex will not be exempt under section 6.1, nor under any other exempting provision, and will be subject to tax. We have not been provided with any information to conclude whether any part of any of the Facilities is not a residential complex. Should you require assistance with this determination, please provide us with a detailed description of the facility in question and the use of all area/rooms that are not residential units that are provided to residents under a Resident Admission Agreement or a Tenancy Residency Agreement.

OPCOs' supplies to residents of a nursing home

Section 6 of Part I of Schedule V to the ETA, in part, exempts the supply of a residential unit in a residential complex by way of lease for the purpose of its occupancy as a place of residence by an individual, where the period throughout which continuous occupancy of the unit is given to the same individual is at least one month.

It is our view that the supply by OPCO#XXXXX to a resident made under a Resident Admission Agreement that includes a residential unit is not exempt under section 6 of Part I of Schedule V to the ETA viFootnote 6. Provided that the Resident Admission Agreement used by OPCO#XXXXX is representative of all admissions to the Facilities, or a part thereof, as the case may be, that are licenced as a nursing home under the XXXXX, we consider none of the supplies made under these agreements that include a residential unit to be exempt under section 6 of Part I of Schedule V to the ETA.

OPCO#XXXXX's supplies to residents of assisted living units

It is our view that the supply of the elements listed under "Residential Facilities" in XXXXX to the Tenancy Residency Agreement made by OPCO#XXXXX to a tenant of an assisted living unit at the XXXXX or XXXXX Facility is a single supply of a residential unit. Provided that the Tenancy Residency Agreement is representative of all admissions to assisted living units, OPCO#XXXXX's supplies of residential units made under these agreements at the XXXXX and XXXXX Facilities are exempt under section 6 of Part I of Schedule V to the ETA.

Head lease of the residential complex portion of a Facility prior to the amendments

With respect to supplies for which consideration became due on or before February 26, 2008, or was paid on or before that date without having become due, section 6.1 of Part I of Schedule V to the ETA provided, in part, that the head lease of a residential complex may have been exempt for each lease interval viiFootnote 7. The head lease of the complex for each lease interval was exempt if, throughout the lease interval, the lessee (in this case, a particular OPCO) made, or held the complex for the purpose of making, supplies of the complex or parts of the complex and all or substantially all (90% or more) of those supplies were exempt under section 6 of Part I of Schedule V to the ETA.

In determining whether the exemption in section 6.1 of Part I of Schedule V to the ETA applies to any particular LESSOR's supply of a particular Facility, it is necessary to distinguish between the particular OPCO's supplies of property (i.e., rooms in the residential complex) and supplies of services that include the provision of residential units in the complex. It is only the particular OPCO's supplies of property (i.e., residential units) that must be considered in determining whether all or substantially all of the particular OPCO's supplies of property are supplies of the complex that are exempt under section 6 of Part I of Schedule V to the ETA. For purposes of the "all or substantially all" test in section 6.1, supplies of services by the particular OPCO, whether or not they include the provision of residential units, are not taken into account in determining whether the head lease is exempt under section 6.1.

Each of the OPCOs' supplies that are made under a Resident Admission Agreement, that includes the provision of a residential unit, is characterized as a supply of a service. While the supply of the service includes the provision of a room in a Facility, the supply is nonetheless a service and as such, would not enter into the determination as to whether all or substantially all of the particular OPCO's supplies of the complex, or parts of the complex, are exempt under section 6 of Part I of Schedule V to the ETA. If a particular OPCO does not make any supplies that are exempt under section 6 as is the case with the OPCOs of the XXXXX and XXXXX Facilities that are licenced as nursing homes, section 6.1 of Part I of Schedule V to the ETA will not apply to any of the lease payments for these Facilities that became due on or before February 26, 2008, or were paid on or before that date without having become due. As no other exemptions apply, these lease payments are in respect of taxable supplies viiiFootnote 8. As the recipient of these taxable supplies made by the respective LESSOR, each OPCO was required to pay the tax to the respective LESSOR.

With respect to the XXXXX and XXXXX Facilities, the only supplies of the residential complex, or parts of the complex, (i.e., supplies of property) made by OPCO#XXXXX in respect of those Facilities are the supplies of residential units made under the Tenancy Residency Agreements used for the assisted living part of the buildings. Supplies of services that include a room in the part of each building that is licenced as a nursing home under the XXXXX are not supplies of property and as indicated above are not taken into account in applying the all or substantially test in section 6.1 of Part I of Schedule V to the ETA. For each lease interval in question, provided that all or substantially all of OPCO#XXXXX's supplies of residential units in the complex made under a Tenancy Residency Agreement are exempt supplies under section 6 of Part I of Schedule V to the ETA, then the lease of the entire residential complex portion of the XXXXX and XXXXX Facilities from LESSOR#XXXXX to OPCO#XXXXX will be exempt under section 6.1. If any portion of the XXXXX and XXXXX Facilities includes real property that does not form part of the residential complex e.g., any part that is leased to a third party for the operation of a hair/barber shop, any lease payment attributable to that part of the Facility is taxable.

