GST/HST Ruling

Dear XXXXX

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the facts described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX

2. XXXXX

3. XXXXX

4. XXXXX

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the supply of XXXXX.

Ruling Given

Based on the facts set out above, we rule that XXXXX falls under the zero-rating provision in section 1 of Part III of Schedule VI of the Excise Tax Act ("ETA") when XXXXX is sold in containers exceeding 600 ml or when XXXXX is sold in multiples, prepackaged by the manufacturer or producer, of single servings.

The purchase of an individual single serving (containers containing less than 600 ml) of XXXXX is, however, taxable at 7% GST or 15% HST, as applicable.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

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 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

The supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA), with the exception of supplies identified in paragraphs 1(a) to 1(r) of that same Part.

Paragraph 1(d) of Part III of Schedule VI to the ETA excludes from zero-rating the supply of non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of

(i) a natural fruit juice or combination of natural fruit juices, or

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state, or goods that, when added to water, produce a beverage included in this paragraph.

Although XXXXX contains both fruit and vegetable juice, the fruit juice content is merely an ingredient used as a natural sweetener and sugar substitute, and does not change the characterization of XXXXX from a vegetable juice beverage to a fruit juice beverage.

After having considered its taste, its ingredients and its labeling and promotion, it is our opinion that XXXXX is also not a fruit-flavoured beverage.

Being neither a fruit juice beverage nor a fruit-flavoured beverage, XXXXX would be considered a zero-rated basic grocery.

It is also important to note that paragraph 1(n) of Part III of Schedule VI to the ETA excludes from zero-rating the supply of:

beverages (other than unflavoured milk) or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding, except

(i) when prepared and prepackaged specifically for consumption by babies,

(ii) when sold in multiples, prepackaged by the manufacturer or producer, of single servings, or

(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

Under this provision, a serving of a beverage is considered to be a single serving when the serving is less than 600 ml.

Where XXXXX is sold in multiples, prepackaged by the manufacturer or producer, of single servings, the supply is zero-rated. Where XXXXX is in a can, bottle or primary container which contains 600 ml or more, the supply of the product is also zero-rated.

The purchase of an individual single serving (or any number of loose single servings) of XXXXX is, however, taxable at 7%.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to facts described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX[.]

2. The Bars come in two packaging formats; in cartons of XXXXX and XXXXX bars sold to retail grocery store customers.

3. The Bars are individually wrapped XXXXX.

4. The main ingredient of the Bars XXXXX[.]

5. The Bars are labelled, XXXXX.

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the Bars.

Ruling Given

Based on the facts set out above, we rule that the supply of the Bars, sold individually are subject to GST/HST at the applicable rate of 7% or 15% pursuant to section 165. The supply of the Bars, sold in boxes of XXXXX or XXXXX are zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA").

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

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 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

The supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to section 1 of Part III of Schedule VI to the ETA, unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

According to paragraph 1(m) of Part III of Schedule VI to the ETA, the following products are taxable at 7% or 15%:

(m) 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;

It is the CCRA's position that the Bars are considered "similar products" for the purposes of paragraph 1(m) of Part III of Schedule VI to the ETA. As such, when the Bars are sold in consumer packages containing 6 or more single servings, the supply of these products will be zero-rated. However, when these products are sold individually, or in consumer packages of less than 6 single servings, the supply will be taxable at 7% or 15%, as applicable.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9585.

Yours truly,

Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

XXXXX

Dear XXXXX:

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

In that letter, we ruled that:

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

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

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

Our revised ruling in respect of the first issue is as follows.XXXXX[.] All legislative references are to the Excise Tax Act (the Act).

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX. XXXXX is registered under Subdivision d of Division V of the Act as of the date of this letter and has been so registered since XXXXX.

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

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

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

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

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

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

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

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

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

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

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

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

Ruling Requested

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

Ruling Given

Based on the facts set out above, we rule that the supply of the timeshare points is deemed to be made partly in Canada and partly outside Canada, pursuant to section 142 of the ETA. The portion of the supply that is deemed to be made in Canada is subject to GST, while the portion of the supply that is deemed to be made outside Canada is not subject to GST.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

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

Explanation

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

Application of the Place of Supply Rules

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

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

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

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

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

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

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

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

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

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

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

Should you have any further questions or require clarification on the above matter, please do not hesitate to call me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Encl.

Dear XXXXX:

Thank you for your letter XXXXX addressed to the XXXXX Tax Services Office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. Your letter has been forwarded to us for our reply. We apologize for the delay in our response.

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

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. You and XXXXX purchased certain real property (the Property) from XXXXX in XXXXX. The Property is located in XXXXX. We will assume that the purchase was made in joint tenancy and not by a partnership composed of you and XXXXX. The Property included a three-storey building, the top two of which XXXXX had leased to individuals as a place of residence on a long-term basis (i.e. the supplies were exempt under section 6 of Part I of Schedule V to the Act) (The second storey was leased to you and XXXXX.) and the main floor of which was leased to a XXXXX that operated a business from the premises. We will assume that the Property was capital property of XXXXX and that XXXXX had a reasonable expectation of profit from this rental business. Upon your purchase of the Property, you continued to occupy the second storey as your place of residence and continued to lease the other two storeys in the same manner as had XXXXX.

2. Both you and XXXXX were registered for the GST/HST at the time XXXXX sold the Property to you. There is no evidence that XXXXX was registered. XXXXX did not collect any tax on the sale. There is no evidence to suggest that you reported any tax payable on the purchase of the Property.

3. The only commercial activity you are engaged in is the lease of the main storey of the building to the XXXXX. The revenue from this activity is below $30,000 per year. Once the lease to the XXXXX is terminated, you intend to use the main storey of the building for your personal use and enjoyment as your primary place of residence.

4. You charge the XXXXX $XXXXX per month for the lease of the main storey. Based on a review of your GST/HST returns, you are reporting all of the revenues from the supply. We will therefore assume that you alone are making a supply of the leased premises to the XXXXX.

5. We will assume that XXXXX was not a builder of the residential complex part of the Property and that XXXXX did not claim any input tax credits in respect of the acquisition or improvements made to that part of the Property.

You raised the following questions (in addition to other questions that will be answered later in the response).

Rulings Requested

1. Did the GST apply to any portion of the sale of the Property from XXXXX to you?

2. Should you be collecting and remitting GST on the lease of the main storey to the XXXXX? If not, can you cease doing this?

3. If the lease to the XXXXX expires and you convert the main floor for use as your personal residence, are there any GST implications to the conversion? If the Property were then sold at some time after the conversion, would the GST apply to the sale?

Rulings Given

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

1. The sale by XXXXX to you of that portion of the Property that XXXXX leased to the XXXXX is subject to the GST. The sale of that part of the Property that was a residential complex is exempt under section 2 of Part I of Schedule V to the Act.

2. You are required to collect and remit the GST on the lease of the main storey to the XXXXX. You are required to do this as long as you are a GST/HST registrant.

3. If the lease to the XXXXX ends and you convert the main storey such that it begins to be used for your personal use and enjoyment (which includes using it as your primary place of residence), you will be required to remit an amount equal to 7% of the fair market value (as determined at the time of the conversion) of that part of the Property that was not a residential complex. If the basic tax content of that part of the Property at the time of the conversion is greater than 7% of the fair market value at that time, the difference between these amounts will also need to be remitted. A subsequent sale of the Property would be exempt, provided you were using the Property primarily as your place of residence immediately before that sale.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Ruling #1 - The sale of the Property from XXXXX to you

The term "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 that part of any common areas and other appurtenances to the building and the 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.

In this case, the top two storeys of the building are residential units. Further, in accordance with the definition of residential complex, a portion of the common areas, appurtenances, the immediately contiguous land and the subjacent land will also form part of the residential complex. However, the main storey of the building and some portion of the common areas, appurtenances, immediately contiguous land and the subjacent land will not form part of the residential complex.

Where a supply (which includes a sale) of real property includes a residential complex and other real property that is not a residential complex, subsection 136(2) deems the supply of the residential complex and that part that does not form part of a residential complex to be separate supplies and neither supply is incidental to the other.

The sale of that portion of the Property that is the residential complex will be exempt under section 2 of Part I of Schedule V to the Act. That section exempts the sale of a residential complex made by a person who is not a builder of the complex where the person did not claim an input tax credit in respect of the last acquisition of the complex or in respect of an improvement to the complex since it was last acquired.

The sale of that portion of the Property that is not a residential complex is subject to the GST as there are no provisions to exempt such a supply in these circumstances.

Ruling #2 - The lease of part of the Property to the XXXXX

Your lease of a residential unit in a residential complex (i.e. your lease of the third storey) is exempt under section 6 of Part I of Schedule V to the Act. That section exempts the lease of a residential unit in a residential complex if the unit is to be used by an individual as a place of residence or lodging and if the rental period is a period of continuous occupancy or right of occupancy of one month or more to the same individual.

No exemption exists for the lease of the main storey to the XXXXX that uses the premises for non-residential purposes. This lease to the XXXXX is a taxable supply. A registrant that makes a taxable supply by way of lease of real property is required to collect tax on the supply. Accordingly, as a registrant, you are required to collect the GST on the supply made by way of lease to the XXXXX. (Similarly, when XXXXX owned the Property, her lease of both the third storey and the second storey, the latter of which was leased to you as a place of residence, was an exempt supply under section 6 of Part I of Schedule V to the Act. Her lease to the XXXXX was a taxable supply.)

Ruling #3 - Conversion of part of the Property from leasing to XXXXX to your residence

If the lease of part of the Property to the XXXXX ends and you convert that portion of the Property to use as your place of residence (or indeed for any personal use or enjoyment), subsection 190(2) would apply to deem you to have made and received a taxable supply by way of sale of that portion of the Property. You would be deemed to have paid as recipient and collected as supplier, tax in respect of the supply based on the fair market value of that part of the Property at the time of the conversion.

Where the Property ceases to be used in commercial activities (e.g. you begin to use two storeys as your place of residence and the third storey is used to make exempt supplies under section 6 of Part I of Schedule V to the Act) or where the Property begins to be used primarily for your personal use and enjoyment, subsection 207(1) will apply.

Pursuant to paragraph 207(1)(a), where an individual who is a registrant ceases to use capital real property in a commercial activity and begins to use the property exclusively (90% or more) for other purposes, or primarily (more than 50%) for the individual's or a related individual's personal use and enjoyment, the registrant is deemed to have sold the property immediately before this change-in-use. Except where the supply is an exempt supply, the individual is deemed to have collected tax on the deemed sale, calculated as:

A - B

where

A is the basic tax content of the property at the time of the deemed sale, and

B is the tax, if any, the individual is deemed to have collected under the self-supply provisions in section 190.

