Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
TO:
XXXXX
XXXXX
XXXXX
XXXXX
FROM:
XXXXX
XXXXX
Real Property Unit
Excise and GST/HST Rulings Directorate
Case Number:
109447
DATE:
November 3, 2009
SUBJECT:
_GST/HST Interpretation
Lease surrender
We are writing in response to your XXXXX, XXXXX regarding the application of the Excise Tax Act (ETA) to a transaction XXXXX involving the surrender of a lease for real property. XXXXX.
Unless otherwise indicated, all legislative references are to the ETA and regulations thereto.
Based on the information provided, our understanding of the facts is as follows:
1. In XXXXX, XXXXX (XXXXX the "Tenant") entered into an agreement to lease the subject real property ("Property") from the owner, XXXXX for a XXXXX-year term with an option to renew the lease for an additional XXXXX years (the "Lease");
2. XXXXX expropriated and acquired the Property from XXXXX in order to provide XXXXX;
3. On XXXXX, XXXXX, as the new owner of the Property, entered into a Lease Surrender Agreement ("Surrender Agreement");
4. According to the terms of the Surrender Agreement, XXXXX agreed to surrender its lease to XXXXX for consideration XXXXX of $XXXXX paid by XXXXX and allocated as follows:
(a) $XXXXX for the surrender of lease;
(b) $XXXXX for reimbursement in full of XXXXX; XXXXX and
(c) $XXXXX for "XXXXX" to release XXXXX from any future legal action.
5. XXXXX.
6. The Surrender Agreement also stipulates that these amounts are for the express purpose of making full and final settlement of all claims, including claims for the market value of XXXXX estate or interest in the property or for business losses or disturbance damages; and
7. XXXXX indicated XXXXX that it did not charge or collect GST from XXXXX in relation to the forgoing payments because its supply to XXXXX under the Surrender Agreement constituted a sale of real property and, as XXXXX is a GST registrant, the provisions of paragraph 221(2)(b) and subsection 228(4) applied to the transaction.
8. XXXXX is not an entity provided point-of-purchase tax relief under the Constitution Act, 1867.
OPINION REQUESTED
You have asked whether XXXXX's treatment of this transaction for GST/HST purposes was correct.
OPINION PROVIDED
XXXXX's treatment is consistent with the CRA's position as to the application of the ETA to the facts of this transaction. Specifically, the subject lease surrender constitutes a sale of real property by XXXXX to XXXXX and, as such, the provisions of paragraph 221(2)(b) and subsection 228(4) apply to the transaction.
For GST/HST purposes, the definition of real property states:
"real property" includes
(a) in respect of property in the Province of Quebec, immovable property and every lease thereof,
(b) in respect of property in any other place in Canada, messuages, lands and tenements of every nature and description and every estate or interest in real property, whether legal or equitable, and
(c) a mobile home, a floating home and any leasehold or proprietary interest therein;
[emphasis added.]
Under the Surrender Agreement, XXXXX surrendered and extinguished its interest in the Lease, any rights or interest it had under the Lease, any unexpired term of the lease, including any renewal term, and the right to occupy the demised Property. In our view, the lease is a demise of real property, and by extension the surrender and extinguishment of this leasehold estate would be the disposition of the lessee's interest in the real property.
Further, we are of the opinion that the lease surrender entails the transfer of ownership of an equitable interest in real property and, in accordance with Policy Statement P-111, The Meaning of Sale with Respect to Real Property, constitutes a "sale" of real property within the definition of that term in subsection 123(1).
As no exemptions apply in this case, the sale by XXXXX is a taxable sale. However, given that XXXXX was registered for GST/HST purposes, XXXXX would be relieved from collecting GST on the consideration for the supply by virtue of paragraph 221(2)(b). XXXXX would be required to account for the tax payable in accordance with the terms set out in subsection 228(4).
We trust that the foregoing will be of assistance XXXXX. However, if you have any questions regarding the information provide, please feel free to contact me at XXXXX.
XXXXX
UNCLASSIFIED
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