Refund of tax

Since LESSOR#XXXXX collected amounts as or on account of tax in error from OPCO#XXXXX with respect to the residential complex parts of the XXXXX and XXXXX Facilities, LESSOR#XXXXX may refund or credit the amounts to OPCO#XXXXX and adjust its net tax in accordance with section 232 provided that the conditions and time limitations in that section are met. Further information on the time limitations and conditions for claiming refunds and credits is available in GST/HST Memoranda Series Chapter 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act, which is available on the CRA Web site.

Head lease of the residential complex portion of a Facility after the amendments

Each LESSOR's supplies of the residential complex portion of each Facility will be exempt under section 6.11 of Part I of Schedule V to the ETA for each lease interval in respect of which consideration becomes due after February 26, 2008, and was not paid on or before that date or is paid after that date without becoming due.

The ETA contains change in use provisions that may apply where a registrant last acquired capital real property for use in commercial activities and the registrant begins to use the property exclusively for other purposes. Of particular importance in this case is that the change in use provisions apply only in respect of capital property. It should also be noted that the change in use rules, if they apply in this case, would apply only to the residential complex portion of a Facility. Supplies of any part of a Facility that is not part of the residential complex were subject to tax before the legislative changes were made and continue to be taxable under the legislation.

Section 195.1 provides (other than for certain purposes that are not relevant to this case) that a residential complex is not capital property of a builder of the complex at any particular time unless construction of the complex is substantially complete and at or after the time of substantial completion and at or before the particular time, the builder has received an exempt supply of the complex or was deemed to have made a taxable supply (i.e., a self-supply) of the complex under section 191. Accordingly, the residential complex portion of each Facility will be capital property of the respective LESSOR, and the change in use provisions will apply to that LESSOR, only if that LESSOR is a builder of the residential complex and that LESSOR was deemed to have made a self supply of the residential complex portion of a Facility prior to that LESSOR's supplies of the residential complex portion of the Facility becoming exempt under section 6.11 of Part I of Schedule V to the ETA ixFootnote 9.

Whether a particular LESSOR is a builder

A builder of a residential complex includes a person who, at a time when the person has an interest in the real property on which the complex is situated, carries on, or engages another person to carry on for the person, the construction of the residential complex. A builder also includes a person who acquires an interest in a residential complex at a time when the complex is under construction.

Accordingly, each LESSOR is a builder of that portion of the respective Facility that is a residential complex.

Whether the self-supply rules apply to a particular LESSOR

Prior to the legislative changes announced on February 26, 2008, subsection 191(10) provided, in part, that the self-supply rules in section 191 apply to a builder who makes a supply of a residential complex by way of lease that is an exempt supply under section 6.1 of Part I of Schedule V to the ETA to a recipient who is acquiring the complex or units in the complex for the purpose of making supplies that are exempt under section 6 of Part I of Schedule V to the ETA and gives possession of the complex to the recipient. The builder in this case is deemed to have given possession of the complex or a residential unit in the complex to an individual under a lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. As a result, the builder is deemed, under either subsection 191(1) or (3) to have made and received a taxable supply of the complex or unit and to have paid and collected tax calculated on the fair market value of the complex or unit.

As provided above, only OPCO#XXXXX was making exempt supplies under section 6 of Part I of Schedule V to the ETA and only with respect to parts of the XXXXX and XXXXX Facilities. Accordingly, the self-supply rules apply to LESSOR#XXXXX in respect of the entire residential complex portion of each of the XXXXX and XXXXX. As such, LESSOR#XXXXX was required to account for the tax deemed collected calculated on the fair market value of each residential complex at the time of the self-supply. Based on the information provided, the selfsupply of the XXXXX Facility occurred on or about XXXXX. For the XXXXX Facility, the self supply occurred on or about XXXXX. LESSOR#XXXXX was required to include the tax deemed collected in its net tax calculation for the reporting periods during which the selfsupplies occurred. It is recognized that LESSOR#XXXXX did not account for the tax deemed collected in respect of these deemed supplies. Where LESSOR#XXXXX has filed, by their due date, its GST/HST returns for the reporting periods during which the self-supplies occurred, the net tax for these reporting periods would be statute-barred in accordance with subparagraph 298(1)(a)(i) subject to the exceptions in subsections 298(3) and 298(4).

With respect to the remaining Facilities (i.e., XXXXX and XXXXX), the respective OPCO made no supplies under section 6 and as such, subsection 191(10), as it read prior to its amendment, does not provide that the self-supply rules apply to the respective LESSOR of these Facilities. If any OPCO initiated the construction of a residential complex prior to selling the respective real property on which the complex is situated or leasing the real property to a particular LESSOR, that OPCO would be considered a builder for GST/HST purposes. However, the self-supply rules would not apply to that OPCO since the conditions of section 191, as it read prior to its amendment, were not met in the circumstances at hand.

Application of section 195.1

As a result, with respect to the residential complex portions of the XXXXX and XXXXX Facilities, section 195.1 does not apply since LESSOR#XXXXX is a builder with respect to the residential complex portions of these Facilities and LESSOR#XXXXX was deemed to have made taxable supplies (i.e., self supplies) of the residential complex portions of these Facilities. As such, these residential complexes are capital property. However, in the case of the residential complex portions of the XXXXX and XXXXX Facilities there is no change in use as the supplies of the residential complex portions of these Facilities made by way of lease by LESSOR#XXXXX were exempt before and after the legislative amendments in question were made.