As it applies to this case, the deemed sale under paragraph 207(1)(a) is not that of a residential complex and, if the deemed sale is not exempt under section 9 of Part I of Schedule V (discussed below) to the Act, is a taxable supply. As subsection 190(2) also applied in this case, the tax owing thereunder would reduce, perhaps to zero, the tax owing under subsection 207(1).

Pursuant to subsection 123(1) of the ETA, the "basic tax content" of a property is generally calculated as:

(a) the amount of GST/HST that was payable on the last acquisition of the property and on any improvements made to the property since it was last acquired;

(b) from this sum, one must deduct any amounts (other than input tax credits) that the person was entitled to recover by way of rebate, refund, remission or otherwise;

(c) the result is then multiplied by a factor that takes into account the fair market value of the property at the time the basic tax content is being determined and the cost of acquiring the property or improvements thereto.

The enclosed guide, "General Information for GST/HST Registrants", provides the formula for calculating the basic tax content of property.

If you were to sell the Property at some time after the conversion, provided the building was used primarily as your place of residence (or that of a relation to you or a former common law spouse of yours) immediately before the sale and that all of the land and appurtenances are reasonably necessary for residential use, the sale would be exempt under section 2 of Part I of Schedule V to the Act. Section 2 exempts the sale of a residential complex by a person who is not the builder of the complex, unless the person claimed an input tax credit in respect of the last acquisition of the complex or in respect of an improvement to the complex since it was last acquired.

You also raised the following questions:

Interpretations Requested

1. If you were to sell the Property while the lease to the XXXXX is still in place, would the GST apply to any part of the consideration for the sale?

2. If the lease to the XXXXX ended and you did not lease the premises formerly occupied by the XXXXX to any other person and you then sold the Property, what would be the GST implications of a sale of the Property at that time?

3. You also enquired as to the GST implications of cancelling your registration.

Interpretations Given

1. The sale of that portion of the Property that you leased to the XXXXX would attract the GST. The sale of that part of the Property that was a residential complex would generally be exempt under section 2 of Part I of Schedule V to the Act.

2. If the lease to the XXXXX ends and you sell the Property, the sale of that part of the Property that was leased to the XXXXX will attract the GST, unless it can be demonstrated that the use in commercial activities of that part of the Property ceased and either that part also began to form part of the residential complex or you began to use that part for your own personal use and enjoyment. If either of these events occurred, you would be subject to the application of sections 190 and 207 at the time of such a change-in-use (see discussion in the explanation of Ruling #3, above).

3. If you cancelled your registration when the lease to the XXXXX was still in place, you would generally be required to account for tax on the basic tax content of that part of the Property that was leased to the XXXXX. If you cancelled your registration at some time after the conversion of that part of the Property, there would be no additional tax owing at the time of cancellation of registration. However, you would have incurred a tax liability under subsection 190(2) and possibly subsection 207(1) (as discussed above).

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Explanation

Interpretation #1 - Your sale of the property while leasing part of it to the XXXXX

f you were to sell the Property while leasing part of it to the XXXXX (or to any person using the premises for non-residential purposes), the treatment would be similar to the sale made by XXXXX to you. Provided you were not using the Property primarily as your place of residence at the time of such a sale, the sale would be considered that of a residential complex and other real property that is not a residential complex (i.e. the rules in subsection 136(2), as discussed above, would apply).

The exemption in section 2 of Part I of Schedule V to the Act would apply to that part of the Property that is a residential complex if you were not a builder of the complex and no input tax credits were claimed on the acquisition of the complex or any improvements made thereto. The GST would apply to that part of the Property that is not a residential complex as there are no provisions to exempt such a supply in these circumstances.

Interpretation #2 - Your sale of the property where the lease to the XXXXX ends and you do not enter into another lease

If you were to sell the Property at some time after the lease to the XXXXX ended and those premises sat empty after that time and before the time of sale, we would generally consider a supply of the Property to still be that of a residential complex and other real property that is not a residential complex. Such a conclusion is based on the assumption that the premises have not been taken out of use in a commercial activity and have not begun to be used in another manner.

If evidence established that the use in commercial activities ceased by virtue of the fact that you began to use the premises as your place of residence or you leased the floor for residential purposes such that it formed part of the residential complex, the sale of the Property would generally be exempt under section 2 of Part I of Schedule V to the Act. However, in such a case, the rules as set out in the Explanation to Ruling #3 would apply at the time of the conversion. Alternatively, if after the cessation of use in commercial activities you began to use that part of the Property in an exempt use (but not for residential purposes), the rules in section 207 would apply at the time of the change-in-use. A subsequent sale of the Property would be that of a residential complex (generally exempt) and other real property that is not a residential complex (generally subject to tax).

Interpretation #3 - Cancellation of Registration

Given that you are a small supplier and have been registered for at least one year, you are entitled to cancel your GST/HST registration pursuant to subsection 242(2). If the registration is cancelled at a time when the lease to the XXXXX is still in effect, there would be change-in-use implications to the deregistration. Paragraph 171(3)(b) provides that where a person ceases to be a GST/HST registrant, the person is deemed to have ceased using capital real property in commercial activities. The change-in-use rules under paragraph 207(1)(a) would apply (see the Explanation to Ruling #3, above). (It must be noted that in this case subsection 190(2) would not apply and as such, element B in subsection 207(1) would be zero.) If the registration were cancelled at some time after the conversion of the Property, and the Property was not used in your commercial activities at the time of deregistration, paragraph 171(3)(b) would not apply, meaning there would be no deemed cessation of use in commercial activities and no deemed sale under that paragraph at the time of deregistration. However, in that case the rules under paragraph 207(1)(a) would apply at the time of the conversion.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Encl.

Dear XXXXX

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of a XXXXX (the Product) that also contains a promotional XXXXX.

Statement of Facts

1. The Product is a XXXXX that requires preparation by the consumer.

2. There are XXXXX different XXXXX available. Each promotional package will contain one XXXXX[.]

3. The XXXXX is being included temporarily in an effort to increase sales.

4. XXXXX

5. The Company's cost of the XXXXX is approximately XXXXX. The Company's cost of the Product is considerably more.

6. XXXXX[.]

7. XXXXX[.]

8. The value of the consideration for the Product supplied together with the XXXXX will be either the same or marginally different than the consideration for the Product alone.

9. The Company is in the business of selling food for human consumption, and does not ordinarily sell or distribute non-food items, except in connection with promotional activities.

Ruling Requested

What is the tax status of the supply of XXXXX the Product with a promotional XXXXX?

Ruling Given

Based on the facts set out above, we rule that XXXXX the Product containing the promotional XXXXX is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

You also indicated in your letter that the Company will continue to offer these types of higher value promotional items with its food products and asked for some written guidelines in this area. Supplies of such promotional items will be evaluated on a case by case basis to see if they meet the criteria of section 138 of the ETA and can therefore be zero-rated as incidental supplies to basic groceries. Please find attached GST/HST Policy Statement P-159R1: Meaning of the Phrase "Reasonably Regarded as Incidental", which provides some guidelines that may be used to determine if a supply can be regarded as incidental.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9218.

Yours truly,

Nicole Thomas
Goods Unit
General Operation and Border Issues Division
Excise and GST/HST Rulings Directorate

Encl.: P-159R1: Meaning of the Phrase "Reasonably Regarded as Incidental"

Dear XXXXX

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the facts described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX

2. XXXXX used in fertilizer applications.

3. XXXXX would directly provide a plant or crop with nutrients for both growth and crop yield.

4. XXXXX.

5. XXXXX provided a guaranteed analysis for XXXXX.

6. XXXXX is available in:

(a) XXXXX

(b) XXXXX

(c) XXXXX

7. As noted on the Material Safety Data Sheet

XXXXX:

"Product Use: Fertilizer, manufacture of explosives"

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the supply of XXXXX[.]

Ruling Given

Based on the facts set out above, we rule that the supply of XXXXX when supplied in bulk or in a container that contains at least 25 kg of XXXXX, where the total quantity of XXXXX supplied is at least 500 kg, is zero-rated pursuant to section 5 of Part IV of Schedule VI to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

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 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

Section 5 of Part IV of Schedule VI to the Excise Tax Act zero-rates the following supply:

"A supply of fertilizer (other than a good sold as soil or as a soil mixture, whether or not containing fertilizer) made at any time to a recipient when the fertilizer is supplied

(a) in bulk, or

(b) in a container that contains at least 25 kg of fertilizer

Where the total quantity of fertilizer supplied at that time to the recipient is at least 500 kg."

Pursuant to CCRA's Policy Statement P-235, "Meaning of Fertilizer", XXXXX satisfies the requirements needed to be a fertilizer. Therefore, when XXXXX is sold in bulk or in containers that contain at least 25 kg of XXXXX, where the total quantity of XXXXX supplied is at least 500 kg, XXXXX will be zero-rated.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9585.

Yours truly,

Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) XXXXX[.] Your request was transferred from the Saskatoon GST/HST Rulings Centre.

Statement of Facts

Based on the information in your letter as well as information provided on your Internet site XXXXX we understand that XXXXX operates as described below.

XXXXX

Ruling Requested

You are requesting that the XXXXX qualify as a zero-rated medical device under the provisions of section 6 of Part II of Schedule VI that states, "A supply of a mechanical percussor for postural drainage is zero-rated".

Ruling Given

Based on the facts set out above, we rule that the supply of XXXXX is a taxable supply at the rate of 7% or 15 % if supplied in the harmonized provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts for which you requested a ruling.

Explanation

Section 6 of Part II of Schedule VI is specific; that is, the zero-rating provision applies to a supply of a mechanical percussor for postural drainage.

A mechanical percussor is an externally powered device/aid that delivers short sharp blows to the chest wall of a person in order to loosen secretions and allow for their drainage. Percussion, including mechanical percussion, is generally used as an aid when employing the postural drainage technique.

'Postural drainage' is a technique that enables a person whose lungs are clogged with secretions to drain them. The person lies in such a way that the secretions drain by gravity into the trachea where they are coughed up.

XXXXX In the event that we concluded that XXXXX was not zero-rated, XXXXX the GST/HST Rulings Centre XXXXX agreed that we would bring the decision to the attention of the Department of Finance as tax policy is within their scope of responsibility. We have therefore provided a copy of this letter to them for their consideration.

