8 September 1999 GST/HST Ruling HQR0001865 - S GST/HST INTERPRETATIONS Mobile Homes and Related Supplies

Dear XXXXX

Thank you for your letter of June 23, 1999, our telephone conversations of July 20 and August 25, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of mobile homes and related supplies. We appreciate your taking the time, along with your client XXXXX, to speak with us via conference calls on July 21 and August 30, 1999.

As a result of our Application Rulings issued to you on May 31, 1999, file HQR0001577, you have presented additional questions for our consideration. We will address your questions in the same order as they were presented.

All legislative references are to the Excise Tax Act (the Act).

The following rulings and interpretations must be read in conjunction with file HQR0001577 and we will reference that letter in our current response.

NEW HOME WARRANTIES

Rulings Requested

1. What is the tax status of the new home warranty fee collected from XXXXX by the warranty provider?

2. If the fee is subject to tax, is the rate of tax based on the location to which a home is delivered or made available to the recipient of the supply? That is, will the fee be subject to the GST at 7% if the home is delivered to a non-participating province and subject to the HST at 15% if delivered to a participating province?

Response

These issues involve matters which are beyond the purview of the Real Property Unit. In order to respond to your request we would require information concerning membership in the warranty program, the legal status of the warranty provider (e.g. whether it is a non-profit organization), the basis of payment of fees by XXXXX and the nature of the supply made by the warranty provider. This information can be sent to the attention of the undersigned. Alternatively, you may wish to have the warranty provider contact our Directorate with a ruling or interpretation request.

FREIGHT AND SET CHARGES

SITUATION 1

Statement of Facts

1. The agreement for sale of a mobile home from XXXXX to a dealer does not include "freight" and "set" charges (as those terms are used in file HQR0001577) to a consumer's lot, but such charges become part of the agreement subsequent to entering into the original contract. This may occur where a dealer purchases a home to be held in inventory and subsequently has XXXXX transport and affix the home to the consumer's lot.

2. The dealer will finance the home through a finance company with the "freight" charges being financed in addition to other consideration payable for the mobile home.

3. A freight company invoices XXXXX which pays the freight and in turn charges this amount to a dealer.

4. If the home has not been invoiced by XXXXX the "freight" charges are added to the invoice. If an invoice has previously been issued, an additional invoice is issued to the dealer which reflects the "freight" charges.

Rulings Requested

1. You are requesting confirmation that the "freight" and "set" charges subsequently charged still form part of a single supply of a mobile home.

2. You are requesting confirmation that where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect the tax payable on the supply pursuant to subsection 221(2).

Rulings Given

Based on the facts set out above, we rule that:

1. Where a dealer purchases a mobile home from XXXXX and the sales agreement makes provision for "freight" or "freight and set" for eventual delivery to a consumer's lot, the "freight" or "freight and set" would be considered part of a single supply of a mobile home, irrespective of whether the amount for "freight" or "set" services is known at the time the agreement is entered into.

Where a dealer purchases a mobile home from XXXXX and the contract price does not include "freight" or "freight and set" charges for eventual delivery to a consumer's lot, the "freight" and "set" services would not be considered a single supply of a mobile home. For example, if XXXXX sells a mobile home to a dealer and several months later the dealer requests XXXXX to provide "freight and set" services to a consumer's lot, those services would not be considered part of the original supply of the mobile home if they were not contemplated in the original sales agreement.

2. We confirm that where the "freight" or "freight and set" charges are considered part of a single supply of a mobile home, and the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect the tax payable on the supply pursuant to subsection 221(2).

SITUATION 2

Statement of Facts

1. XXXXX receives a freight bill after an invoice for a mobile home has been issued by XXXXX to a dealer.

2. The amount for freight was unknown until XXXXX received the freight invoice.

3. A separate invoice is issued by XXXXX to the dealer for the amount of the freight invoice received by XXXXX[.]

4. The provision for "freight" may or may not have been included in the original sales agreement between XXXXX and a dealer.

Ruling Requested

You are requesting confirmation that the "freight" charges above are considered to be part of a single supply of a mobile home and that where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

Where the original sales agreement requires XXXXX to deliver a mobile home to a certain location, or there is an addendum to the agreement which requires XXXXX to deliver the home to that location, XXXXX is making a single supply of a mobile home, irrespective of whether the amount for freight is known at the time the sales agreement is entered into. Pursuant to subsection 221(2), where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect tax on the supply.