With respect to the remaining Facilities (i.e., XXXXX and XXXXX), section 195.1 deems the residential complex portions of the Facilities not to be capital property of the respective LESSOR since, as discussed above, the self-supply rules do not apply to the LESSORS of these Facilities. As such, the change in use rules do not apply with respect to these Facilities when the supply from the particular LESSOR to the particular OPCO became exempt under section 6.11 of Part I of Schedule V to the ETA.

Interpretation Given
Application of subsection 221(2) with respect to a supply by way of sale of a partially completed Facility

We wish to add that with respect to OPCO#XXXXX's sales of the partially constructed facilities to LESSOR#XXXXX, the provisions of subsection 221(2) apply to all property that constitutes real property. From the information provided, it is stated that LESSOR#XXXXX did not pay to OPCO#XXXXX GST in respect of the sale of land that formed part of each Facility, but that LESSOR#XXXXX did pay to OPCO#XXXXX GST in respect of the partially constructed buildings on the land. Pursuant to subsection 221(2), OPCO#XXXXX was not required to collect any GST in respect of the sales of the partially completed Facilities which are real property. LESSOR#XXXXX was responsible for paying all of the GST payable in respect of the sales of the partially constructed Facilities (land and buildings) directly to the CRA. However, since LESSOR#XXXXX paid the GST in respect of the partially constructed buildings on the land to OPCO#XXXXX, OPCO#XXXXX was required to account for this GST in its GST/HST returns and, based on the information you provided, OPCO#XXXXX included this GST in its net tax calculation for the reporting period during which the amount was collected and remitted the net tax, if any, for that period. This information is provided for future reference only.

Sale of a Facility

Section 5 of Part I of Schedule V to the ETA exempts the sale of a multiple unit residential complex, or an interest therein, by a person who is a builder of the complex, or an addition thereto, where:

=> the last supply of the complex, or addition, by way of sale to the builder was either an exempt supply or a deemed taxable sale of the complex, or addition, under the selfsupply rules in subsection 191(3) or 191(4), unless
=> the builder substantially renovated the complex after the complex was last supplied to the builder, or
=> the builder claimed an ITC in respect of that last acquisition of the complex or addition, or in respect of an improvement thereto since that last acquisition, other than an ITC in respect of the construction of an addition to the complex.

With respect to a future sale of a Facility, or an interest therein, the sale will be taxable if the conditions of section 5 of Part I of Schedule V to the ETA are not met.

For example, the sale of the XXXXX Facility by LESSOR#XXXXX would be a taxable sale. Although, LESSOR#XXXXX is a builder of the XXXXX Facility, the self-supply rules did not apply to LESSOR#XXXXX in respect of this Facility and the last supply of this Facility by way of sale to LESSOR#XXXXX (i.e., the sale by OPCO#XXXXX on February 20, 2001) was a taxable supply and not an exempt supply.

The foregoing comments represent our general views with respect to the subject matter. The comments included in this part of our letter are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4393. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

i 1. This position was taken based on OPCO#XXXXX's interpretation of subsections 221(2) and 228(4). Our views on this matter are expressed later in this letter.

ii 2. These parts of the XXXXX and XXXXX Facilities that are residential complexes include the residential units that are located in both the nursing home part of the buildings and the assisted living part of the buildings.

iii 3. Depending on when the lease payment for a supply is made or becomes due, the supply is either exempt under section 6.1 or 6.11 of Part I of Schedule V to the ETA

iv 4. For lease payments that were made on or before February 26, 2008, or that became due on or before that date, the lease payments relating to the part of each Facility that does not form part of the residential complex were also payments for taxable supplies of the Facilities as indicated in the first and second rulings.

v 5. The definition of residential complex contains certain exclusions, i.e., buildings or parts of buildings that would otherwise be residential complexes can be excluded from the definition. The exclusions are not relevant in this case. A complete discussion of the definition of "residential complex" is set out in GST/HST Memoranda Series Chapter 19.2, Residential Real Property. For a discussion on the land included in a residential complex, see policy statement P-069, Land Allowance For Residential Complexes.

vi 6. Generally, the supplies made under a Resident Admission Agreement that include a residential unit in the Facility, or that part thereof, that is licenced as a nursing home under the XXXXX are exempt under section 2 of Part II of Schedule V to the ETA. However, the property and services provided and charged for on a "per occurrence" basis as set out in XXXXX to the Resident Admission Agreement used by OPCO#XXXXX are likely separate supplies that may be subject to tax.

vii 7. A lease interval is generally the period of time (e.g., a month) under a lease for which possession or use of the property is given and to which a lease payment is attributable.

viii 8. Paragraph 6.11(b) of Part I of Schedule V to the ETA, as introduced in the legislative changes announced in the budget of February 26, 2008, provides, in part, that the head lease of a residential complex is exempt where the lessee (e.g., a particular OPCO) uses the complex in the course of making exempt supplies and as part of the supplies, gives possession or use of all or substantially all of the residential units in the complex under leases, licences or similar arrangements for the purpose of occupancy as a place of residence by an individual. However, where the supplier (e.g., a particular LESSOR) charged, collected or remitted tax on lease payments that became due or were paid on or before February 26, 2008, section 6.11 does not apply to those supplies. In such a case, the coming into force provisions for section 6.11 provide that the section applies only to those supplies for which consideration becomes due after February 26, 2008, without having been paid on or before that date, or is paid after that date without having become due.

ix 9. In each case, the LESSOR did not receive an exempt supply of the residential complex portion of any of the Facilities and therefore it is only necessary to determine whether a particular LESSOR was deemed to have made a self-supply of the complex.

