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.
April 8, 2011
To:
[Client]
FROM:
Jeff Frobel
Manager
Goods Unit
Excise and GST/HST Rulings Directorate
320 Queen St. 16th Floor, Tower "A",
Ottawa, ON K1A 0L5
CASE NUMBER:
129276
File
129078
Subject:
GST/HST RULING
Tax status of gravel from Mining Property
We are writing in response to your memorandum of September 30, 2010 wherein you requested our assistance in determining the GST/HST implications of the rent and royalty payments made by [...] [Company A] to [...] [(a non-resident)] that relate to the removal of gravel from property owned by [the non-resident]. Based on your memorandum and subsequent fax of December 10, 2010, we understand the facts to be as follows:
1. [The non-resident] is a GST/HST registered non-resident person that receives income that is associated with the removal of gravel from a gravel pit that is situated on property that [the non-resident] owns in Canada (the Mining Property).
2. [The non-resident] has entered into [...] (the Agreement) with [Company A] that gives [Company A] the exclusive right to carry out aggregate extraction activities on the Mining Property. The Agreement has a term of [...] years, with an option to negotiate every [...] years from the start date of the contract, [mm/dd/yyyy].
3. [Company A] is a GST/HST registered Canadian gravel mining company.
4. Article [...] of the Agreement states that [the non-resident] grants [Company A] all [the] rights, title and interest in and to the Mining Property for the term and subject to the conditions provided in Article [...].
5. [The non-resident] supplies to [Company A] the exclusive right to enter [the non-resident's] land for the purpose of developing and excavating gravel deposits on the land, and mining and removing the gravel. Article [...] of the Agreement states that [Company A] pays [the non-resident] a Lease fee of $[...] annually for full access rights to the Mining Property.
6. Article [...] of the Agreement states that [Company A] has been given the right by [the non-resident] to extract gravel from the Mining Property, all costs to be borne by [Company A]; this includes any and all licensing fees required or associated with the removal of gravel.
7. Articles [...] and [...] of the Agreement state that [Company A] shall pay [the non-resident] for all aggregate materials removed from the Mining Property at a rate the greater of $[...] per metric tonne (the Royalty), or monthly minimum of $[...] (Minimum Royalty). Annual minimum Royalty is $[...].
8. Article [...] of the Agreement states that the rate per tonne can be negotiated every [...] years, but the price will not fall below $[...] per metric tonne.
9. Article [...] of the Agreement states that [Company A] pays the monthly amounts net of any applicable taxes (GST/HST, municipal, etc) and remits these taxes to the respective agencies.
Question:
You would like to know if the rent and royalty payments made under the Agreement are subject to GST/HST.
Response:
Based on the information provided, [Company A] has acquired from [the non-resident] the right to explore for, and exploit a mineral deposit on the Mining Property. Each payment made by [Company A] to [the non-resident] pursuant to the Agreement is considered to be a fee or royalty charged or reserved in respect of that right for purposes of section 162 of the Excise Tax Act (ETA). Pursuant to subsection 162(2) of the ETA, the supply of the right is deemed not to be a supply and the consideration paid in respect of that right is deemed not to be consideration for the right. GST/HST is therefore not exigible on the payments that are made by [Company A] to [the non-resident] pursuant to the Agreement.
If you have any questions or require clarification with respect to any of the issues discussed in this memorandum, please call me at 613-954-4397
UNCLASSIFIED
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