Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 154988
January 24, 2014
Dear [Client]:
Subject: GST/HST INTEREPRETATION
Application of the GST/HST to certain supplies of sites of real property for mobile homes
Thank you for your letter of June 25, 2013 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various supplies of sites of real property.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following from your letter dated June 25, 2013 and our telephone conversation […]:
1. A Canadian corporation (the Vendor) legally and beneficially owns certain lands (the Lands) in Canada.
2. You indicated that a portion of the Lands constitute a “residential trailer park” (the Park) as that term is defined in subsection 123(1). The Park is comprised of separately titled parcels of land that are contiguous to each other and each of which is a site on which a mobile home is or will be affixed.
3. Some of the lots (the Isolated Lots) within the Lands are separate from the Park. None of the Isolated Lots encompass at least two sites and they are not immediately contiguous to any other sites. These Isolated Lots are also separately titled parcels of land and each is a site on which a mobile home is or will be affixed. You indicated that none of the Isolated Lots form part of the Park. (Footnote 1)
4. The Vendor supplies each of the Isolated Lots and each site in the Park under a lease, licence or similar arrangement (lease). We will refer to an agreement under which the Isolated Lots and sites in the Park are supplied as a Lease Agreement.
5. A Lease Agreement provides for the continuous possession or use of a site (either in the Park or an Isolated Lot) for at least one month to the owner, lessee, or person in occupation or possession of a mobile home, for the purpose of the mobile home being affixed to the site and used and enjoyed as a place of residence by individuals (the Occupants).
6. All or substantially all of the Lease Agreements provide, or are expected to provide, for periods of continuous possession or use for sixty days or longer and generally for at least one year. These sites are generally the Occupants’ permanent homes.
7. Mobile homes owned by the Vendor (Vendor Owned Homes) have been affixed on certain Isolated Lots and on certain sites in the Park.
8. The Vendor Owned Homes are supplied with the underlying sites to an Occupant under a Lease Agreement. There is no separate amount payable for the lease of the Vendor Owned Home and the lease of the site.
9. The Vendor has not charged, collected, or accounted for GST/HST in respect of any supply under the Lease Agreements.
10. Each site in the Park and each Isolated Lot contains, and has contained at all relevant times, a foundation on which a mobile home is to be installed and connected to plumbing, electrical and heating facilities.
11. All of the mobile homes are equipped, and have been equipped at all relevant times, with complete plumbing, electrical and heating facilities, and are designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence throughout the year. None of the mobile homes are a travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use.
12. Each such mobile home is a “residential unit”.
13. The maximum size of an Isolated Lot or a site in the Park is […] square metres ([…] square feet).
14. The Vendor has not built, constructed, substantially renovated, or supplied any of the mobile homes situated or used, or to be situated or used, on the Isolated Lots or in the Park, except that the Vendor has supplied the Vendor Owned Homes by lease, licence or similar arrangement to Occupants.
15. The Vendor has not claimed any input tax credits (ITCs) in respect of the Vendor’s acquisition or use of, or any improvements made to, the Isolated Lots, the Park or Vendor Owned Homes, or in respect of the acquisition or use of, or any improvements made to, any mobile home.
16. You advised that the Vendor is not the builder of any of the mobile homes. As such, for purposes of our response we will assume that, with respect to the Vendor Owned Homes, the mobile home had been used or occupied by an individual as a place of residence before the Vendor made a supply of the home.
17. The Vendor purchased the Park from a third party. You indicated that this sale to the Vendor was an exempt supply of a residential trailer park pursuant to section 5.3 of Part I of Schedule V to the ETA and was the last supply made by way of sale of the Park to the Vendor.
18. As part of the sale of the Lands by the Vendor to another Canadian corporation (the Purchaser), with which the Vendor deals at arm’s length, the Vendor will sell to the Purchaser the Isolated Lots and the Park. The Vendor will retain ownership of the Vendor Owned Homes on the Isolated Lots and in the Park.
19. The Purchaser will not assume any of the Lease Agreements relating to the Vendor Owned Homes and their respective underlying sites, whether these sites are Isolated Lots or in the Park. These Lease Agreements between the Vendor and the Occupants will be terminated effective as of when the Purchaser acquires the Lands (the Acquisition Date). Also effective as of the Acquisition Date, the Purchaser will enter into agreements to lease the sites in the Park and the Isolated Lots to the Vendor, which will sub-lease the sites, and lease the Vendor Owned Homes affixed to them, to the Occupants.