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UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 16th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Attention: XXXXX
Case Number: 109572
Business Number: XXXXX

January 16, 2009

Dear XXXXX:

Subject:

GST/HST RULING
XXXXX

Thank you for your XXXXX of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX (the Product).

HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is distributed by XXXXX.

2. The submission consisted of the packaging proof for the Product and the XXXXX. To obtain further information about the Product, a sample Product of the XXXXX flavour was purchased. The information which follows was obtained from the sample Product, the packaging proof supplied with the submission and the XXXXX.

3. The Product consists of XXXXX packaged in a XXXXX card board box. Each XXXXX weighs XXXXXg, for a total package weight of XXXXXkg.

4. The main panels of the package contain the following information:

• XXXXX
• XXXXX
• XXXXX

5. One of the side panels contains the ingredients, which are listed separately for each flavour. XXXXX.

6. Due to the print size on the proof provided, the remaining wording on the side panel was not legible, but the format used on this packaging was similar to the XXXXX
7. Another side panel contains the Nutrition Facts. XXXXX.

8. The bottom of the cardboard packaging box has the XXXXX.

9. Each individual XXXXX contains all of the information as listed above, including the XXXXX.

10. The sample Product was purchased from a typical grocery store and it was located between packages of XXXXX and multi-packages of single serving sizes of XXXXX.

11. The Product is not labelled as a juice or beverage.

Ruling Requested

You would like to know the GST/HST status of supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are zero-rated supplies (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

As the Product is a food that is not included in any of paragraphs (a) to (r) of section 1 of Part III of Schedule VI, supplies of the Product are zero-rated under section 1 of the same Part and Schedule.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124. 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,
Nancy Jardine
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 109576R

Business Number: XXXXX
Attention: XXXXX
April 6, 2009

Subject:

GST/HST RULING

Dear XXXXX:

XXXXX

Thank you for your e-mail of XXXXX requesting that we re-consider our ruling of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales of XXXXX (the Product). We had ruled that the Product was taxable at 5% GST or 13% HST.

In your e-mail you provided us with additional information on the nature of the Product, which is contained in paragraphs 8 and 9 of the Statement of Facts below. Upon further consideration, the previous ruling issued to you is hereby revoked and replaced with this ruling effective
XXXXX.

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

Statement of Facts

We understand the facts to be as follows:

1. The Product is labelled as XXXXX.

2. The ingredients are XXXXX.

3. The Product is packaged in a XXXXX.

4. The Product label contains the descriptions "XXXXX".

5. The label states: XXXXX.

6. The Directions state: XXXXX
7. The label contains a caution that states: XXXXX

8. The Product is classified in the XXXXX as "Antacids & Antiflatulents". However, you have stated that the Product should be classified as a dietary aid for XXXXX intolerance, not as an antacid or anti-flatulent.

9. Pursuant to the Food and Drug Regulations, Part B, Division 16 - Food Additives; Table V - Food Additives That May Be Used as Food Enzymes, made under the authority of the Food and Drug Act, XXXXX is listed as a food additive permitted in or upon XXXXX reducing XXXXX preparations, milk and bread, at levels of good manufacturing practices.

10. We have also determined that the Product does not have a DIN, DIN-HM or NPN and is not currently classified as a drug or natural health product under the Food and Drug Act.

Ruling Requested

It is your view that supplies of the Product are zero-rated for purposes of the GST/HST.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are zero-rated.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 5% or the HST rate of 13% on the value of the consideration for the supply. Where a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such foods or beverages), unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies. In this case, none of the exclusionary paragraphs applies.

The Product is XXXXX and is therefore an ingredient. As noted in the Statement of Facts, XXXXX is a permitted food additive under the Food and Drug Regulations. XXXXX is the active ingredient in the Product; the XXXXX serve as a medium to carry the XXXXX in liquid form. The Product XXXXX. Most supplies of milk and other liquid dairy products are zero-rated. The Product does not have a DIN, DIN-HM or NPN.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8253. 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,
Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX

Case Number: 108014
Attention: XXXXX
XXXXX
May 5, 2009

Subject:

GST/HST RULING
Construction and Rental of Artist Live-work Studios

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the construction and rental of condominium units in a mixed-use building, where the units in question are zoned for "live-work" use. We apologize for the delay in our response.

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

Statement of Facts

On the basis of your letter and attachments as well as our additional research, we understand the facts as follows:

1. XXXXX is a Canadian resident corporation that is registered for GST/HST purposes under Business Number XXXXX.

2. XXXXX is the development and investment manager of a joint venture that, at the time of your writing, was completing construction of its XXXXX-storey mixed-use building located at XXXXX in XXXXX, known as "XXXXX". XXXXX and the other joint venture participants have made an election pursuant to section 273 in which XXXXX is identified as the operator of the joint venture.

3. XXXXX includes XXXXX levels of underground parking, XXXXX, and XXXXX condominium units ("the Units"), along with a fitness facility and XXXXX for the exclusive use of the Units' residents.

