22 August 1996 GST/HST Interpretation 11745-5 - GST Status of the Delivery and Installation of Furnace and Hot Water Supply Systems Prior to 1991

                                                                        Telephone No.: (613) 957-8224
Fax No.: (613) 990-1233
File No.: 11745-5(cav)
XXXXX                                                                                 s. 337, s. 339, s. 340

I refer to a letter from XXXXX dated February 1, 1996 requesting further clarification of my response dated November 28, 1995 to her letter of November 2, 1995 respecting the GST status of the delivery and installation of furnace and hot water supply systems prior to 1991. XXXXX and XXXXX were made aware that a thorough review of XXXXX request was being undertaken. Nevertheless, I apologize for the late reply.

XXXXX states that XXXXX now requests an application ruling on the GST status of the above supplies. To support XXXXX position that he should not pay tax on these supplies, XXXXX has provided a new set of facts and arguments.

Facts - XXXXX letter of February 1, 1996

XXXXX states:

1. There are two agreements, both executed September 21, 1990, provisions identical in all respects save one: one agreement relates to a hot water furnace, the other to a hot water heating system less furnace and oil storage tank.

2. The furnace and heating system were installed in April 1990 during the construction of a house. The installation was provided exclusively by XXXXX and its agents, in accordance with the agreement.

3. The house was constructed on land owned by XXXXX, and became part of the real property, title to which is not in dispute.

4. For said supply and installation, XXXXX agreed to pay the supplier, XXXXX, consideration, expressed within the agreements as sums of money plus a promise to purchase all fuel oil for the furnace and any other oil-fired equipment located in the same premises.

5. That promise to purchase fuel oil and the agreement to pay a sum of money, including the terms of its repayment, has been documented in the agreements presented for a GST ruling.

6. The agreements designate the term "Lessor" as referring to XXXXX. The agreement also specifies "Name of Lessee: XXXXX. Further, the agreement specifies that the Lessor leases to the Lessee the enumerated equipment.

7. The parties agree to certain events as constituting default. The document provides that XXXXX agrees, should said events transpire, XXXXX may terminate the lease and, "notwithstanding any ... rule of law or equity to the contrary be entitled to repossess ...".

The parties agree that in the event XXXXX is unable to repossess the furnace and system, XXXXX is required to pay the outstanding amounts relating to the unexpired portion of the term.

8. The agreement provides, in paragraph 11 and paragraph 12, two formula for extinguishing the outstanding liability:

(i) compliance with the conditions of the agreement to the end of the term at which time $1 may be requested, or

(ii) at any point in the term pay an amount equal to the unpaid principal of all unbilled monthly payments, which have been calculated at the rate of 10% per annum.

Opinion

We have reviewed in detail XXXXX additional facts and analysis as set out in her letter of February 1, 1996. My opinion with respect to the application of the GST to these supplies is based on the wording and form of the two lease agreements (attached to XXXXX first letter of November 2, 1995). I understand from XXXXX, through e-mail to Carol Ann Villeneuve, that agreements referred to in her letter XXXXX are, in fact, the lease agreements of XXXXX. There are no other documents to be submitted with respect to this ruling request.

Accordingly, I wish to reiterate my opinion of November 28, 1995 that it is the Department's view that as the leases with respect to the property are leases for GST purposes, the GST is applicable to these lease payments as of January 1, 1991. There are no grandfathering provisions to relieve the GST on these particular lease payments.

Should you require further clarification, please do not hesitate to contact Carol Ann Villeneuve at (613) 957-8224 or Randy Nanner at (613) 952-8810.

H.L. Jones
Director
General Operations and Border Issues
GST Rulings and Interpretations
Policy and Legislation Branch