Should you have further questions or require clarification on the above matter, please contact me at (613) 954-4390.

Yours truly,

Suzanne Leclaire
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the facts described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX. (the "Company") manufactures and sells shellfish equipment to the aquaculture industry.

2. The Company offers as part of its shellfish equipment product line, pearl nets, lantern nets and spat collector bags.

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the supply of:

1. Pearl nets;

2. Lantern nets; and

3. Spat collector bags

Ruling Given

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

1. Pearl nets;

2. Lantern nets; and

3. Spat collector bags, do not fall under the zero-rating provision in section 10 of Part IV of Schedule VI to the Excise Tax Act ("ETA"). The supply of the above products are therefore taxable at a rate of 7% GST or 15% HST as applicable pursuant to subsection 165(1) of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

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 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

Section 10 of Part IV of Schedule VI to the ETA zero-rates a supply of prescribed property relating to agriculture or fishing. The Agriculture and Fishing Property (GST/HST) Regulations ("Regulations") lists property, when supplied by way of sale, that is prescribed property for the purposes of section 10 of Part IV of Schedule VI to the ETA.

1. Pearl nets;

2. Lantern nets; and

3. Spat collector bags are not included in the Schedule to section 2 of the Agricultural and Fishing Property (GST/HST) Regulations. Therefore, none of the above-mentioned products are prescribed property for the purposes of section 10 and, as such, cannot be zero-rated.

In addition, it is our position that the above-mentioned products are not "netpens for use in aquaculture". Our research indicates that netpens are three-dimensional cage-like structures consisting of a floating collar and anchored underwater nets, the function of which is to enclose and contain fish. Your products do not fit under this description and therefore cannot be considered "netpens for use in aquaculture".

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9585.

Yours truly,

Nicole Thomas
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

This is further to your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of psychometric services made by your client, XXXXX, to a psychologist. Your letter was referred to us for review by our XXXXX Tax Services office.

Your letter is in response to our previous letter XXXXX addressed to XXXXX, in which we had advised XXXXX that XXXXX supplies were subject to the 7% GST/HST. You are suggesting that section 10 of Part II of Schedule V to the Excise Tax Act (the "ETA") may apply to exempt the services supplied by XXXXX to a psychologist.

Statement of Facts

Based on the information provided with your letter and included with XXXXX, as well as our telephone conversations XXXXX our understanding of the facts is as follows:

1. Your client, XXXXX is an independent contractor who makes supplies to a psychologist. You advised that your client is not a "medical practitioner" or "practitioner" as those terms are defined in the ETA. Therefore, your client's supplies do not fall within sections 5 or 7 of Part II of Schedule V to the ETA.

2. Your client works as a "psychometrist". Your client's supply consists of assisting a psychologist in administering psychological assessments of the psychologist's patients. The work involves carrying out psychometric testing of these patients under the direction and supervision of the psychologist. These tests are administered in the psychologist's office and form part of the psychological services that the psychologist provides to his or her patients.

3. Your client does not deal directly with referral sources. Rather, the contract is with the psychologist who employs and pays your client for the time spent assisting the psychologist with the assessment and treatment of the psychologist's patients. The consideration paid to your client by the psychologist is on a per-assessment basis.

4. The psychologist instructs your client and oversees XXXXX work. The psychologist also assumes any risk associated with the work performed by your client.

5. You submitted an article entitled "Fundamentals of Human Neuropsychology", which describes several types of neuropsychological assessments rendered by psychologists. According to the article, these assessments involve a variety of tests to evaluate personality, intelligence, memory, musical talent, speech-sounds perception, time-sense, etc. You advised that the assessments described in the article are examples of the types of tests that your client would assist the psychologist in administering to his or her patients.

6. The psychometric tests administered by your client provide information to the psychologist to assist the psychologist in formulating a diagnosis pertaining to his or her patient.

Ruling Requested

The supplies made by your client to the psychologist of assisting the psychologist in administering psychological assessments of the psychologist's patients fall within the exemption in section 10 of Part II of Schedule V to the ETA.

Ruling Given

Based on the facts set out above, we rule that the supplies made by your client to the psychologist of assisting the psychologist in administering psychological assessments of the psychologist's patients do not fall within the exemption in section 10 of Part II of Schedule V to the ETA. As no other exempting provisions apply, the supplies made by your client are taxable.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Based on the information provided as well as our additional research, we understand psychometric testing to be the scientific measurement of mental capacities and abilities that is carried out as a component of a psychological service supplied by a psychologist. Although psychologists use psychometric tests to formulate psychological diagnoses, for the reasons explained below, psychometric tests are not prescribed diagnostic services for purposes of section 10 of Part II of Schedule V to the ETA.

Section 10 of Part II of Schedule V to the ETA exempts the supply of a prescribed diagnostic service when made on the order of a medical practitioner or practitioner. A diagnostic service is considered to be the detection and determination of the cause of a disease by means of a study procedure and the report of findings.

While there are many types of diagnostic services, the scope of the exemption in the ETA is limited to prescribed diagnostic services described in the Health Care Services (GST/HST) Regulations. Accordingly, for purposes of section 10 of Part II of Schedule V to the ETA, a diagnostic service is a laboratory, radiological or other similar diagnostic service of the same kind as those generally available in a health care facility and includes the administration of drugs, biologicals or related preparations when provided in conjunction with this service. Note that a "health care facility" as defined in the ETA does not include a practitioner's private practice. Therefore, a psychologist's private practice would not fall within the meaning of health care facility for purposes of the ETA.

Examples of diagnostic services that fall within section 10 of Part II of Schedule V to the ETA are serological tests, microscopic analysis and diagnostic imaging (e.g., x-ray, CT scanning, MRI scanning, mammography and ultrasound) that are used to detect and determine the cause of a disease. The ETA provides that these diagnostic services remain exempt when they are provided outside a health care facility.

Psychological services are not prescribed diagnostic services for purposes of section 10 of Part II of Schedule V to the ETA because they are not of the same class or kind of diagnostic services enumerated in the Health Care Services (GST/HST) Regulations; i.e., a psychological service is not a laboratory, radiological or other such diagnostic service generally available in a health care facility used to detect and determine the cause of a disease.

For purposes of the ETA, a psychological service rendered to an individual includes the various professional and technical components of that service, such as the direct physical encounter with the individual, the performance of procedures during the encounter such as tests and interpreting results, the provision of advice and information to the individual, formulating and communicating a diagnosis, etc. The psychological service is exempt under section 7 of Part II of Schedule V to the ETA when it is supplied by a "practitioner" of the service as that term is defined in the ETA. This supply includes any component that the psychologist delegated to an assistant to perform for the psychologist.

According to the information provided and our research, the psychologist is the person who supplies the psychological service rendered to an individual and in the course of making that supply, the psychologist may delegate certain procedures to an employee or assistant. We understand that psychometrists provide a range of testing services generally under the employ of, or as an assistant to, a psychologist. They carry out these tests under the supervision of a psychologist, generally in the psychologist's office. When a psychologist delegates a test procedure to be performed on his or her patient by an assistant and the assistant carries out the procedure under the supervision of the psychologist, the procedure is a component of a supply made by the psychologist, notwithstanding any interaction that the assistant had with the psychologist's patient.

In the case at hand, the psychologist contracts with your client for assistance in conducting psychological assessments of the psychologist's patients. The psychologist delegates psychometric test procedures to your client who carries out these tests for the psychologist under the supervision of the psychologist in the psychologist's office. In addition, you advised that the psychologist assumes any risk associated with the work performed by your client. Under these circumstances, the psychometric testing of the psychologist's patients that is delegated to your client is a component of the psychological service supplied by the psychologist.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division

Dear XXXXX:

This is in reply to your letter XXXXX concerning the Goods and Services Tax ("GST") treatment of a sale of real property by your client, XXXXX ("B"), to XXXXX ("W"). We apologize for the delay in responding.

All references are to the Excise Tax Act ("ETA").

The following facts are based on your letter and on information imparted in our various telephone conversations and your corresponding written submissions XXXXX.

Statement of Facts

1. B owned property legally described as XXXXX (hereafter the "Property"). The Property consisted of a total of XXXXX acres of land and included a residential complex (the "Complex") which B used as XXXXX principal residence.

2. B decided to sell the Property but first wished to create and retain XXXXX building lots. B thus proposed to subdivide the Property into 3 parts: a parcel containing the Complex and XXXXX acres of land (the "Residence Parcel") and XXXXX separate building lots consisting of XXXXX acres (the "Building Lots").

3. B engaged XXXXX XXXXX to submit XXXXX an application to XXXXX (the "City") to subdivide the Property in the above-described manner.

4. Before the proposed subdivision could be approved, W made an offer to purchase the Property. XXXXX B and W entered into an agreement for the purchase and sale of the Property (the "Agreement").

5. The Agreement was structured to allow B to retain the Building Lots and W to acquire the Residence Parcel. In an addendum to the Agreement XXXXX the parties agreed to the following.

•   W would execute and B would receive a Transfer/Deed of Land for the Building Lots upon approval by the City of the proposed subdivision.

•   Upon receiving approval of the proposed subdivision, W's mortgage lender would provide B with a registerable partial discharge of mortgage in respect of the Building Lots.

•   B would be entitled to register notice of the Agreement on title to the Property.

•   B would release any right, title or interest in the Residence Parcel upon approval of the proposed subdivision.

•   In the event that approval for subdivision was not obtained XXXXX, W would retain the entire Property. In that event, B would provide W with an agreement releasing any right, title or interest in the Property.

6. Approval for the proposed subdivision was imminent; as such, it was unlikely that W would retain anything more than the Residence Parcel. Consideration for the Property was therefore set at XXXXX, the estimated market value of the Residence Parcel. Upon approval of the proposed subdivision, the parties further agreed that the Building Lots would be transferred to B for consideration of $XXXXX.

7. XXXXX the sale of Property was completed.

8. XXXXX legal title to the Property transferred to W. On the same day, B made an application to register the Agreement XXXXX. In the application, B declares XXXXX to be a registered owner of the Property. Although legal title to the Property appears to have been held by W at that time, you confirmed that B retained an equitable interest therein.

9. The parties undertook to complete the proposed subdivision and retained XXXXX to submit the application on their behalf. We assume that the parties had the right to sever or subdivide the Property subject to the City's approval.

10. XXXXX the City approved the proposed subdivision. B paid all expenses relating to the subdivision.

11. W executed the appropriate Transfer/Deeds thus conveying the Building Lots to B. Legal title to the Building Lots were transferred to B XXXXX for nil consideration.