20. Where there are no Vendor Owned Homes on the Isolated Lots or on sites in the Park, the Vendor will assign its interests in the Lease Agreements to the Purchaser.
21. Neither the Vendor nor the Purchaser is a public service body or public sector body.
INTERPRETATIONS REQUESTED
You would like confirmation of the following:
1. The Vendor’s leases of the Isolated Lots to Occupants under the Lease Agreements are exempt supplies pursuant to paragraph 7(a) of Part I of Schedule V to the ETA. Notwithstanding that the Vendor’s supplies of the Vendor Owned Homes, with their respective underlying Isolated Lots, to Occupants under the Lease Agreements are exempt supplies pursuant to paragraph 6(a) of Part I of Schedule V to the ETA, the leases of the underlying Isolated Lots are also exempt supplies under paragraph 7(a) of Part I of Schedule V to the ETA.
2. If, immediately before the sales of the Isolated Lots to the Purchaser, the Vendor sold the residential complexes of which the Isolated Lots form part, the sales of the residential complexes would be exempt supplies pursuant to section 2 of Part I of Schedule V to the ETA.
3. As a result of the interpretations anticipated to be confirmed by CRA in #1 and #2 above, the conditions to exempt the sales of the Isolated Lots under section 5.2 of Part I of Schedule V to the ETA would be satisfied. As such, the sales of the Isolated Lots are exempt supplies pursuant to section 5.2 of Part I of Schedule V to the ETA.
4. The Vendor’s leases to Occupants of Vendor Owned Homes, together with their underlying Park sites, under Lease Agreements are exempt supplies pursuant to section 5.3 of Part I of Schedule V to the ETA. They are also exempt supplies under paragraph 6(a) of Part I of Schedule V to the ETA and paragraph 7(b) of Part I of Schedule V to the ETA.
5. The Vendor’s sale to the Purchaser of the Park or interests therein, including the sites referred to in #4 above, are exempt supplies under section 5.3 of Part I of Schedule V to the ETA.
6. The Vendor’s assignments of its interests in its Lease Agreements relating to the Isolated Lots sites (excluding any with Vendor Owned Homes thereon, which are not assigned) are exempt supplies pursuant to paragraph 7(c) of Part I of Schedule V to the ETA.
7. The Vendor’s assignments of its interests in its Lease Agreements relating to the Park sites (excluding any with Vendor Owned Homes thereon, which are not assigned) are exempt supplies pursuant to section 5.3 of Part I of Schedule V to the ETA or paragraph 7(c) of Part I of Schedule V to the ETA.
8. In cases where the Purchaser will lease Isolated Lots or sites in the Park to the Vendor, which will sub-lease them along with leasing the Vendor Owned Homes affixed to them to the Occupants, the Purchaser will make exempt supplies to the Vendor pursuant to section 6.1 of Part I of Schedule V to the ETA. The Vendor will lease these Isolated Lots and sites in the Park from the Purchaser exclusively for the purpose of making exempt supplies to the Occupants pursuant to section 6 or 7 of Part I of Schedule V to the ETA.
9. With respect to the Purchaser’s exempt leasing to the Vendor of the sites in the Park referred to in #8 above, these supplies will also be exempt pursuant to section 5.3 of Part I of Schedule V to the ETA.
INTERPRETATIONS GIVEN
Interpretation #1
Vendor’s leases of the Isolated Lots to Occupants under the Lease Agreements
Subparagraph 7(a)(i) of Part I of Schedule V to the ETA provides that a supply of land (other than a site in a residential trailer park) made by way of lease, licence or similar arrangement that provides for continuous possession or use of the land for at least one month is exempt if the supply is made to an owner, lessee or person in occupation or possession of a residential unit that is or is to be affixed to the land for the purpose of its use and enjoyment as a place of residence for individuals.
Where the Vendor leases only the Isolated Lot (a Vendor Owned Home is not supplied), assuming the lessees of the Isolated Lots have affixed or will affix a residential unit to the land for the purpose of its use and enjoyment as their place of residence, leases of the Isolated Lots would be exempt under subparagraph 7(a)(i) of Part I of Schedule V to the ETA.
In subsection 123(1), residential complex is defined at paragraph (d) to mean a mobile home, together with any appurtenances to the home and, where the home is affixed to land (other than a site in a residential trailer park) for the purpose of its use and enjoyment as a place of residence for individuals, the land subjacent or immediately contiguous to the home that is attributable to the home and is reasonably necessary for that purpose. As such, where a mobile home is affixed to a site in a residential trailer park, the site does not form part of the residential complex and the residential complex is only the mobile home itself.
