11950-3, 11925-5
c.n. 937(JB)
XXXXX
This is in response to your memorandum of November 4, 1994, in which you request our comments as to whether an agreement entered into between XXXXX and the XXXXX constitutes a supply of real property by way of a lease or a licence. We apologize for the delay in responding.
Further to your telephone discussions with John Bain of the Real Property Unit, and upon reviewing the submitted document, we concur with your conclusion that the agreement between XXXXX and the XXXXX constitutes a supply of real property by way of licence. After reviewing the agreement, it is not apparent that XXXXX had exclusive possession of the property in question. Nor does she have any rights of assignment in respect of the property. Finally, while not conclusive in and of itself, the parties refer to the agreement as a licence. Paragraph 1(a) of the agreement states that the Association will, "Grant to the Operator a licence to use the premises and such equipment as the hospital is to provide ...".
Additionally, where two parties enter into an agreement which could be characterized as a commercial lease, the tenancy would be subject to the provisions of Parts I to III of the XXXXX XXXXX, has stated that the XXXXX is not applicable to the agreement entered into between XXXXX and the XXXXX.
It is noted that XXXXX disagrees with the conclusion that the agreement is that of a licence and feels that the agreement is more akin to a lease. As you discussed previously with Mr. Bain, when the Department and the taxpayer are not in agreement regarding such an issue, we fully encourage the taxpayer to submit additional documentation to demonstrate the validity of their position. We would add that we are certainly willing to review any such additional information should it be forthcoming.
In all provinces except Quebec, leases and licences of real property should be distinguished on the basis of common law principles applied to the particular supply in question based on the nature of the property, the relationship between the parties, the intention of the parties and the wording of any applicable agreement. No one factor in and of itself can determine whether an agreement constitutes that of a lease or a licence. With respect to determining whether a supply of real property is made by a public service body by way of a lease or a licence, we would advise that the principals outlined in Policy Statement P-062 - Distinction Between Lease, Licence and Similar Arrangement in Relation to Supplies of Real Property by Public Service Bodies be consulted. This, in conjunction with the large body of jurisprudence, should prove helpful when determining whether a supply of real property is by way of lease or licence.
It should be noted that a lease, licence or similar arrangement of real property supplied by a public service body (other than a government or financial institution) entered into prior to September 15, 1992, for a period of one month or more would be exempt pursuant to paragraph 25(f) of Part VI of Schedule V to the Excise Tax Act provided the other exclusions to section 25 do not apply. Leases of real property by a public service body entered into for a term of less than one month, or any licence (regardless of the time period or term involved) entered into after September 14, 1992, where the supply is made in the course of a business carried on by the body, would be subject to GST unless another exempting provision applied.
As the agreement entered into between XXXXX and the XXXXX after September 14, 1992, is characterized as a licence of real property, and as no other exempting provision applies, the amounts payable under the agreement are subject to GST. The XXXXX would be eligible to claim input tax credits in respect of the GST paid on its inputs that relate to the commercial activity of licencing the real property.
If you require further clarification of the issues discussed in this letter, please contact John Bain at (613) 954-8852.
S. Farber
Manager, Tax Policy
Real Property
GST Rulings and Interpretations
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