12. At all relevant times, B and W held the Property for personal use. With the exception of the subject transactions, neither party was engaged in any activities relating to real property. Further, neither B nor W claimed an input tax credit ("ITC") in respect of the Property as neither of them were registrants.

13. B and W are not related to each other for purposes of the Income Tax Act. Moreover, all of the above transactions were performed at arm's length for GST purposes.

14. Subsequent to receiving title to the Building Lots, B sold them to arm's length parties XXXXX.

Ruling Requested

You wish to know whether the ultimate sales of the Building Lots by B were taxable.

Ruling Given

Based on the facts as stated, we rule that the ultimate sales of the Building Lots by B were taxable supplies.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Analysis

A number of transfers in respect of the Property (and parts thereof) occurred in order to enable W to acquire the Residence Parcel and B to retain the Building Lots. The GST consequences of each of these transfers are considered below, followed by an explanation of the GST treatment of the ultimate sale of the Building Lots by B.

Sale of the Property to W

Sales of real property made in Canada are generally taxable pursuant to section 165 unless a specific provision applies to exempt them.

Section 2 of Part I of Schedule V exempts the sale of a residential complex or an interest therein by a person who is not the builder of the complex, unless the person claimed an ITC in respect of the last acquisition of or an improvement to the complex. Since the Complex was used by B solely as a place of residence, XXXXX would not be considered to be a "builder" (Paragraph (f) of the definition of "builder" (section 123(1) of the ETA) excludes an individual who acquires a residential complex or interest therein otherwise than in the course of a business or an adventure or concern in the nature of trade.) for purposes of the ETA. Since XXXXX did not claim ITCs in respect of the Complex, the sale of the Complex to W was an exempt supply pursuant to section 2 above.

In determining the tax status of the sale to W of the entire Property (which includes the Complex), the normal procedure would be to first determine whether all or part of the Property formed part of the Complex (The ETA defines a "residential complex" to include both the building and the 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. The determination of the amount of land reasonably necessary for this purpose is the subject of CCRA policy statement P-069, Land Allowance For Residential Complexes.). If all of the land included in the Property were found to form part of the Complex, then the whole of the Property would have been exempted by section 2.

On the other hand, if only a portion of the land included in the Property were found to form part of the Complex, then the sale of the Property to W would have been subject to subsection 136(2). Under this provision, if a supply of real property includes a residential complex and other real property which is not part of a residential complex, the supply of the complex is deemed to be a separate supply from the other real property and neither supply is incidental to the other. In such a situation, the Complex would have remained exempt under section 2 above; however, the tax status of the remainder of the Property would have been subject to the exemption contained in section 9 of Part I of Schedule V. Section 9 states, in part:

A supply of real property made by way of sale by an individual or a personal trust [is exempt], other than

(a) a supply of real property that is, immediately before the time ownership or possession of the property is transferred to the recipient of the supply under the agreement for the supply, capital property used primarily ... in a business carried on by the individual or trust with a reasonable expectation of profit ...

(b) a supply of real property made... in the course of a business of the individual or trust ...

(c) a supply of a part of a parcel of land, which parcel the individual, trust or settlor of the trust subdivided or severed into parts, except where ... the parcel was subdivided or severed into two parts and the individual, trust or settlor did not subdivide or sever that parcel from another parcel of land ...

Under the circumstances, section 9 would have applied to exempt that part of the total Property that did not form part of the Complex.

The sale of the Property to W was therefore exempt from the GST by one of two means: either by operation of section 2 of Part I of Schedule V alone or in combination with section 9 of Part I of Schedule V.

Transfer of the Building Lots to B

The facts indicate that, subsequent to completing the sale of the Property to W, B retained an equitable interest therein. That B retained an equitable interest is demonstrated by the fact that B exercised XXXXX right under the Agreement to register the Agreement on title to the Property; furthermore, it corresponds with the covenants of the Agreement which require B to release any "... right, title or interest" XXXXX continued to hold in the Residence Parcel upon subdivision of the Property. Subsequent to subdivision, both parties therefore held undivided interests in the Residence Parcel and Building Lots until each transferred his/her interests to the other pursuant to the Agreement.

Pursuant to paragraph (b) of the definition of "real property" contained in subsection 123(1), legal and equitable interests in real property are themselves "real property". The respective interests of B and W in the Property were therefore considered to be real property for GST purposes.

The transfer of W's interests in the Building Lots to B, being a transfer of ownership, met the definition of "sale" in subsection 123(1). Accordingly, those transfers constituted sales of real property. Whether they were subject to tax depends on the application of the exempting provisions contained in section 9 of Part I of Schedule V.

As previously mentioned, section 9 of Part I of Schedule V exempts the sale of real property by an individual with certain exceptions. The exception contained in paragraph 9(2)(c) of Part I of Schedule V provides that the supply of a part of a parcel of land by a person who is an individual will not be exempt if the parcel was severed or subdivided by the person. There are exceptions to this rule. Specifically, where a parcel of land is subdivided or severed into only two parts and the person did not previously subdivide or sever it from another parcel of land, paragraph 9(2)(c) does not apply.

Since W subdivided the Property (albeit in concert with B) into more than two parts, the exclusionary provisions of paragraph 9(2)(c) applied to exclude the transfer of W's interest in the Building Lots from exemption. Since no other exempting provision is applicable in the circumstances, the transfer of these interests to B were taxable. In any event, since the consideration paid by B on the transfer was nil and the parties were dealing at arm's length, there was no tax payable for the supply.

Ultimate sale of the Building Lots by B

Paragraph 9(2)(c) is again relevant in determining the tax status of the ultimate sale of the Building Lots. Because B, in concert with W, subdivided the Property into more than two parts, paragraph 9(2)(c) applied to exclude the sale of the Building Lots from exemption. As no other exempting provisions are applicable in the circumstances, the sale of each of the Building Lots was a taxable supply. Tax was therefore payable at 7% of the value of consideration for the supply of the Building Lots.

Accounting for tax

Pursuant to subsection 221(1), every person who makes a taxable supply generally must collect any tax that is payable by the recipient of the supply and remit that tax pursuant to section 228. However, paragraph 221(2)(b) specifies that persons making taxable supplies of real property are not required to collect the tax payable where the recipient is registered for GST purposes and the supply is not a supply of a residential complex made to an individual.

In the present case, if B sold a Building Lot to a purchaser who was registered for GST purposes, XXXXX would have been relieved by paragraph 221(2)(b) from the obligation to collect tax on that Building Lot. In that case, subsection 228(4) would apply to require the purchaser to remit the tax payable directly to the Receiver General. However, if B sold a Building Lot to a non-registrant, XXXXX would have been required to collect and remit tax on that supply.

Should you have any further questions or require clarification on the above or any other GST or Harmonized Sales Tax matter, please do not hesitate to contact me at (613) 952-8816.

Yours Truly

Paul Hawtin
Rulings Officer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Dear XXXXX

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the proposed transaction (s) described below.

We confirm that we have received a Third Party Authorization form authorizing your firm to act as a representative of XXXXX for GST/HST purposes.

You confirmed that, to the best of your knowledge, none of the issues described herein is being considered by a Canada Customs and Revenue Agency (CCRA) Office in connection with a GST/HST return already filed and none of the issues is under objection or appeal.

Statement of Facts

Our understanding of the facts, the proposed transactions, and the purpose of the proposed transactions is as follows.

Legal description of Land-owner, Developer and Subject Property

1. The XXXXX (the "Land-owner") is XXXXX. The Act sets out the objects, purposes and powers of the Land-owner, and includes the XXXXX. The Land-owner is XXXXX.

2. For GST/HST purposes, the Land-owner is considered XXXXX[.] In accordance with the definition of XXXXX under subsection 123(1) of the Excise Tax Act (ETA) and the XXXXX Regulations to that Act.

XXXXX.

3. XXXXX, the Land-owner is a XXXXX "non-profit organization" in accordance with subsection 259(1). In addition the Land-owner is a "qualifying non-profit organization" as, in accordance with subsection 259(2), its "percentage of government funding" for the current year is at least 40%. For purposes of this ruling, the Land-owner is considered to be a qualifying non-profit organization at all relevant times.

4. The Land-owner currently owns vacant land legally described as XXXXX (the subject property). The subject property has a municipal address of XXXXX. It is currently referred to as XXXXX and is formerly known as XXXXX.

Development Agreement and Ground Lease

5. In or around XXXXX, the Land-owner entered into the XXXXX (the Development Agreement) with XXXXX (the Developer) XXXXX.

The Demised Premises are to consist of a mixed-use (i.e. residential and commercial) building (the Building) on the subject lands. Note, the subject lands together with the Building are hereafter referred to collectively as the "subject property".

6. In accordance with the Development Agreement, the excavation for the construction of the Building is to commence on or before XXXXX, with its completion (and readiness for occupancy) on or before XXXXX.

7. In or around XXXXX, the Land-owner, as lessor, entered into the Ground Lease with the Developer, as lessee, to supply the subject lands by way of lease. At the commencement of the Ground Lease the subject lands were vacant.

8. The Developer acquired the subject lands under the Ground Lease for the purpose of developing and constructing the Building for re-supply to third parties in the course of its business activities. The Building is to consist of XXXXX stories (above ground) and XXXXX stories underground, as a parking garage. The top XXXXX of the above ground stories and XXXXX of the underground parking garage will be used for residential purposes (the Residential Portion) with the remainder of the subject property (i.e. the first XXXXX stories above ground and XXXXX of underground parking) used for retail or other commercial purposes (the Retail Portion).

9. The Land-owner estimates that the Residential Portion and the Retail Portion of the subject property will consist of approximately XXXXX % and XXXXX %, respectively.

10. The Ground Lease provides that the Developer will have and hold the Demised Premises for and during the term of XXXXX years commencing XXXXX XXXXX, and terminating XXXXX, at which time the Developer will surrender and deliver to the Land-owner the Demised Premises XXXXX.

11. The Ground Lease provides that on the first day of each Lease Year, the Developer will pay an annual Base Rent to the Land-owner equal to the amount set out in the table included therein XXXXX. Moreover, the Ground Lease states:

(i) XXXXX.

12. The Ground Lease provides that for Lease Years XXXXX, no annual Base Rent will be charged to the Developer by the Land-owner XXXXX.