FINISH CHARGES

SITUATION 1 - PORCHES AND GARAGES

Statement of Facts

1[.] XXXXX will sometimes supply porches as well as attached and detached garages in conjunction with the sale of a mobile home.

Ruling Requested

You are requesting confirmation that for the purposes of file HQR0001577, porches, attached garages and detached garages would be "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence for individuals.

Interpretation Given

We are not in a position to provide a ruling on whether any particular porch or garage (attached or detached) is "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence for individuals. Such determination can only be made on a case by case basis.

Generally, however, these items would be considered "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence. As such, where the items are included in a single supply of a mobile home, pursuant to subsection 221(2), XXXXX is not required to collect tax on the supply if the dealer is registered for the GST/HST and is not an individual.

SITUATION 2 - TRANSFER OF TITLE

Statement of Facts

1. There are occasions when a mobile home is purchased by a dealer for inventory purposes through a financing arrangement with a financing company.

2[.] XXXXX receives payment for the mobile home prior to its actual delivery to the purchaser.

3. Title to the home is typically transferred to the dealer when payment is received in full. In these instances, the home may still be located on premises of XXXXX[.]

Ruling Requested

You are requesting confirmation that finish charges which were not included in the original agreement, but are considered to form part of the agreement under the guidelines in item 2, page 6 of file HQR0001577, (with the possible exception of 2(b)) are not excluded from forming part of a single supply of a mobile home due solely to the fact that title is transferred upon receipt of full payment for the home.

Ruling Given

Based on the facts set out above, we rule that:

Finish items that are ordered at or around the same time as title to the mobile home is transferred to the dealer, where the remaining conditions (i.e. other than 2(b)) identified in the second ruling on page 6 of file HQR0001577 are satisfied, will be considered to be included in the original sales agreement. In such cases, the finish items may be considered to form part of a single supply of a mobile home. The "Comments" section on pages 7 and 8 of file HQR0001577 would be helpful in determining whether any particular materials are supplied "at or around the same time" as title to the home is transferred.

ADDITIONAL MATERIALS

The following facts apply to the next eight (8) situations.

Statement of Facts

1. To assemble a modular home, certain finishing items are required to be installed on site. These items are referred to as "standard finish" items. Examples include siding material for gable ends, interior trim for the interior modular connection, and shingles to cap the roof. These items are necessary to complete the home and are included in the base price of the home.

2. "Additional materials" are materials that are not considered as "standard finish" items. They would include items such as materials to construct a knee wall, additional windows for a knee wall, and materials to complete the second story of a Cape Cod design home. Additional materials could also include materials for a garage, extra siding to match a doghouse or storage shed, or additional insulation and gyproc to complete a second story of a home which the consumer will eventually install or have installed.

3. The recipient of the supply by XXXXX registered for the GST/HST.

SITUATION 1

Ruling Requested

You are requesting confirmation that the second paragraph of item 4, page 7 of file HQR0001577 refers to "additional materials" that are not included as part of original contract and not to standard finish materials (i.e. materials required to complete the home).

Ruling Given

Based on the facts set out above, we rule that:

We confirm that the second paragraph of item 4, page 7 of file HQR0001577 refers to "additional materials" that are not included as part of original contract and does not refer to standard finish materials (i.e. materials required to complete the home).

SITUATION 2

Ruling Requested

You are requesting confirmation that where "additional materials" are not included in the original sales agreement and the other requirements in item 2, page 6 of file HQR0001577 are not met, the additional materials will not form part of the single supply of a mobile home. The materials will be taxed pursuant to the provisions of Part II of Schedule IX to the Act. Specifically, XXXXX will be required to collect tax on these supplies. If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where "additional materials" are not included in the original sales agreement and the other requirements in item 2, page 6 of file HQR0001577 are not met, the additional materials will not form part of the single supply of a mobile home. XXXXX will be required to collect tax on these supplies pursuant to subsection 221(1). If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

SITUATION 3

Ruling Requested

You are requesting confirmation that where a mobile home and "additional materials" only are supplied under the original sales agreement, or the other requirements set out in item 2, page 6 of file HQR0001577 are met, the additional materials will form part of a single supply of a mobile home. As such, where the recipient is not an individual, the provisions of subsection 221(2) will apply and XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

In these circumstances, the "additional materials" will not form part of a single supply of a mobile home. Such materials will be considered a supply of tangible personal property. As such, XXXXX will be required to charge and collect the tax payable on the supply of the "additional materials".