4. Each of the Units is registered as a separate strata lot under Strata Lot Plan XXXXX.

5. The City of XXXXX's XXXXX ("the By-law") makes provision for artist studios, both on their own and for live-work use, under the broader heading "Cultural and Recreational Uses". When used without a qualifier, the term "Artist Studio" is defined therein to mean both an "Artist Studio - Class A" and an "Artist Studio Class B". These uses are further defined as:

Artist Studio - Class A "... means the use of premises for the production of dance, live music, creative writing, painting, drawings, pottery or sculpture, video, moving or still photography, none of which involves amplified sound or one of the materials or processes specified under Artist Studio - Class B;"
Artist Studio - Class B, "means the use of premises for the production of
(a) dance or live music involving electronically amplified sound,
(b) moving or still photography (excluding video) involving on-site film processing,
(c) paintings, drawings, pottery or sculpture involving the use of fibreglass, epoxy and other toxic or hazardous materials or one or more of the following processes: welding, woodworking, spray painting, silk screening or fired ceramics;"

"Live-Work Use" is defined in part as "the use of premises for:

(a) a Dwelling Unit,
(b) ... Artist Studio - Class A, or
(c) any use referred to in subsection (b) in conjunction with a Dwelling Unit use..."

"Dwelling Unit" is defined to mean a self-contained housekeeping unit that is subject to the provisions of section XXXXX of the By-law.

6. Section XXXXX of the By-law includes the following stipulation:

XXXXX

7. Schedule XXXXX to the By-law establishes the various permitted uses and conditions of use for properties zoned for mixed use and provides for dwelling uses that are designed compatibly with commercial uses. XXXXX of that Schedule allows the Development Permit Board to approve the use of property as an Artist Studio, subject to the provisions of section XXXXX of the By-law, and to approve the use of property as a "Residential Unit associated with and forming an integral part of an artist studio", subject to the provisions of section XXXXX of the By-law.

8. Section XXXXX of the By-law stipulates:

XXXXX
XXXXX

9. Section XXXXX of the By-law stipulates, in part:

XXXXX

10. On XXXXX, XXXXX City Council adopted the contents of a document entitled XXXXX, which are to be used in conjunction with the By-law in an XXXXX. Per section XXXXX of the XXXXX:

• XXXXX
• XXXXX

The Units are zoned for this latter use.

11. The Web site for this project, XXXXX, depicts XXXXX XXXXX floor plans for the Units, each of which reflects a fairly typical residential layout comprised of kitchen, living room, dining room, bedroom(s), and bathroom, together with (in most cases) a separate room or designated alcove area identified as "work".

12. The Units range in size from XXXXX sq. m. to XXXXX sq. m. Of the XXXXX Units whose floor plan illustrates a designated "work" space:

• XXXXX reflect a work space of XXXXX sq. m.,
• XXXXX reflects a work space of XXXXX sq. m.,
• XXXXX reflect a work space of XXXXX sq. m., and
• XXXXX reflect a work space of less than XXXXX sq. m. in size.

The floor plan for the remaining XXXXX Units reflects no specific "work" space, instead identifying a XXXXX sq. m. area (XXXXX) as "live/work".

13. According to the aforementioned floor plans, the exterior space (in the form of patios, balconies, or a combination of the two) forming part of any particular Unit ranges from an additional XXXXX sq. m. to an additional XXXXX sq. m. XXXXX

14. The project is marketed on the Web site, in part, as follows:

"XXXXX"

The accompanying photographs of a Unit depict only furnished "living" space (i.e., a kitchen, bathroom, bedroom, and living room); no "work" space is displayed.

15. At the time of your writing, XXXXX had begun to rent the Units to tenants.

16. You provided a sample of the XXXXX ("the Tenancy Agreement") to be entered into by every tenant in relation to their Unit (identified by its strata lot number, together with the limited common property of that strata lot). The relevant provisions of the Tenancy Agreement for purposes of this discussion are:

XXXXX

XXXXX.

XXXXX

XXXXX.

XXXXX
XXXXX
17. XXXXX
• XXXXX
• XXXXX

18. XXXXX has issued written authorization for the Canada Revenue Agency (CRA) to provide XXXXX with confidential information about its operations for purposes of its request for a ruling or interpretation in relation to this matter.

YOUR POSITION

As the zoning for the Units stipulates that they be used in part for artistic pursuits and in part as a residence, your submission focuses on the need to identify the real property that forms a "residential complex" for purposes of section 191, subsection 136(2), and paragraph 6(a) of Part I of Schedule V to the ETA or, alternatively, a "residential unit" for purposes of section 256.2. You refer to the objects of each of these provisions as they may apply to the Units simply as "the residential portion", and refer to any remaining portion of the Units as "the commercial portion".

You offer two approaches to identify the object for purposes of section 191.

The first approach relies on the definition of "residential unit" which includes a "... condominium unit ... or that part thereof that
(d) is occupied by an individual as a place of residence or lodging,
(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,
(f) ... or

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals."