13. A letter from the Land-owner to the Developer dated XXXXX states that "[i]n lieu of the lease charges for the first 4 years, the Developer will upgrade the exterior wall surface with Indiana Limestone and contribute an additional $417,000.00 towards its cost." (The total cost for the exterior cladding is XXXXX. The remaining balance, XXXXX, will be paid by XXXXX.).

14. The Ground lease provides that at any time prior to the beginning of Lease year XXXXX, being XXXXX, the Developer has the option of paying the entire base rent payable for the lease term in one single payment equal to the net present value of the Date of Commencement, using an agreed discount rate of XXXXX %. The Developer intends to exercise this option and to pay the entire base rent as a single lump-sum payment in accordance with this provision of the Ground Lease.

15. The Ground Lease provides that "other rent" or "additional rent" will be charged by the Land-owner to the Developer in circumstances where the latter XXXXX of the Development Agreement. The Developer is required to make payments of XXXXX for each of the following milestones the Developer fails to meet: XXXXX

•   commence excavation for the Construction of the Building before XXXXX;

•   complete excavation and the foundation work for the Building by XXXXX;

•   complete the construction of the Building by XXXXX; and

•   complete construction of the Building by XXXXX.

16. The Ground Lease provides that XXXXX[.]

17. The Ground Lease provides that the Land-owner consents to the registration of one or more declarations and descriptions that divide the Developer's leasehold estate in the subject property into units and common elements (referred to as leasehold condominium units (LCUs) XXXXX and create one or more leasehold condominium corporations (LCCs) XXXXX. Further, the Ground Lease permits the Developer to convey LCUs and their appurtenant interests in the subject property for fixed periods, not to exceed the term of the Ground Lease.

XXXXX

Residential Portion of the Subject Property

18. The Developer proposes to register a declaration and description that divides the Developer's leasehold estate in the Residential Portion into XXXXX dwelling units, XXXXX storage units, XXXXX (more or less) parking units and common elements and to create a LCC (the Residential LCC). Note, a dwelling unit together with a storage unit and one or more parking units are hereafter collectively referred to as a "Residential Unit".

19. None of the Residential Units or any of the common elements in the Residential Portion will be used for commercial purposes or other uses not ancillary to residential purposes.

20. The Developer will provide the following amenities for use by the owners and occupants of the Residential Units: XXXXX elevators connecting the Residential Units to the residential level of the parking garage; on level XXXXX — XXXXX exercise room, separate men's and women's change rooms and washrooms, games room, XXXXX sauna and XXXXX whirlpool; on level XXXXX — a reception room, a board room/dining room, a business centre, XXXXX offices, a kitchen and XXXXX washrooms; and on level XXXXX — a landscaped terrace area. For purposes of this ruling all of these amenities are presumed to be common areas of the Residential Portion.

21. The underground parking garage will have XXXXX designated parking units. Approximately XXXXX parking units will be assigned to Residential Units with the remaining XXXXX parking units on hand for public parking. Note, it is assumed for purposes of this ruling that the XXXXX parking units are available for customer parking only and thus form part of the Retail Portion of the subject property.

22. The Developer's draft Disclosure Statement XXXXX contains the following key articles:

(a) the proposed condominium property is referred to as being composed of a leasehold interest;

XXXXX

(b) the proposed condominium property is to consist of 70 Residential Units, XXXXX (Article III of the Disclosure Statement states that there will be XXXXX parking units. However XXXXX the Declaration Statement states that there will be XXXXX parking units. For purposes of this ruling, the number of parking units belonging to the Residential Units are considered to be XXXXX.) parking units, and XXXXX storage units (i.e. Residential Units);

XXXXX

(c) the corporation created in respect of the residential component of the development will be a LCC; [XXXXX] and

(d) the Developer does not intend to lease any of the proposed Residential Units unless, due to market conditions, there remain unsold Residential Units, in which case it intends to lease not more than 25% of the proposed Residential Units.

XXXXX

Agreement of Purchase and Sale

23. Pursuant to the sample Agreement of Purchase and Sale provided by the Developer, the Developer proposes to dispose of its leasehold interest in the Residential Units. The Agreement of Purchase and Sale contains the following key provisions:

(a) A person, as "Purchaser", agrees to purchase a Residential Unit from the Developer, as Vendor; [pre-amble to Agreement of Purchase and Sale]

(b) The "Purchase Price" for the Residential Unit will be inclusive of Goods and Services Tax (GST) net of the New Housing Rebate. In other words, the purchaser agrees to "assign" or transfer his New Housing Rebate entitlement to the Developer, as "Vendor", and the "Purchaser" acknowledges having received from the Vendor a credit in the amount of such a New Housing Rebate;

XXXXX

(c) Title to the Residential Unit is referred to as the XXXXX[;]

(d) The Purchaser is a "home buyer" XXXXX[;]

(e) The Purchaser agrees not to register its Agreement of Purchase and Sale against the title to the Property, Residential Unit or the Condominium; XXXXX[;]

(f) Where the Residential Unit is substantially complete and fit for occupancy on the Closing Date (The Closing Date is, for purposes of this ruling, the actual occupancy date and the date the Purchaser takes possession of the Residential Unit pursuant to the terms of the Agreement of Purchase and Sale.) but the condominium complex has not been registered, the Purchaser shall occupy the Unit on the Closing Date pursuant to the terms set out in XXXXX the Agreement of Purchase and Sale;

XXXXX

(g) Residential Units are covered by the Warranty Program XXXXX[;]

(h) At the Unit Transfer Date, (The Unit Transfer Date is, for purposes of this ruling, the date the Purchaser receives assignment of the Developer's leasehold title to the Unit.) the risk in the Residential Unit transfers from the Vendor to the Purchaser; and

XXXXX

(i) Vendor's right to lease any unsold Residential Units is distinguished from its sale of such Units.

XXXXX

24. Where a Purchaser occupies a Residential Unit from the Closing Date until the Unit Transfer Date, the Purchaser obtains an occupancy licence from the Developer pursuant to the Agreement of Purchase and Sale with the following key terms XXXXX:

(a) The term of the occupancy licence shall be terminated, unless otherwise expressly provided for, on the Unit Transfer Date;

(b) The Purchaser shall pay the amount set forth in paragraph XXXXX of the Agreement of Purchase and Sale; and

(c) The Purchaser shall pay to the Developer the Occupancy Fee calculated as:

(i)the amount of interest payable in respect of the unpaid balance of the Purchase Price at the prescribed rate;

(ii) the amount reasonably estimated by the Developer on a monthly basis for the municipal realty taxes attributable by the Developer to the Unit; and

(iii) the projected monthly common expense contribution for the Unit.

25. Of the total of XXXXX Residential Units, XXXXX are to be assigned for consideration of less than $450,000.

Retail Portion of the Subject Property

26. The Retail portion does not form any part of the Residential Portion. Although the Developer is permitted to register a declaration and description that divides the Developer's leasehold interest in the Retail Portion into units and common elements (Retail Units) and creates a LCC (Retail LCC), the Developer has not provided a draft Disclosure Statement with respect to a Retail LCC.

27. Alternatively, where the Developer does not create Retail Units, the Developer proposes to sub-lease space in the Retail Portion to various tenants for their retail or other commercial use.

Proposed Transaction(s)

In addition to the transactions already entered into noted in the Statement of Facts, the Developer proposes to enter the following transactions:

1. The Developer, as Vendor, proposes to enter into Agreements of Purchase and Sale with prospective purchasers for the purpose of selling its leasehold interest in the Residential Units of the subject property.

2. To the extent that the Developer is unable to sell its leasehold interest in some of the Residential Units, the Developer intends to lease those Residential Units. It is anticipated that the Developer will not lease more than XXXXX % of the total Residential Units.

3. Where the Closing date is prior to the Unit Transfer Date under a particular Agreement of Purchase and Sale, the Developer proposes to give possession of the Unit to the Purchaser under a lease licence or similar arrangement from the Closing date to the Unit Transfer Date pursuant to the terms set out in XXXXX the particular Agreement.

4. The Developer, as Vendor, proposes to enter into Agreements of Purchase and Sale with prospective purchasers for the purpose of selling its leasehold interest in the commercial Units of the subject property.

5. Alternatively, where the Developer does not register a condominium complex in respect of the Retail Portion, the Developer proposes to lease the commercial space in the Retail Portion to various tenants for the purpose of enabling the tenants to conduct their retail business operations from such commercial space.

Ruling Requested

1. Whether XXXXX the Ground Lease, XXXXX paragraph, as stated in paragraph 11 of the Statement of Facts, is technically accurate and, if not, what would be the proper method of calculating the correct amount of GST;

2. Whether for Lease Years XXXXX, the Land-owner will be required to charge GST to the Developer despite the fact that no annual Base Rent will be charged by the Land-owner for those years, yet the Developer will incur additional costs for exterior upgrades to the Building for the same time period as stated in paragraph 13 of the Statement of Facts;

3. Whether any GST applicable to additional rents charged by the Land-owner to the Developer (as stated in paragraph 15 of the Statement of Facts) should be treated in the same manner as the annual Base Rent (i.e., in the same way as in question 1 above), and if not, what would be the proper approach to calculate the correct amount of GST;

4. Whether the Land-owner will be entitled to any input tax credits (rather than the 50% PSB rebate as a XXXXX) in respect of supplies of property and services acquired or imported by them for consumption, use or supply in relation to the provision of the Ground Lease;

5. Whether the Land-owner and/or the Developer will be required to self-assess GST at the later of the time the construction of the Building is substantially completed and the time possession of any Residential Unit in the Building is made for the purpose of its occupancy by an individual as a place of residence; and

6. Whether any other GST issues will apply to the Land-owner or the Developer in connection with the Development Agreement, the Ground Lease or the proposed transactions.

Ruling Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the facts, the proposed transactions, and the purpose of the proposed transactions, and provided that the proposed transactions are completed as described above, our ruling is as follows:

1. Tax status of supplies made by the Land-owner under the Ground Lease and the apportionment of consideration between such supplies

The Land-owner is deemed for GST purposes to be making two supplies of two separate properties under the Ground Lease in accordance with subsection 136(2). One of these two deemed properties being separately supplied is the Residential Portion (While during the term of the Ground lease where the land is excavated and the Building is under construction (refer to Period I on page 9) subsection 136(2) will apply to deem the land and building construction that is reasonably expected to form the Residential Units once constructed be separate property that is separately supplied from land and building construction reasonably expected to form the Retail Portion.) of the subject property and the other deemed property separately supplied is the Retail Portion. The tax status of supplies made by the Land-owner under the Ground Lease will be given with respect to the Retail Portion and the Residential Portion, separately.