Where the Vendor leases a Vendor Owned Home along with the respective underlying Isolated Lot to an Occupant under a Lease Agreement, it would need to be determined whether the Vendor is making a single supply (Vendor Owned Home and the Isolated Lot) or separate supplies (a lease of the Vendor Owned Home and a separate lease of the Isolated Lot).
If the supply is a single supply, it may be characterized as that of a residential complex (Footnote 2) and the exemption under paragraph 6(a) of Part I of Schedule V to the ETA may apply. Paragraph 6(a) of Part I of Schedule V to the ETA applies to a supply of a residential complex or a residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex or unit is given to the same individual under the arrangement is at least one month. Subparagraph 7(a)(i) of Part I of Schedule V to the ETA would not apply to such a supply as this exemption only applies to a supply of land under the conditions indicated above.
Alternatively, if the Vendor were making separate supplies, it would first need to be determined whether section 138 applies. Section 138 provides that where a particular property is supplied together with any other property for a single consideration and it can reasonably be considered that the provision of the other property is incidental to the provision of the particular property, the other property is considered to form part of the particular property supplied. (Footnote 3) If section 138 applies, the entire supply would be characterized as that of either a Vendor Owned Home (which may be exempt under paragraph 6(a) of Part I of Schedule V to the ETA) or an Isolated Lot (which may be exempt under subparagraph 7(a)(i) of Part I of Schedule V to the ETA). If neither supply is incidental to the other, the supply of the Vendor Owned Home may be exempt under paragraph 6(a) and the supply of the Isolated Lot may be exempt under subparagraph 7(a)(i), both of Part I of Schedule V to the ETA, as outlined above.
Interpretation #2 and #3
Application of section 5.2 of Part I of Schedule V to the ETA to sales of the Isolated Lots
Your second interpretation request is a condition for the exemption in your third interpretation request. As such, we have combined these requests.
Section 5.2 of Part I of Schedule V to the ETA exempts the sale of land that forms part of a residential complex provided certain conditions are met. The first condition is that the land must have been subject to a lease, licence or similar arrangement under an exempt supply pursuant to paragraph 7(a) of Part I of Schedule V to the ETA immediately before the earlier of the time ownership of the land is transferred to the recipient of the supply and the time possession of the land is transferred to the recipient of the supply under the agreement for the supply. The second condition is that if the residential complex were sold immediately before the earlier of those times, the sale would be exempt under any of sections 2 to 5 of Part I of Schedule V to the ETA.
With respect to the second condition, if, before the sale of the Isolated Lots to the Purchaser, the Vendor had sold the residential complexes, i.e., the Vendor Owned Homes and the respective underlying Isolated Lot to which the mobile home is affixed, the sale would generally be exempt under section 2 of Part I of Schedule V to the ETA. This finding is based on the assumption that the Vendor is not a builder of the Vendor Owned Home (see #16 of our understanding). Generally, section 2 provides an exemption for a supply by way of sale of a residential complex or an interest in a residential complex made by a particular person who is not a builder of the complex unless the person claimed an ITC in respect of the last acquisition of the complex or in respect of an improvement to the complex after it was last acquired by the person.
With respect to the first condition, where the Vendor leased only an Isolated Lot and not a Vendor Owned Home, or leased an Isolated Lot as a separate supply from the lease of the Vendor Owned Home, to an Occupant, the sale of the Isolated Lot to the Purchaser would be exempt under section 5.2 of Part I of Schedule V to the ETA. If, as a single supply, the Vendor leased an Isolated Lot and a Vendor Owned Home that was characterized as a supply of a residential complex, the sale of the Isolated Lot to a Purchaser would not be exempt under section 5.2 of Part I of Schedule V to the ETA.
Interpretation #4
Leases to Occupants of Vendor Owned Homes situated on a site in the Park
Where the Vendor leases a Vendor Owned Home along with the respective underlying site in the Park to an Occupant under a Lease Agreement, it would need to be determined whether the Vendor is making a single supply (Vendor Owned Home and the Isolated Lot) or separate supplies (a supply of the Vendor Owned Home and a separate supply of the Isolated Lot). If the supply is a single supply, it would be necessary to characterize the supply. If the Vendor were making separate supplies, it would first need to be determined whether section 138 applies and our comments on section 138, as set out in Interpretation #1, should be considered. If the Vendor is making separate supplies and neither supply is incidental to the other, the supply of the Vendor Owned Home may be exempt under paragraph 6(a), the provisions of which are set out in Interpretation #1, and the supply of the site may be exempt under paragraph 7(b), both of Part I of Schedule V to the ETA. Paragraph 7(b) exempts the supply of a site in a residential trailer park made under a lease that provides for continuous possession or use of the site for a period of at least one month to an owner, lessee or person in occupation or possession of a mobile home situated or to be situated on the site.
Interpretation #5
Sale of the Park to the Purchaser
Section 5.3 of Part I of Schedule V to the ETA provides an exemption for the supply of a residential trailer park (or an interest therein) by way of sale if the following conditions are met:
a) in all cases, the land must satisfy all of the conditions of the definition of "residential trailer park" given in subsection 123(1); and
b) the current vendor last acquired the park on an exempt basis; or
c) the last acquisition of the residential trailer park was deemed to have been a taxable supply under subsections 190(4), 200(2), 206(4) or 207(1) and that supply was the last supply of the park made by way of sale to the current vendor.
The exemption is not available if the supplier has claimed an ITC in respect of the last acquisition of the park or an additional area, or in respect of an improvement to the park or additional area after the last acquisition of the park or additional area.
Assuming the Vendor did not increase the area of land included in the Park (e.g., did not add sites to the Park), the sale of the Park to the Purchaser would be exempt under section 5.3 of Part I of Schedule V to the ETA. If the Vendor increased the area of land included in the Park and the appropriate tax was accounted for under the applicable section mentioned in paragraph 5.3(b) of Part I of Schedule V to the ETA, provided that the Vendor did not claim an ITC with respect to the tax payable on that increased area after it was deemed to have been acquired by the Vendor, the sale would be exempt under section 5.3.
Interpretation #6 and #7
Assignment of the Lease Agreements relating to the Isolated Lots and sites in the Park
We have combined interpretation requests #6 and #7 as they both pertain to the assignment of Lease Agreements.
Paragraph 7(c) of Part I of Schedule V to the ETA exempts an assignment of a lease of land referred to in paragraph 7(a) or 7(b) of that section.
Where the Vendor leases only an Isolated Lot (a Vendor Owned Home is not supplied) and the lease is exempt under subparagraph 7(a)(i) of Part I of Schedule V to the ETA, as discussed in Interpretation #1, an assignment of the lease from the Vendor to the Purchaser would be exempt under paragraph 7(c) of Part I of Schedule V to the ETA.
Where the Vendor leases only a site in the Park (a Vendor Owned Home is not supplied) and the lease is exempt under paragraph 7(b) of Part I of Schedule V to the ETA, as discussed in Interpretation #4, an assignment of the lease from the Vendor to the Purchaser would be exempt under paragraph 7(c) of Part I of Schedule V to the ETA.
Interpretation #8 and #9
Lease of Isolated Lots and sites in the Park, to which a Vendor Owned Home is affixed, from the Purchaser to the Vendor
Interpretation request #9 is very similar to request #8 wherein you have inquired about the tax status of the leases of the Isolated Lots and the sites in the Park, to which a Vendor Owned Home is affixed. As such, we have combined these requests.
The leases of the Isolated Lots and sites in the Park, to which a Vendor Owned Home is affixed, from the Purchaser to the Vendor may be exempt under section 6.1 of Part I of Schedule V to the ETA if all of the conditions of that section are met. This section, in part, exempts a supply of land made by way of lease, licence or similar arrangement to a lessee for a lease interval throughout which the lessee makes, or holds the property for the purpose of making, a supply of the property where all or substantially all of those supplies are exempt supplies included in section 6 or 7 of Part I of Schedule V to the ETA. As discussed in Interpretations #1 and #4, depending on the circumstances, the Vendor’s supply to an Occupant would generally be exempt under either section 6 or 7 of Part I of Schedule V to the ETA, such that section 6.1 would generally exempt the Purchaser’s lease of each Isolated Lot and site in the Park to the Vendor.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9212. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Melissa Mercer
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 We are not able to confirm which, if any, of the Isolated Lots and/or sites in the Park constitute a residential trailer park as defined in subsection 123(1). For purposes of our response, we will assume the Park is a residential trailer park and that none of the Isolated Lots form part of the Park and do not, on their own, form a residential trailer park.
2 Given that the residential complex in this case is the Vendor Owned Home and the Isolated Lot to which it is attached, the supply may well be that of a residential complex.
3 For a further discussion on section 138, see Policy Statements P-159R1, Meaning of the Phrase “Reasonably Regarded as Incidental” and P-160R, Meaning of the Phrase “Where a Particular Property or Service is Supplied Together with any Other Property or Service”.
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