The use of the words "or part thereof" indicates that a condominium unit can be separated into two components, one of which is a residential unit and one of which is not. You conclude that when XXXXX leases a Unit to a tenant, subsection 136(2) deems two properties to be supplied separately, one being a residential complex (that you identify as that part of a building in which one or more residential units are located) and the other being real property that is not part of the residential complex. You also conclude that XXXXX would only be required to account for the tax deemed collected, under subsection 191(1), calculated on the fair market value of that portion of the condominium unit that is the residential unit.

The second approach focuses instead on the definition of "residential condominium unit" in subsection 123(1), which refers to a "... bounded space in a building ...". You interpret that to mean that the same bifurcation as under the definition of a "residential unit" above is not possible in the case of a residential condominium unit. If so, you suggest that the correct treatment would be for XXXXX to account for the tax deemed collected, under subsection 191(1), calculated on the fair market value of each entire Unit, but claim an input tax credit ("ITC") for the tax deemed to be paid under subsection 191(1) that is attributable to the commercial portion of each Unit.

In either event, it is necessary for valuation purposes (e.g., in applying section 191, section 256.2, paragraph 6(a) of Part I of Schedule V to the ETA, etc.) to establish the proportion of each Unit attributable to the residential portion as opposed to the commercial portion.

You indicate that, as a practical matter, it is impossible for XXXXX to establish what portion of each Unit will actually be used by a tenant as a residence and what portion will be used in business activities. Even should a tenant be required to declare their intention on a questionnaire, there is no certainty that the proportions would be adhered to. Moreover, the use of any particular Unit could change from one year to the next and from tenant to tenant, creating compliance requirements that would be difficult, if not impossible, to meet. For practical purposes, therefore, you believe it would be reasonable to treat each Unit as having a fixed amount of work space, i.e., XXXXX sq. m., corresponding to XXXXX.

Rulings Requested

You have therefore requested that we confirm the following:

1. That XXXXX shall treat XXXXX sq. m. of each Unit as a commercial real property rental and the remainder of each Unit as a residential real property rental.

2. That XXXXX shall charge GST on a portion of the rent attributable on a proportionate basis to the commercial portion of each unit.

3. That XXXXX shall self-assess GST on a portion of the fair market value of each Unit that corresponds to the residential portion of the Unit.

4. That XXXXX shall be entitled to claim new residential rental property rebates for a portion of the GST self-assessed where the fair market value of the residential portion of the Unit does not exceed $450,000.

Rulings Given

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

1. XXXXX cannot treat XXXXX sq. m. of each Unit as a commercial real property rental and the remainder of each Unit as a residential real property rental;
2. XXXXX is required to collect GST on the portion of the rent that is attributable to the part of the Unit that does not form part of the residential complex;
3. the GST deemed to be collected in respect of a deemed supply of a Unit under subsection 191(1) is calculated on the fair market value of the part of the Unit that is a residential complex; and
4. XXXXX will not be entitled to claim a new residential rental property rebate under section 256.2 in respect of a portion of the GST deemed to be paid by XXXXX under subsection 191(1) for a particular Unit and calculated on the fair market value of the part of the Unit that is a residential complex where that fair market value exceeds $450,000 at the time that the tax is deemed to be paid, even if the particular Unit is a "qualifying residential unit" as defined in subsection 256.2(1) at that time, and all of the other conditions and filing requirements for this rebate are met.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation
Determination of "residential unit"

The definition of "residential unit" consists of a "structural" requirement referred to in paragraphs (a) to (c) of the definition, as well as a "functional" requirement referred to in paragraphs (d) to (g). Should the particular Unit in question satisfy any of paragraphs (a) to (c) as well as satisfy any of paragraphs (d) to (g), then such a Unit would satisfy the definition of a "residential unit" as defined in subsection 123(1).

The CRA interprets the phrase "or that part thereof that" in the definition of "residential unit" as referring to the functional components described in paragraphs (d) to (g) of the definition and that therefore removes from the meaning of "residential unit" those parts of a structure described in paragraphs (a) to (c) that are used for a function or purpose other than those functions or purposes described in paragraphs (d) to (g) of the definition.

Hence, as defined, a "residential unit" may include a "... condominium unit ... or that part thereof that ...

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals;"
Determination of "residential complex"
Subsection 123(1) defines "residential complex", in part, as
"... (b) that part of a building that is

(i) the whole or part of a ... residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real property owned, or intended to be owned, apart from any other unit in the building, and
(ii) a residential unit,
together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the unit and that is reasonably necessary for its use or enjoyment as a place of residence for individuals,"

Therefore, a residential complex may be less than the entire parcel of real property identified in paragraph (b) above.

In all cases, it is a question of fact as to the physical portion of real property that forms part of a "residential unit" or a "residential complex". As a general rule, the intentions of the supplier, and not those of a purchaser or a tenant, are taken into consideration in determining whether the real property held for purpose of supply is a residential complex. In the absence of any actual use of the real property by the supplier, the factual circumstances (such as zoning regulations, design, and the supplier's marketing of the property) serve to establish the property's intended use when applying this definition for purposes of the ETA.

In light of your request, we have examined each of these factors within the confines of the information available. Based on the Units' zoned use, and XXXXX requirement (per section XXXXX of the Tenancy Agreement) that the Units be used both for residential purposes and as an artist studio (Class A) and for no other purpose, we are of the opinion that the Units are comprised of both a residential complex and real property that does not form part of the residential complex. However, in our view, neither the zoning, design, nor marketing of the Units support the proposed allocation of "residential" and "commercial" space within the Units i.e., that XXXXX sq. m. in each Unit is commercial space. We will address each of these factors in turn.