The Apportionment Issue between the Retail and Residential Portions of the subject property will also be addressed.

A. Retail Portion

The Land-owner's supply under the Ground Lease of the Retail Portion of the subject property is a taxable supply in accordance with paragraph 123(1)(c) of the definition of commercial activity and the definition of taxable supply in subsection 123(1), as there is no exemption in Schedule V for this supply. The Retail Portion is a taxable supply by way of lease throughout the entire lease term of the Ground Lease. This supply is taxable regardless of whether the Developer chooses to sub-lease space in the Retail Portion to tenants or to register a LCC to create Retail Units and to assign Retail Units to Purchasers. The Land-owner is required to collect and the Developer is required to pay GST calculated on the rent payable under the Ground Lease that is reasonably attributable to the Retail Portion of the subject property.

B. Residential Portion

The tax status of supplies made by the Land-owner under the Ground Lease of the Residential Portion will vary depending in which of the following 3 distinct time periods of the term of the Ground Lease the supplies are made:

Period I - from the date the Ground lease is entered into until immediately before the Residential Units first come into existence (In accordance with XXXXX, upon registering a declaration and description, the leasehold estate in the subject property is legally divided into units and common elements. For GST purposes, each of the Residential Units is a "residential condominium unit" as defined in subsection 123(1). Since the Developer has submitted as fact, supported by its proposed declaration, that it intends to register the condominium plan under XXXXX, the residential condominium units will exist for GST purposes once the extent of construction of the condominium complex reaches a stage where the Units are reasonably capable of being used by individuals as places of residence. Therefore, once the Residential Units first come into existence by way of construction, the Land-owner will be considered for GST purposes to be making separate supplies by way of lease of the property comprising each Residential Unit (i.e. as if they were legally divided).);

Period II - from the time the Residential Units first come into existence until immediately before a particular Residential Unit is assigned to a Purchaser; and

Period III - from the time a particular Residential Unit is assigned to a Purchaser until the end of the term under the Ground Lease.

Period I

During this period, the Land-owner's supply of the Residential Portion is an exempt supply under subparagraph 7(a)(ii) of Part I of Schedule V to the ETA whereas the supply of the Retail Portion is a taxable supply. Thus, any payment of rent (The term "rent" used in this ruling refers to any payment under the Ground Lease that is consideration for the lease of subject property. Refer to ruling # 3 for a determination as to whether payments, other than the base rent, are also rent, as referred to above.) under the Ground Lease during Period I must be apportioned between these two separate supplies.

In order to illustrate the application of the GST in Period I, we provide the following example. Assume that the Developer makes annual rent payments in Period I of $XXXXX pursuant to XXXXX the Ground Lease. (Note, since Period I is likely to be entirely within the first XXXXX years of the Ground Lease, no base rent would payable by the Developer to the Land-owner under the Ground Lease) In this example, GST will only apply to the portion of this rent payment that is reasonably attributable to the Retail Portion. Refer to the section below under the heading "C. Apportionment" for the ruling addressing the apportionment of rent issue.

Period II

The difference between Period I and Period II is that for purposes of subsection 136(2), one of the deemed separate properties, being the Residential Portion, now consists of Residential Units that are "residential condominium units" in subsection 123(1) of the ETA. The other property remains the Retail Portion. At the beginning of Period II, when the Residential Units first come into existence, the supply of XXXXX each Residential Unit to the Developer under the Ground Lease will be a taxable supply in accordance with the definitions of commercial activity in paragraph 123(1)(c) and taxable supply in subsection 123(1), as there is no exemption for these supplies. Subparagraph 7(a)(ii) of Part I of Schedule V will not exempt the supply of each Residential Unit since section 7 only applies to supplies of land (and not to supplies of residential complexes) made under a lease licence or similar arrangement. XXXXX Finally, section 6.1 of Part I of Schedule V will not apply to exempt the lease of the Residential Units by way of lease from the Land-owner to the Developer under the Ground Lease since the Developer has acquired the Residential Units for the purpose of making supplies of the Units by way of assignment.

The Land-owner will undergo a change-in-use under subsection 206(2). This change-in-use will occur with respect to each Residential Unit at the beginning of Period II as a consequence of its exempt supply of the Residential Portion becoming taxable supplies of Residential Units. Subsection 206(2) will apply to the Residential Portion that becomes Residential Units but not to the Retail Portion since only the Residential Portion undergoes a change-in use. As a result of the application of subsection 206(2), the Land-owner will be deemed to have received a supply of each Residential Unit by way of sale and to have paid GST in respect of each supply equal to the Land-owner's basic tax content (The Land-owner's BTC of a Residential Unit will be equal to the GST payable for its acquisition of the land portion of the Residential Unit, plus any GST payable by the Land-owner for any improvements made to the property comprising the Residential Unit prior to the change-in-use, less any public service body rebates (under section 259) that the Land-owner has been entitled to claim prior to the change-in-use in respect of such GST payable. This calculation of the BTC is predicated on the assumption that the fair market value of the subject property comprising the Residential Units at the time of the change-in-use is not less than the total value of the consideration that was payable for the Land-owner's last acquisition of the that property plus the total of all amounts of consideration payable of any improvements made.) (BTC) for each Residential Unit at the beginning of Period II.

Note however, the GST consequences of this change-in-use may be delayed until the beginning of the next lease interval where the change-in-use occurs subsequent to the beginning of the current lease interval (A lease interval is the period of time within the term of the lease that is attributable to a lease payment and is deemed for GST purposes to be a separate supply of property for the duration of the lease interval in accordance with subsection 136.1(1).). It is expected that all of the Residential Units will first come into existence prior to XXXXX the deadline for pre-payment of the entire base rent. The determination as to whether the balance of the lease term following the pre-payment of the base rent will consist of only one lease interval or multiple lease intervals will depend on whether payments under the Ground Lease made subsequent to the pre-payment of base rent are also recognized as rent payments for GST purposes.

Refer to ruling #2.

In order to illustrate the application of the GST in Period II, we provide the following example. Assume that Period II begins (i.e. the Residential Units first come into existence) prior to substantial completion of the Building and the pre-payment of the base rent, which occur on XXXXX. Assume that the Land-owner's BTC for the subject property at the beginning of Period II is $XXXXX and that $XXXXX is the amount of the BTC that is reasonably attributable to the Residential Units.

At the beginning of Period II the Land-owner would undergo a change-in use under subsection 206(2) with respect to the portion of the subject property that comprises the Residential Units. The Land-owner would be deemed to have received a supply by way of sale of the subject property and to have paid GST equal to $XXXXX. Since the Land-owner would begin to make taxable supplies of the Residential Units to the Developer, the Land-owner would be entitled to claim ITCs of $XXXXX under paragraph 169(1)B(c).

Period III

The ending of Period II and the beginning of Period III occurs on a Unit-by-Unit basis, as each Residential Unit is assigned by the Developer to a particular Purchaser. Once the assignment of a Residential Unit takes place, the Purchaser effectively replaces the Developer as lessee under the Ground Lease. The Land-owner's supply of the Residential Unit by way of lease to the Purchaser (unlike the same supply to the Developer) is an exempt supply under section 6 of Part I of Schedule V.

Thus the Land-owner goes from making a taxable supply of a Residential Unit to the Developer to making an exempt supply of the Unit to a Purchaser, at the time of a Unit's assignment. As a consequence, the Land-owner undergoes a change-in-use for GST purposes on a Unit-by-Unit basis. Subsection 206(4) will deem the Land-owner to have made a sale of the Residential Unit assigned by the Developer and to have collected GST equal to the Land-owner's BTC of that Unit, immediately before the change-in-use of the Unit.

This change-in-use under subsection 206(4) will be delayed, as noted for subsection 206(2) above, where the date of the Unit's assignment does not coincide with the beginning of a lease interval under the Ground Lease. Where this is the case, the GST consequences of this change-in-use would be delayed until the beginning of the next lease interval (i.e. the due date of the next rent payment).

As indicated under Period I, where assignments of Residential Units occur after the pre-payment of the base rent, the beginning of the next lease interval will depend on when subsequent payments occur under the Ground Lease that are recognized as rent payments for GST purposes (refer to ruling #2). Should the Developer's pre-payment of the base rent under the Ground Lease occur after the Residential Units first come into existence and after one or more of the Residential Units are assigned by the Developer, GST would apply to the entire pre-payment of rent as consideration for taxable supplies of Residential Units by way of lease to the Developer not for exempt supplies of Residential Units by way of lease to Purchasers.

In order to illustrate the application of the GST in Period III, we provide the following example. Suppose that the Developer exercises its option under the Ground Lease and makes a lump sum pre-payment of the base rent in the amount of XXXXX on XXXXX, at the beginning of Lease Year XXXXX (as per XXXXX the Ground Lease). Also, suppose at XXXXX, the construction of the building is substantially complete (including all XXXXX Residential Units) and that although all of the Residential Units are "pre-sold" by the Developer, only XXXXX of the Residential Units have been assigned by the Developer to Purchasers within the current reporting period of the Land-owner. Finally, assume that the Land-owner's BTC reasonably attributable to the XXXXX assigned Units is $XXXXX at the time the Units are assigned.

In this example, the Land-owner will be required to collect GST of XXXXX on the entire pre-payment of XXXXX made by the Developer to the Land-owner. The Developer will be entitled to claim an ITC of XXXXX in respect of the GST it is required to pay to the Land-owner.

In addition, the Land-owner will undergo a change-in-use in the current reporting period (As previously noted the GST consequences of the change-in-use may be delayed where the change-in-use does not coincide with the commencement of a lease interval. This example assumes that the commencement of the next lease interval occurs under the Ground Lease on or after the assignment of the XXXXX Units takes place and on or before the end of the current reporting period.). In accordance with subsection 206(4), the Land-owner will be deemed to have made a taxable sale of the XXXXX assigned Units and to have collected GST in the amount of $XXXXX. Thus, assuming no other taxable transactions occur in the current reporting period, the Land-owner's net tax for that reporting period would be equal to XXXXX.

As stated in the Statement of Facts, the Developer will sub-lease Residential Units in the event that it is unable to sell (assign) them and, in such a circumstance, it will not sublease more than XXXXX % of the total Residential Units. Where the Developer does begin to sub-lease a Residential Unit (rather than assign it) and such a sub-lease is an exempt supply under section 6 of Part I of Schedule V, the supply of the Residential Unit from the Land-owner to the Developer will be an exempt supply under section 6.1 of Part I of Schedule V to the ETA. However, for section 6.1 to apply, the Developer must sub-lease the Unit throughout a lease interval under the Ground Lease. It is our position that although one or more of the Residential Units may be first supplied by way of sub-lease, all of the Residential Units will be held by the Developer for the purpose of assigning them. As a result, at the commencement of Period II, all of the Residential Units will undergo a change-in-use under subsection 206(2), as described under Period II above. In addition, where Developer subleases a Residential Unit to an occupant such that section 6.1 applies to exempt the lease of the Residential Unit by the Land-owner to the Developer under the Ground Lease, the Land-owner will be subject to the same change-in-use rule (i.e. subsection 206(4)) in the same manner as when the Developer assigns a Residential Unit, as described above.

C. Apportionment Issue

In Period I, the division of the subject property into these two deemed properties separately supplied under subsection 136(2) is based upon the intent of the Developer to construct a building that consists, in part, of XXXXX Residential Units. These Residential Units are "residential condominium units" (RCUs) and "residential complexes" as defined in subsection 123(1) for GST purposes. Since during Period I, the Residential Units will be under construction, it is necessary for GST purposes to apportion the rent payable under the Ground Lease between these two deemed supplies on a reasonable basis.

In effect, such an apportionment amounts to estimating the extent to which the subject property will be comprised of Residential and Retail Portions upon its completion and to apportion all rent payable under the Ground Lease between the Residential and Retail Portions on this basis.

As stated above, the supply of the Residential Portion and the Retail Portion under the Ground Lease will be an exempt supply (or supplies) and a taxable supply, respectively, in Periods I and III. Therefore during Periods I and III an apportionment of rent between such supplies must be made on a reasonable basis in accordance with subsection 153(2). Whether XXXXX % of the rent is reasonably attributable to the making of the exempt supply (or supplies) and XXXXX % to the making of the taxable supply (or supplies) is a question of fact for which a ruling cannot be provided.

However, it is our view that an apportionment of rent based on space (i.e. the floor space in the Building and the land areas) occupied by the Residential and Retail Portions would be reasonable where these Portions are identical in every significant respect (e.g. values attributable to improvements, etc.). For example, where the Residential Portion occupies XXXXX % of the of the total space of the subject property then, subject to the proviso noted above, XXXXX % of the total rent payable under the Ground Lease would be reasonably attributable to the making of the supply or supplies of the Residential Portion.

2. GST treatment of taxable supplies made by the Land-owner during Years XXXXX of the Ground Lease

The Land-owner will be required to charge GST in respect of all taxable supplies made under the Ground Lease during years XXXXX of the lease term (referred to as the rent-free period) but only to the extent that rent is actually payable during the rent-free period.

The Developer is not considered to be paying an amount referred to as "base rent" in the Ground Lease during the rent-free period provided the Developer's total contribution to the costs of the exterior upgrade (i.e. XXXXX plus the value of its labour to install the exterior upgrade) does not exceed the costs that the Developer would have incurred had the rent-free period not been provided. In the event that the Developer's total contribution to the costs of the exterior upgrade exceed the costs it would have incurred had the rent free period not been provided, the excess amount would be considered rent attributable to the rent-free period. Where applicable, such rent, paid as monetary and/or non-monetary consideration, would be apportioned between the deemed separate supplies as stated in ruling # 1.

In addition, the Land-owner's payment XXXXX to the Developer for part of materials cost of the exterior upgrade is consideration for the supply of construction materials made by the Developer to the Land-owner. Since this supply of construction materials is a taxable supply, the Developer is required to charge the Land-owner GST in the amount of XXXXX in respect of this supply.

3. GST treatment of additional rents charged by the Land-owner under the Ground Lease

The Ground Lease deems any amount payable by the Developer to the Landlord, other than the base rent, to be "rent" subject to all rights and remedies available to the Land-owner for the collection of rent in arrears under the Ground Lease.

Despite this description of such amounts payable under the Ground Lease, it remains a question of fact and law as to whether any such amounts are consideration for the supply of the subject property by way of lease or for any other supply. CCRA's policy is not to differentiate between the base rent and other amounts payable (often referred to as "additional rent" or "other rent") where such amounts represent a "pass through" or recovery of the lessor's costs of owning and leasing the real property subject to the lease. Consistent with CCRA's general policy concerning additional rent, payments that meet the following conditions will generally be regarded as consideration for the supply of the subject property by way of lease under the Ground Lease (and thus subject to GST in accordance with ruling #1):

•   the Land-owner, as lessor, is liable for the payment (either solely or jointly);

•   the payment is passed on to the Developer, as lessee, under the Ground Lease; and

•   the payment can reasonably be regarded as relating to the lessee's right to use the real property.

In accordance with this policy, the only consideration payable for the lease of the subject property under the Ground Lease (other than the base rent) is the Developer's requirement under XXXXX the Ground Lease to pay taxes that are levied by a government or other taxing authority against the Land-owner (or other lessor to whom the Ground lease has been assigned or transferred).

The payments XXXXX required to be paid by the Developer to the Land-owner pursuant to XXXXX the Ground Lease (referred to as "milestone payments") are not consideration for the supply of real property or for any other supply. Rather the milestone payments are the result of the Developer's breach of the Development Agreement and of the Ground Lease. Where the Ground Lease is an agreement for a taxable supply of property in Canada at the time the breach occurs, section 182 will deem the milestone payment, in part, to be a tax-included payment for the supply. The amount of the milestone payment that will be subject to section 182 will be in proportion to the rent reasonably attributable to the taxable supply under the Ground Lease at the time of the breach.

For example, if XXXXX the breach giving rise to the milestone payment occurred in Period I and at the time of the breach XXXXX % of the rent payable under the Ground Lease was reasonably attributable to the making of the taxable supply of the Retail Portion, then XXXXX % of the milestone payment will be subject to section 182. Whereas if the breach occurs in Period II, XXXXX % of the milestone payment will be subject to section 182.

4. Land-owner entitlement to ITCs in respect of supplies made under the Ground Lease

The Land-owner will be entitled to input tax credits (rather than the 50% PSB rebate as a XXXXX) in respect of supplies of property and services that it acquires or imports for consumption, use or supply in relation to the supply of real property under the Ground Lease which is not an exempt supply.

Generally, where the Land-owner acquires or imports property or services for the purpose of improving the subject property, it will be entitled to claim input tax credits (ITCs) based on the extent (expressed as a percentage) to which the Land-owner held the subject property for use (including the leasing of the subject property) in the course of its commercial activities immediately after the property was last acquired by the Land-owner. These ITCs are claimable by the Land-owner in accordance with paragraph 169(1)B(b).

Also, the Land-owner will be eligible to claim ITCs in respect of property or services acquired or imported not for the purpose of improving the subject property but otherwise in the course of or in connection with making taxable supplies of the subject property by way of lease (e.g. taxable operating costs arising from owning or leasing the subject property). The Land-owner will be entitled to claim ITCs on taxable operating costs to the extent (expressed as percentage) that such costs were incurred in relation to taxable supplies made under the Ground Lease, in accordance with paragraph 169(1)B(c).

For example, assume the Land-owner paid $XXXXX for the acquisition of taxable inputs during Period I, partly for use in improving the subject property and partly for other purposes related to owning and leasing the subject property, and paid $XXXXX in GST for such taxable inputs. Also, assume that the subject property was last acquired by the Land-owner for use as capital property in commercial activities to the same extent as under Period I of the Ground Lease, which, for purposes of this example, is assumed to be XXXXX % of the total use of the subject property. Finally assume that of the $XXXXX in consideration paid for taxable inputs, $XXXXX (or XXXXX % of the total consideration) would be included in determining the adjusted cost base to the Land-owner if the Land-owner were a taxpayer under the Income Tax Act.

In this case, the tax payable in respect of taxable inputs acquired by the Land-owner for the purpose of improving the subject property would be deemed to be equal to $XXXXX in accordance with subsection 169(1.1). The Land-owner would be eligible to claim an ITC equal to $XXXXX under paragraph 169(1)B(b). Also, the Land-owner would be entitled to claim ITCs in respect of the GST paid on operating costs of $XXXXX to the extent that such costs where incurred for the purpose of making taxable supplies (i.e. the lease of the Retail Portion) under paragraph 169(1)B(c). Note that the percentages used in calculation of ITCs under paragraph 169(1)B(c) may not be the same as those used under paragraph 169(1)B(b). In either case, the method of determining the extent to which properties or services are acquired for use in commercial activities must be fair and reasonable and used consistently throughout the year in accordance with subsection 141.01(5).

Refer to ruling #1, above, for other examples of the Land-owner's ITC entitlements during Periods I, II and III of the term of the Ground Lease.

5. Land-owner's or Developer's obligation to remit GST under the self-supply rules in section 191 of the ETA

(a) The Land-owner is not required to remit GST under the self-supply rules in respect of the subject property as a result of the Ground Lease or any of the Proposed Transactions.

(b) The Developer is not required to remit GST under the self-supply rules in subsection 191(1) in respect of a Residential Unit where its first supply of the Unit is by way of assignment. Also, an interim occupancy that occurs under Proposed Transaction (3) will not trigger self-supply under subsection 191(1).

(c) The Developer will be required to self-supply in respect of a Residential Unit under subsection 191(1) where the first supply of the Residential Unit is by way of sub-lease (other than the interim occupancy arising under Proposed Transaction (3)) for use as an individual's place of residence and that individual is the first individual to occupy the Unit as a place of residence after its construction is substantially complete. In this case, the Developer will be deemed to have made and received a taxable sale of the particular Residential Unit at the later of the time the construction of the Residential Portion is substantially complete and the time possession is first given under the interim occupancy arrangement, referred to above. The Developer will be deemed to have collected and paid GST calculated on the fair market value of the Residential Unit at the time of the deemed taxable sale.

(d) The Developer will also be required to self-supply in respect of a Residential Unit under subsection 191(2) where: the Developer gives possession of the Residential Unit to a Purchaser under an Agreement of Purchase and Sale prior to the registration of the declaration and description; the Purchaser is the first person to occupy the Unit as a place of residence after substantial completion of the construction of the Residential Portion of the subject property; and the Agreement of Purchase and Sale is terminated for any reason other than by performance of the Agreement. In this case, the Developer will be deemed to have made and received, at the time the Agreement is terminated, a taxable sale of the Residential Unit. The GST treatment arising from self-supply under subsection 191(2) will otherwise be the same as that described in (7) above.

6. Other GST Issues applying to the Land-owner or the Developer

(a) GST treatment of Developer's supplies of Residential Units

Where the Developer's first supply of a Residential Unit is by way of assignment, this supply will be a taxable sale of real property for GST purposes. The Purchaser will be required to pay and the Developer will be required to collect GST on the full consideration payable by the Purchaser for the sale of the Residential Unit under the Agreement of Purchase and Sale.

Also where the Developer's first supply of a Residential Unit is an interim occupancy arrangement under Proposed Transaction (3) the Developer will be considered for GST purposes to have made a taxable sale of the Residential Unit at the time possession of the Unit is first given. The GST treatment will be as described above.

The Developer's supply of Residential Units by way of sub-lease (other than where the sub-lease arises under or as a consequence of an agreement of purchase and sale) will be an exempt supply under section 6 of Part I of Schedule V to the ETA.

(b) Purchaser's entitlement to New Housing Rebates under section 254 of the ETA

A purchaser will qualify for a new housing rebate (NHR) under subsection 254(2) with respect to the GST paid on the taxable assignment of a Residential Unit, provided the other conditions of subsection 254(2) are met. Since one of the conditions in the calculation of a NHR is that the total consideration for the assignment (i.e. sale of the Residential Unit) not exceed $450,000, purchasers of Residential Units could potentially be entitled to new housing rebates in respect of XXXXX of the XXXXX Residential Unit sales sold. In addition, NHRs determined under subsection 254(2) may be transferred to the Developer subject to the requirements set out in subsection 254(4).

Note, however, if the Purchaser first enters into an interim occupancy arrangement arising under an Agreement of Purchase and Sale, the Purchaser will not be entitled to a new housing rebate, subject to meeting the other conditions of subsection 254(2), until ownership of the leasehold is transferred (i.e. assigned) to the Purchaser.

(c) Land-owner's entitlement to rebates under section 259 of the ETA

GST payable by the Land-owner that is included in the "non-creditable tax charged", as defined in subsection 259(1), is eligible for a public services body rebate at the prescribed rate of 50% in accordance with subsection 259(3) of the ETA.

This ruling is given subject to the limitations and qualifications set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all the necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613 954-8852.

Yours truly,

Daryl J.A. Hooley
Real Property Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

Dear XXXXX

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the services provided by the XXXXX Homeowners Association (the "Association") to homeowners in the XXXXX Subdivision (the "Subdivision"). We apologize for the delay in our response.

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

Statement of Facts

From your letter, our telephone discussions, a copy of the By-Law Relating Generally to the Transaction of the Business and Affairs of the XXXXX Homeowners Association and XXXXX XXXXX (the "Agreement"), and the XXXXX, notice to homeowners regarding the XXXXX annual membership fees, our understanding is as follows:

1. The Association is a not-for-profit association incorporated under the Societies Act of XXXXX. The purpose and objects of the Association, as set out in its By-laws referred to above, are XXXXX XXXXX XXXXX[.]

2. The Association is the holder of leases, easements and other rights in certain Subdivision lands. These land interests, which are registered on title at the Land Titles Office, include:

•   Easements for perimeter fences on all subdivided lots on the outside perimeter of the Subdivision.

•   Easements or leases for Subdivision common elements.

•   Easements and other rights for maintenance of Subdivision Features.

3. The Subdivision includes single-family homes and multi-family homes or condominiums. The Subdivision developers and the Association entered into the Agreement in order to maintain "development control" and to share in the maintenance of the Subdivision Features through the Association.

4. The Agreement is registered on title to each subdivided lot (single-family, semi-detached or multi-family residential lot) within the Subdivision. Each owner in fee simple of a subdivided lot in the Subdivision becomes a member of the Association upon registration of ownership and is bound by the rights and obligations as set out in the Agreement.

5. XXXXX the Agreement provides that the registered owner in fee simple of each subdivided lot shall pay, by way of a "Rent Charge", a proportionate annual amount, as assessed and levied by the Association.

6. Pursuant to the Agreement, the Rent Charge is made an encumbrance upon each subdivided lot, and the Association is entitled to enforce such Rent Charge in the same manner as an encumbrance under the Land Titles Act of XXXXX.

7. The notice XXXXX, to Subdivision homeowners describes the fee as an annual membership fee, XXXXX

8. The Association is the owner of the XXXXX, including the land there under. It is also the owner of the entrance gateway (i.e., the physical structure), but not the land. The city is the owner of the land on which the entrance gateway is located.

9. The city is the owner of the land underlying the sidewalks, pathways, lampposts, boulevards, islands, and playground. The city is responsible for providing the standard level of maintenance of these areas as the city does for other city-owned lands outside the Subdivision.

The Association, however, is responsible for the "special treatment" of these areas over and above the standard level of service/maintenance provided by the city (i.e., patterned sidewalks, decorate street lamps, common area gardens and flowerbeds).

10. The Subdivision homeowners, as members of the Association, have certain rights as per the Agreement to determine the use of land owned by the Association XXXXX. However, should the Association decide to sell the real property, the proceeds from sale would go back into the Association. As provided in XXXXX of the Association By-laws, XXXXX[.]

11. Members of the Association who are condo unit owners pay condominium fees in respect to their condominium complex in addition to their proportionate Association fees under the Agreement. Condominium fees are paid to a separate condominium corporation.

Ruling Requested

Whether the annual fee charged by the Association to Subdivision homeowners is subject to the GST/HST.

Ruling Given

Based on the facts set out above, we rule that the fees charged by the Association to Subdivision homeowners are subject to the GST/HST and are taxable at the rate of 7%.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

In essence, as described in the letter XXXXX, the nature of the supply made by the Association is one of property management. Generally, property management fees are subject to GST/HST under the normal rules, unless a specific exemption applies. An exemption may apply under section 13 of Part I of Schedule V where such fees are in relation to supplies made by a condominium corporation to the owner or lessee of a residential condominium unit described in a condominium or strata lot plan or description, and the fees relate to the occupancy or use of the unit. As a result, no tax is payable on most condominium fees charged to owners or lessees of residential condominium units, if the fees relate to the occupancy or use of a residential condominium unit described in the condominium lot plan.

"Residential condominium unit" is defined under subsection 123(1) to mean "... a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit;"

In order for a supply of property or service to be exempt under section 13 of Part I of Schedule V, certain conditions must be met. The requirements of section 13 are threefold:

1. The supply of property or service must be made by a condominium corporation established upon the registration, under the laws of a province, of a condominium or strata lot plan or description, or similar plan or description;

2. The supply of property or service must be made to an owner or lessee of a residential condominium unit described by that plan or description; and

3. The property or service must relate to the occupancy or use of the unit.

In the subject case, these requirements are not satisfied.

The Association is not a condominium corporation established upon the registration of a condominium or strata lot plan or description or similar plan or description under the laws of a province. Rather, it is a non-profit society incorporated under the Societies Act of XXXXX, the purpose and objects which are to carry out the duties and functions under the Agreement and generally to provide for the care and maintenance of the Subdivision Features.

The rights and obligations of members of the Association apply equally to all registered owners of single-family, semi-detached and multi-family residential lots (including condo unit owners). The Association provides services to, and represents all members, not only condo unit owners. In addition, Association fees are over and above condo fees payable by condo unit owners to a separate condominium corporation.

The supply of services provided by the Association are not in relation to units in a condominium or strata lot plan, but relate in general to the common elements in the Subdivision as a whole.

Finally, unlike a condominium corporation where the unit owners hold an undivided interest as tenants-in-common in the common areas of the condominium complex or strata lot plan, homeowners, or members of the Association, do not hold such an interest. Rather the Association holds the land interests with respect to the common amenities by way of easements and leases registered at the Land Titles Office. With respect to the XXXXX, which are owned by the Association, the Association By-laws specifically provide that in no event shall any member become entitled to any of the assets of the Association.

Additional Information

To address the following questions raised in your letter, we would like to provide an explanation of some general provisions of the ETA that relate to your particular circumstances.

1. Can the Association be exempt from collecting GST?

2. Can the Association reverse/revoke its current GST registration?

3. If the Association reverses/revokes its GST registration, can it still claim a rebate of the GST paid to suppliers?

Subsection 240(1) states, in part, that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered.

A taxable supply is a supply which is made in the course of a commercial activity. Commercial activity of a person means, in part, a business carried on by the person, except to the extent to which the business involves the making of exempt supplies. Exempt supplies are those referred to in Schedule V of the ETA. As provided in the above ruling, the supplies made by the Association do not fall within the exempt provisions of Schedule V. As a result, the Association will be required to register, collect and remit GST/HST on its taxable supplies, unless the Association is a small supplier.

One exception to the registration requirement is for a person who is a small supplier. A person is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for taxable supplies, including zero-rated supplies, made by the person (or an associate of the person) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000, or in the case of a public service body, $50,000. The calculation should not include consideration attributable to the sale of goodwill of a business or supplies of financial services and supplies by way of sale of capital property.

Subsection 123(1) defines "public service body" (PSB) to include a non-profit organization. A "non-profit organization" is defined under subsection 123(1) as:

"a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or government) that was organized and is operated solely for the purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada;"

The enclosed Policy Paper P-215, "Determination of Whether an Entity is a 'Non-Profit Organization' for purposes of The Excise Tax Act", provides further explanation of the term "non-profit organization".

A non-profit organization may be eligible for a PSB rebate if it is a qualifying non-profit organization. Under subsection 259(2), a person is a qualifying non-profit organization at any time in a fiscal year if their percentage of government funding for the year is at least 40%. This includes government funding from all three levels of government.

With respect to whether the Association can revoke its current GST registration, I have included a copy of GST/HST Memoranda Series 2.7 Cancellation of Registration for your information. As noted at paragraph 6 therein, the CCRA will cancel the registration of a person (other than a taxi operator) on the request of the person if the person is a small supplier and the person has been registered for not less than one year. The enclosed GST/HST Memoranda Series 2.2 Small Suppliers provides further explanation of the term "small supplier".

In summary, a person who is registered, or is required to be registered, is required to collect and remit GST/HST. An exception to this is a non-registered small supplier. A small supplier who is registered may request the cancellation of registration (Form GST 11, Request for Cancellation of Registration) provided the person has been registered for at least one year. Finally, to be eligible to receive a PSB rebate, a non-profit organization must be a qualifying non-profit organization. Whether or not an NPO is registered does not impact on its entitlement to a PSB rebate.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9212.

Yours truly,

Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate