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: 130623
June 21, 2012
Dear [Client]:
Subject: GST/HST RULING AND INTERPRETATION
Application of the GST/HST to […] ownership [interest] of […][products]
Thank you for your letter of November 22, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by […][Company A].
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information in your letter and our telephone conversations, we understand the following:
1. […]([…][Company A]) is a corporation that has been incorporated in the province of […][Province X]. [Company A] has its principal office and place of business in [Province X], but also has a […][business location] in […][Province Y]. [Company A] is registered for purposes of the GST/HST.
2. [Company A] purchase […][products] from manufacturers such as […] and […] and supplies an ownership interest […][of] the [products] by way of sale or lease to recipients (hereinafter referred to as “[…] owners”) who in turn lease the [products] back to [Company A] to be used as part [of] its [product] […] program that makes the […] [products] available for use to the lessors.
3. [Company A] acquired the following [products] from manufacturers […] respectively:
* […][product 1];
* […][product 2]; and
* […][product 3].
4. [Company A] supplies by way of sale an ownership interest […] in [product 1] to various […] owners. A copy of the purchase agreement between [Company A] and […][Company B] for the supply of an ownership interest in [product 1] was submitted for our consideration. Below are some of the relevant terms of the Purchase Agreement: […]
5. [Company A] supplies by way of lease an […] interest […] in [product 2] and [product 3] to various […] owners. A copy of the lease agreement between [Company A] and a lessee ([…]) was submitted for our consideration. Below are some of the relevant terms of the Lease Agreement: […]
6. The […] owners as part of the agreement for the supply of the […] interest in the [products] agree to lease the property for a nominal amount (i.e., $[…]) to [Company A] who operates the [products] for the benefit and use of the […] owners. A copy of the […][product lease agreement] between [Company A] and [Company B] was submitted for our consideration as an example of lease/sublease agreement between the […] owners and [Company A]. Below are some of the terms of the Agreement: […]
7. When […][an] […] owner wishes to use the [product], [Company A] makes all the necessary arrangements including […]. If the [product] that is owned or leased by the […] owner is not available at the time requested by the […] owner, another of the [products] may be substituted in its place.
8. [Product 3] and [product 1] are based in [Province X], while the [product 2] is based in [Province Y]. […].
9. […]
10. There are various components of invoicing related to the […] ownership and the use of the [products] that are charged by [Company A] to the […] owners. These invoices include the following components: […]
11. [Company A] invoices for the usage and fixed fees in the following manner: […]
RULING REQUESTED
You would like confirmation of the following:
1. The initial sale of the […] share of […][a] [product] is a taxable supply of tangible personal property (“TPP”) by way of sale and subject to the tax rate of the province (i.e., [Province X]) where the respective [product] is made available to the […] owners.
2. The lease of a […] share of [a] [product] is a supply of TPP supplied otherwise than by way of sale and subject to the tax at the rate of the province where the [product] is ordinarily located. As the lessor and lessee mutually agreed that the ordinarily location of the [product] is [Province X] for the initial lease and for each lease interval, the supply of the [product] is deemed to be made in [Province X] and tax is applicable to the supply based on the tax rate for that province.
3. The […] charges for actual […] [use] and the variable charges for expenses incurred as a result of each particular […] [use] are charges for supplies of […] services. The tax rate to be applied to each supply of such services is determined pursuant to rules in […] the New Harmonized Value-Added Tax System Regulations (the Regulations) and, as such, is the tax rate of the province of origin.
4. The actual fixed and variable costs invoiced monthly (i.e., monthly fixed fee) are costs incurred for supplies of services to TPP (i.e., the [product]) and subject to tax at a rate determined pursuant to the Regulations. All three [products] will be located in [Province X] at the time the Canadian element of the service is performed, and as such, the […][tax] will apply.
5. The management/administration fees charged by [Company A] apply to each category of expense listed in […] of the Lease Agreement. Specifically, these fees are applied to the monthly fixed fee as well as the […] expenses and additional […] expenses. As such, the management/administration fees and particular category of expense to which it is levied, is considered a single supply and the place of supply (and tax rate) applied to these correspond to the tax rate levied on the particular expense category.
INTERPRETATION PROVIDED
A GST/HST Ruling cannot be provided with respect to Ruling Request #1 as there is insufficient information to provide a Ruling. Instead, we have provided the following GST/HST Interpretation.
Pursuant to paragraph 142(1)(a), a supply by way of sale of TPP is deemed to be made in Canada if the property is, or is to be, delivered or made available in Canada to the recipient of the supply. In addition, section 1 of Part II of Schedule IX deems a supply by way of sale of TPP to be made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply.
Since physical possession of the [products] is never transferred by [Company A] to the new owners, the determination of the place of supply of an ownership interest in a particular [product] is based on the place where the [product] in the context of the supply is considered to be made available to the recipient of the supply. In the GST/HST Memoranda Series: 3.3 Place of Supply
"Made available" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the tangible personal property is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law).
In the letter, you contend that the wording in […] the Purchase Agreement is sufficient to assert that the place of supply of the property is in […] [Province X]. However, it is our opinion that wording in that section does not pertain to the place where the [product] is made available to a recipient, but rather the wording relates to the timing and place where the ownership interest is transferred. In light of the fact that the place of delivery or place where the [product] is made available is not addressed in the agreement, consideration should be paid to the applicable […][provincial Act] for purposes of making a determination with respect to where the property is delivered or made available.
The provisions in the [Province X][provincial Act] that address delivery and that are relevant in determining place of supply in this particular instance are subsections […] of that Act: […]
Based on the above, the place of the supply may be at the seller’s place of business (i.e., [Province X]) or depending on the location of the [product] and the knowledge of the parties involved in the transactions of that location, the province where the [product] is located when the contract is made. Therefore, the tax applicable to the sale of the ownership interest in the [product] can vary depending on the determination of the place of supply of the [product].
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.
RULING GIVEN
Based on the facts set out above, we rule that
2. The lease of a […] share of [a] [product] is a supply of TPP supplied otherwise than by way of sale and subject to the tax at the rate of the province of the ordinary location of the [product].
3. The […] charges for actual […] [use] and the variable charges for expenses incurred as a result of each particular […] [use] are not charges for supplies of […] services, but are instead part of the consideration payable for a single supply of a service in relation to TPP. Regarding the tax rate applicable to the supply, please see the discussion below.
4. The actual fixed and variable costs invoiced monthly (i.e., monthly fixed fee) are part of the consideration payable for a single supply of a service in relation to TPP. Regarding the tax rate applicable to the supply, please see the discussion below.
5. The management/administration fees charged by [Company A] that apply to each category of expense (e.g. monthly fixed fee, […] expenses and additional […] expenses) form part of the consideration for the single supply of a service in relation to TPP provided by [Company A] to the owners. Regarding the tax rate applicable to the supply, please see the discussion below.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Pursuant to paragraph 142(1)(b), a supply of TPP otherwise than by way of sale is deemed to be made in Canada if possession or use of the property is given or made available in Canada to the recipient of the supply. Section 2 of Part II of Schedule IX deems a supply of TPP that is supplied otherwise than by way of sale (other than TPP that is supplied for no more than three months or TPP that is a specified motor vehicle) to be made in a province if the ordinary location of the property as determined when the supply is made is in the province. In essence, if the parties to an agreement have determined that the ordinary location of a property that is supplied otherwise than by way of sale is in a particular province at the time of the supply, the place of supply of the property is in that province.
In this particular case, if [Company A] and each lessee mutually agree that for purposes of the lease of the [product] by [Company A] the ordinarily location of the [product] is [Province X], then the supply of the [product] is deemed to be made in [Province X] and tax is applicable to the supply based on the tax rate for that province. Similarly, where [Company A] is the lessee acquiring by way of lease an interest in the [product], if both [Company A] and the lessor mutually agree that the ordinary location of the [product] is [Province X], then the place of supply of the [product] is in that province.
With respect to the subsequent lease payments payable by the lessees to [Company A] as consideration for the supply of TPP otherwise than by way of sale, subsection 136.1(1) provides that supplies of TPP by way of lease, licence or similar arrangement are treated as a series of separate supplies for each lease interval to which a particular lease payment is attributable. As such, the place of supply and therefore the ordinary location of TPP must be determined for each lease interval for purposes of determining the tax rate applicable to the supply.
The agreements entered into between [Company A] and the […] owners provide the […] owners with a single supply of services in relation to TPP (i.e., the management and administration of the [product] and [product] […] program that allows for the beneficial use of the [product] by the […] owners). This is not an agreement for the supply of […] services, notwithstanding that [Company A] bases a part of the consideration for the supply on […]. Furthermore, the fixed and variable costs which are invoiced separately from the […] charges and the administrative/maintenance fee which are added to the fixed and variable costs and the […] charges respectively, also form part of the consideration payable for the services.
Under section 15 of the Regulations, if a person makes a supply of a service that is in relation to tangible personal property that is situated in one or more provinces at the particular time when the Canadian element of the service begins to be performed and, at all times when the Canadian element of the service is performed, the tangible personal property remains in the province in which it was situated at the particular time, the supply is made
(a) in a participating province if the tangible personal property is situated primarily in participating provinces at the particular time and
i. an equal or greater proportion of the tangible personal property is not situated in another participating province at the particular time, or
ii. if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the tangible personal property is situated in another participating province at the particular time; and
(b) in a non-participating province if the tangible personal property is not situated primarily in participating provinces at the particular time.
Under section 16 of the Regulations, if a person makes a supply of a service that is in relation to tangible personal property that is situated in one or more provinces at the particular time when the Canadian element of the service begins to be performed and, at any time during the period when the Canadian element of the service is performed, the tangible personal property does not remain in the province in which it was situated at the particular time, the supply is made
(a) in a participating province if the tangible personal property is situated primarily in participating provinces at any time when the service is performed, the Canadian element of the service is performed primarily in participating provinces and
i. an equal or greater proportion of the service is not performed in another participating province, or
ii. if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and
(b) in a non-participating province if the tangible personal property is not situated primarily in participating provinces at all times when the service is performed or the Canadian element of the service is not performed primarily in participating provinces.
The supply of a service in relation to TPP is an ongoing service if consideration for the supply includes a payment that is attributable to a period (“billing period”) that is the whole or a part of the period during which the service is to be rendered under the agreement for the supply. Where there is an ongoing service, pursuant to paragraph 136.1(2)(a) a separate supply of the service is deemed to be made for each billing period. The place of supply of the deemed service (i.e., whether the supply is made in a participating province or non-participating province) must be determined for each billing period. This does not apply for the purposes of determining whether the supply of the service is considered to be made in Canada or outside Canada.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-7841. 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,
Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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