First, section XXXXX of the By-Law stipulates the total minimum and maximum size of the entire live-work unit that is used in part as an artist studio; as confirmed by the Zoning and Planning Department of the City of XXXXX, it does not set a minimum size for the artist's actual "work space" within those premises. Nor is provision made elsewhere in the By-law for the size of the work space within such premises. On the other hand, we note that section XXXXX of the By-law stipulates a minimum floor area for a dwelling unit used in conjunction with an artist studio. Specifically, as indicated in Fact 6 above, the dwelling unit portion of such premises must have a minimum floor area of XXXXX sq. m. measured from the inside of all outer walls, unless otherwise authorized by the Director of Planning. Even where a lesser floor area is permitted, the dwelling unit can be no less than XXXXX sq. m. in size.

Second, we are of the opinion that the design of the Units themselves does not support the allocation, as proposed. The XXXXX floor plans depicted on the Web site for this project XXXXX. Specifically, the designs of the Units at issue depict what would be considered "typical" residential layouts for condominium units of their size, and any areas specifically identified as "work" are generally commensurate in dimension and location with what might otherwise be designated a second bedroom or den. As noted in Fact 12, floor plans for only XXXXX of the XXXXX Units reflect a designated work space in excess of XXXXX sq. m., and of those, no work space exceeds XXXXX sq. m. Furthermore, the floor plan for XXXXX of the Units reflected no designated work space at all. Rather, the XXXXX sq. m. area XXXXX was marked as "live/work".

Third, the Web site for this project promotes the Units in part as "XXXXX". However, there is no suggestion that a significant portion of any given Unit is reserved as work space, nor is any work space depicted in the accompanying XXXXX.

Finally, the proposed allocation runs contrary to the heavy emphasis placed in the Tenancy Agreement on the governing authority of the XXXXX, an enactment that does not extend to living accommodation forming part of premises that are primarily occupied for business purposes and rented under a single agreement. If the proposed allocation of XXXXX sq. m. reasonably represents the "commercial" portion of each Unit, the "commercial" portion would exceed the size of the "residential" portion in XXXXX of the XXXXX Units. It is unclear as to how these contrary positions can be reconciled.

In summary, based on our analysis of these factors, it is our view that the proposal put forth for our consideration does not reflect a reasonable allocation between the physical portion of each Unit which constitutes a "residential complex" and that which does not. In our opinion, a fair and reasonable apportionment between the residential complex and the non-residential portion must be undertaken on a Unit by Unit basis, taking into consideration both the distinct characteristics of each floor plan and the remaining factors addressed above.

Self-supply

The deeming provisions under subsection 191(1) apply when XXXXX first gives possession of a Unit to an individual under the Tenancy Agreement, and that individual is the first individual to occupy the Unit as a place of residence after its construction is substantially complete. XXXXX is therefore required to account for the tax deemed to be collected in respect of the deemed sale of that portion of the Unit that is a residential complex, calculated on the fair market value of the complex.

Where the fair market value of the Unit must be apportioned between the portion of the Unit that is considered to be a residential complex and the portion that is not part of the residential complex, the apportionment must be fair and reasonable. As such, consideration should be given to the relative value of the improvements made to the respective portions.

Apportionment of rents

As you are aware, where a supply of real property includes a residential complex and other real property that is not part of the residential complex, subsection 136(2) will apply to deem the supply of the residential complex and that other part of the real property to be separate supplies and neither supply is incidental to the other. Such is the case for XXXXX's supplies of each Unit under the Tenancy Agreement.

The supply of that portion of each Unit that is a residential complex is an exempt supply under section 6 of Part I of Schedule V to the ETA, while the supply of the remainder of each Unit is a taxable supply. Therefore, an apportionment of the rent must be made between these supplies on a reasonable basis in accordance with subsection 153(2). Whether a specified portion of the rent (e.g., based on space) is reasonably attributable to the making of the exempt supply (or supplies) as opposed to the making of the taxable supply (or supplies) is a question of fact.

It is our view that an apportionment of rent based on the relative space occupied by the residential complex and the "commercial" property would be reasonable where these portions are identical in every significant respect (e.g., values attributable to improvements, etc.).

We note that the sample Tenancy Agreement specifies that GST applies to the rent pertaining to at least XXXXX sq. m. of a particular Unit due to "XXXXX". For the reason already cited, this wording appears to be founded on a misunderstanding of the zoning regulations.

In light of the foregoing, if XXXXX collected, from tenants, GST on the portion of the rent attributable to the "commercial" portion of a Unit based on the proposed XXXXX sq. m. allocation, XXXXX would remain liable to report all amounts it had collected in error as or on account of tax. XXXXX may credit or refund the amounts collected as or on account of tax in error in accordance with section 232.

Generally, in this case, it would appear that the allocation for a particular Unit would remain fairly constant over time; however, if XXXXX becomes aware of an increase or decrease in the use of a Unit by a tenant, XXXXX may be considered to have accepted such a change. In this case, the amount of tax to charge in respect of the rent will change and a change in use may occur which may have GST implications. For example, if XXXXX becomes aware that a tenant is using their Unit only for residential purposes and XXXXX continues to supply the Unit to the tenant and does not enforce the terms of the Tenancy Agreement (e.g., XXXXX has not received and does not pursue the tenant for copies of the certificates of insurance with respect to the business activity of the tenant), the supply of the Unit will be exempt regardless of any floor space designated as "work" use in the floor plan or "commercial use" referred to in the Tenancy Agreement. In such a case, XXXXX would not charge GST in respect of the rent, a change in use would be triggered and XXXXX would be required to account for GST on this change in use.

New residential rental property rebate

A person who begins construction of a residential complex or an addition to a multiple unit residential complex after February 27, 2000, will qualify for the new residential rental property rebate if all of the conditions in section 256.2 are met, subject to the additional restrictions set out in section 263. The following discussion focuses on select requirements in this regard.

One condition for a rebate in relation to a given residential unit is that the residential unit is a "qualifying residential unit" as defined in subsection 256.2(1). Whether a given residential unit in this case is a qualifying residential unit under section 256.2 at a particular point in time will depend on whether the requisite conditions are satisfied at that time.

Generally, in the case of a self-supply, where the real property is a residential complex that is a single unit residential complex or residential condominium unit and other real property, the rebate available under subsection 256.2(2) is for a portion of the tax that is deemed to be paid under subsection 191(1) which is calculated on the fair market value of the part of the real property that is a residential complex, provided that this value does not exceed $450,000 and all of the other conditions for the rebate are met. XXXXX

Another of the conditions is that XXXXX must have reported the tax in respect of the deemed supply under subsection 191(1) for the residential complex in question in the return for the reporting period in which the tax was deemed to be collected and remitted all net tax remittable, if any, as reported in that return. It is not evident from your submission that XXXXX has yet accounted for any of the tax deemed to be collected in relation to the Units already rented. If XXXXX has accounted for the tax deemed collected based on the proposed allocation, for the reasons already cited, the amount reported in that regard may have been less than that required under the circumstances.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-3772. 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,
Marcel R. Boivin
Manager, Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 108234
Business Number: XXXXX
Attention: XXXXX
XXXXX
February 24, 2009

Subject:

GST/HST RULING
XXXXX

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX (the Product).

HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold by XXXXX and is referred to as a XXXXX.

2. Traditional XXXXX is a soft, light-textured bread made from eggs, butter, flour and yeast formed into a XXXXX. Generally XXXXX is either classed as being sweet or savory, depending upon how the recipe is manipulated. The dough of sweet XXXXX may be given some extra sweetness.

3. A sample of the Product was submitted for review. The sample XXXXX were approximately XXXXX in diameter and XXXXX high. The crust was similar to bread and was golden brown in colour, with XXXXX visible through the surface.

4. The sample tasted was light and flakey in texture and had what appeared to be an unsweetened brushed egg coating on the top. The Product had XXXXX as an ingredient and tasted sweeter than plain bread.

5. The samples were packed loosely in a plastic bag and the samples which were previously sent were also packaged loosely in a white box. XXXXX has stated that the Product is sold in bulk from their stores and is labelled as a XXXXX.

6. Although some of the previous samples were shaped differently from the sample tasted, they appeared to have the same light texture. Some contained XXXXX, others XXXXX.

Ruling Requested

You would like to know the GST/HST status of supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 5% GST or 13% HST pursuant to section 165 where they are prepackaged for sale to consumers individually or in any quantity less than six.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

Paragraph 1(m) of Part III of Schedule VI excludes from zero-rating:

"Cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where
(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,
but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating;"

For GST/HST purposes, generally a single serving of cake, pie, muffin, pastry, tart, cookie, doughnut, brownie, croissant with a sweetened filling or coating or a similar product, is a serving weighing less than 230g.

It is our position that the Product is considered to be "similar products" for the purpose of paragraph 1(m) of Part III of Schedule VI as the Product is sweet, light in texture and is generally served as a dessert.

As each XXXXX is less than 230g, they would be excluded from zero-rating by paragraph 1(m) of Part III of Schedule VI when sold individually or in a mixed package of similar products containing less than six items.

Paragraph 87 to 100 of the GST/HST Memoranda Series 4.3, Basic Groceries outlines how the GST/HST applies to sweetened goods and similar products. Paragraph 97 states:

"A mixed supply of six or more single servings of these goods is zero-rated. For example, a supply of two bagels, two muffins and two doughnuts, purchased from a doughnut shop (when they are not individually packaged), is considered to be six single servings for the purposes of paragraph 1(m) of Part III of Schedule VI, and therefore zero-rated. If, however, the goods are pre-packaged for sale to consumers individually or in any quantity less than six, the supply is taxable."

For example, where two bread rolls, two muffins, and two of the Products from a grocer's bulk bins are supplied in separate packages, each package is considered to be a separate supply. Thus, the supply of two bread rolls will be zero-rated but the supply of the two muffins, and the supply of two of the Products will be taxable. A sale of the above items from the grocer's bulk bins constitutes a zero-rated supply where they are supplied together in one package.

Therefore, the Product will be zero-rated when sold in single servings in quantities of six or more of the Product or when the Product is sold in combination with six or more single servings of sweetened goods and similar products.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at XXXXX. 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,
XXXXX
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED