25 McArthur Road,
Place Vanier, 10th Floor, Tower C
Vanier, ON
XXXXX K1A 0L5
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XXXXX
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Case: HQR0000336
XXXXX NCS: 11950-1,11847-1
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July 24, 1997
Dear XXXXX
Thank you for your letter of June 1, 1996, with attachments, concerning the application of the Goods and Services Tax (GST) to the release fee charged to you by the Canadian Parks Service in order to enter into a lease agreement. Please note that release fee refers to the term as used by Parks Canada and as referred to in the National Parks Lease and License of Occupation Regulation (1991) under the National Parks Act, and not as a release fee for damages.
We apologize for the delay in our response to you.
Our understanding of the facts from the enclosed attachments and my conversation with XXXXX Tax Services Office on June 25, 1997 and July 4, 1997 is as follows:
Statement of Facts
1. Parks Canada charges a release fee to enter into a lease of land.
2. The April 21, 1995 Revised Letter of Offer for a XXXXX from Parks Canada outlines two options to XXXXX for continued occupancy of their trailer court site. This letter states:
• The first option is a lease and the second option is month-to-month occupancy without a written land use agreement.
• In order to enter into this lease, the recipients are required to pay a release fee of $ XXXXX . Prior to the execution of the lease, $ XXXXX must be paid and the unpaid balance is due at the time of the first assignment of the lease to a new owner, from the estate in the case of the recipient's death, at the time of lease expiration, or sooner at the recipient's option. (It is stated that the GST is payable in regards to the release fee).
• Legal survey costs of XXXXX are also required to be paid in order to enter into this lease.
3. Pursuant to the lease dated XXXXX
• XXXXX
• The lease is for XXXXX
• A rent of XXXXX is to be paid yearly during the term commencing XXXXX
• The rent for the remainder of the lease period is to be determined by the Minister (referring to the Minister of the Environment for whom the Minister of Communications has been substituted).
• In addition to the payment of rent, the Lessee shall pay to Her Majesty a release fee in the sum of XXXXX
• In addition to the payment of rent and the release fee, the Lessee shall pay to Her Majesty a sum of XXXXX upon execution of the lease which is the apportioned cost of the survey of lands.
4. The lease is in respect of a lot of land that is located in a "residential trailer park" as defined for GST purposes under subsection 123(1) of the Excise Tax Act (the Act). XXXXX has had possession of and has occupied this lot of land since before 1991.
5. Pursuant to the Regulations Respecting Leases and License of Occupation of Public Land in National Parks:
• A lease granted pursuant to subsection 3(1) may contain a covenant for renewal for terms that do not exceed 21 years in the aggregate, where the initial term of the lease and the terms of all renewals do not exceed 49 years.
• In addition to the rent based on a rental rate set out in section 7, 8, 11 or 13 at the time a lease of public lands is granted the lessee shall pay to the Minister a sum, known as a release fee, equal to the market value of the leasehold interest in the case of public lands leased pursuant to XXXXX a sum determined in accordance with that Article.
6. Pursuant to my conversation with XXXXX
• For policy purposes under the National Parks Act, Parks Canada and the Department of Canadian Heritage consider the release fee to be consideration for the "right to enter" into the lease rather than part of the lease itself.
• Until the last few years, the release fee used to have to be paid up front before the land lease could be entered into but now the Canadian Parks Services allow for payment plans over a period encompassed by the lease (as shown by the loan payment schedule attached by the correspondent).
• Once the release fee is paid, the lessee has already entered into the lease. It is not possible for one person to pay the release fee and for another to enter into the lease itself. Upon payment of the release fee, an individual must rent the applicable land in order to have the right to enter and use the land.
Ruling Requested
You wish to know whether the GST is collectible on the release fee, regulated under the National Parks Act, that you have to pay the Canadian Parks Service pursuant to your lease.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed as described above, our ruling is as follow:
It is the Department's position that, for GST purposes, the release fee is exempt from the GST.
This ruling is given subject to the limitations and qualifications set out in GST Memoranda Series (1.4) issued by Revenue Canada and is binding provided that the proposed transactions are completed prior to.
This ruling is based on the Excise Tax Act in its present form and does not take into account any proposed amendments to the Excise Tax Act which, if enacted, could have an effect on the ruling provided herein.
Nothing in this ruling should be construed as implying that the Department has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given.
Explanation
Paragraph 7(b) of Part I of Schedule V to the Act exempts leases of land in a residential trailer park to owners, lessees or occupants of mobile homes, travel trailers or motor homes. This exemption is applicable to leases in a "residential trailer park" that is defined in subsection 123(1) of the Act as a trailer park where at least 90% of the leases are for at least one month in the case of mobile homes and at least twelve months in the case of a travel trailer or motor home.
For GST purposes, the release fee and the consideration for the lease are both consideration for the lease. The "release fee", as seen by Parks Canada and the Department of Canadian Heritage to be consideration for the right to enter into the lease, and the lease are both elements of the same supply, that supply being one of land by way of lease.
As per Policy Paper P-077 entitled Single and Multiple Supplies, the issue or analysis of a single supply vs. a separate ("multiple") supply, is a question of fact. We must examine the degree to which the various elements at interconnected and the extent of their interdependence and intertwining, and whether each is an integral part or component of a composite whole.
In this case, the nature and the intent of the agreement imply that the "release fee" is part and parcel of the lease. The "release fee" is based on the difference between the fair market value of the leases on the land and the actual cost of the lease. No right with respect to or interest in the land is conveyed if only the release fee is paid. An individual is not entitled to enter and use the land if he/she pays the release fee but not the rental fee of the land. Lessees are allowed to sub-let, reassign or sell their lease once they've entered into their lease, however, the release fee is required to be paid in order to enter into the lease. Therefore, the "release fee" and the supply of the lease for the lot of land cannot be separated as they are directly relevant to one another. Neither component is useful by itself as one is contingent on the provision of the other.
Further to this, the "release fee" and the supply of the lease for the land are being supplied by the same person (Parks Canada) and are being acquired by the same recipient. There is a single purpose to this agreement and that is to lease the lot of land in question.
In summary, the "release fee" and the supply of the lease of land is a single supply for GST purposes, that supply being one of land by way of lease which is exempted pursuant to paragraph 7(b) of Part I of Schedule V to the Act.
Should you require any further information concurring this matter, please contact me at (613) 952-9214.
Yours truly,
Doris Rist
A/Rulings Officer
Financial Institutions and Real Property
GST/HST Rulings and Interpretations
XXXXX
XXXXX
Legal References: National Parks Act, Excise Tax Act, XXXXX
Authority: XXXXX Department of Canadian Heritage (policy unit for Parks Canada)
Reference: ETA ss. 165(1), 136(1), para. 146(e), sch. V/VI/20(l); Q&A 4a.44, 4a.68, 4a.116, 5a.9, 2e.254, 4a.130, GST Memoranda 300-5
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