SITUATION 4

Ruling Requested

You are requesting confirmation that "additional materials" and installation services that are supplied by XXXXX and which form part of the original sales agreement or meet the criteria of item 2, page 6 of file HQR0001577, will constitute a single supply of real property and that, where the recipient is not an individual, subsection 221(2) will apply. Specifically, XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where XXXXX supplies and installs "additional materials" and the supply forms part of the original sales agreement or meets the criteria of item 2, page 6 of file HQR0001577, the supply will be that of a single supply of real property. Where the recipient is not an individual, XXXXX will not be required to collect tax on the supply, pursuant to subsection 221(2).

SITUATION 5

Ruling Requested

You are requesting confirmation that where "additional materials" are supplied by XXXXX with installation services in respect of those materials provided by a dealer or a dealer's contractor, and the materials form part of the original contract between XXXXX and the dealer, or meet the criteria under item 2, page 6 of file HQR0001577, the materials will constitute part of a single supply of real property. Specifically, where the recipient is not an individual, subsection 221(2) will apply and XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

In these circumstances, the "additional materials" will not form part of a single supply of real property. Such materials will be considered a supply of tangible personal property. As such, XXXXX will be required to charge and collect the tax payable on the supply of the "additional materials".

SITUATION 6

Ruling Requested

You are requesting confirmation that where only "additional materials" are sold, tax is applicable and charged, and the purchaser subsequently requests XXXXX to install such materials, the tax status of the supply of materials will be as in Situation 2, above.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where only "additional materials" are supplied, tax is applicable and charged by XXXXX and the purchaser subsequently requests XXXXX to install the materials, the supply of the materials will not be considered to form part of a single supply of a mobile home. XXXXX will be required to collect tax on the supply. If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

SITUATION 7

Ruling Requested

You are requesting confirmation that the services of installing "additional materials", where the materials were not part of the original sales agreement and do not meet the criteria in item 2, page 6 of file HQR0001577, will have the same tax treatment as the mobile home. Specifically, if XXXXX is not required to collect tax on the home, XXXXX will not be required to collect tax on the installation services.

Ruling Given

Based on the facts set out above, we rule that:

Where XXXXX provides a service of installing "additional materials" that were not part of the original sales agreement and do not meet the criteria of item 2, page 6 of file HQR0001577, the supply of the services will be subject to tax in accordance with the ruling given in the third paragraph of item 4, page 7 of file HQR0001577. That is, where XXXXX has agreed to install the materials in a residential complex, it is making the supply of a service. Where the service is in relation to real property, the applicable tax rate will be determined in accordance with the provisions of section 2 of Part IV of Schedule IX to the Act. Where the service is not in relation to real property, the applicable tax rate will be determined in accordance with the provisions of Part V of Schedule IX to the Act. In determining whether any particular service is "in relation to real property", you may wish to refer to policy paper P-169R, "Meaning Of 'In Respect Of Real Property Situated In Canada' And 'In Respect Of Tangible Personal Property That Is Situated In Canada At The Time The Service Is Performed', For Purposes Of Schedule VI, Part V, Sections 7 And 23 To The Excise Tax Act". In these circumstances, XXXXX would have to collect and remit tax on the supply in question, and the dealer would not be required to self-assess tax under subsection 221(2).

SITUATION 8

Ruling Requested

You are requesting confirmation that when "additional materials" and installation services were to be supplied in conjunction with the sale of a mobile home, but the purchaser subsequently decides not to engage the services of XXXXX[.] For installation of the materials, the original arrangement whereby XXXXX was not required to collect tax on the supply pursuant to subsection 221(2) still applies.

Ruling Given

Based on the facts set out above, we rule that:

Where

(a) "additional materials" and installation services were to be supplied in conjunction with the sale of a mobile home, and

(b) subsequent to the dealer entering into a sales agreement with XXXXX the dealer, either as a result of their client's wishes or otherwise, decides not to engage the services of XXXXX for installation of the materials and a change to the sales agreement is made, the tax status of the supply by XXXXX to the dealer will depend on whether the supply from XXXXX to the dealer has taken place.

If the supply from XXXXX to the dealer has been made at the time the change to the sales agreement is made, the materials will be considered to form part of a single supply of a mobile home. Where the dealer is not an individual, XXXXX is not required to collect tax on the supply pursuant to subsection 221(2).

If the supply from XXXXX to the dealer has not been made at the time the change to the sales agreement is made, the materials will not form part of a single supply of a mobile home. XXXXX will be required to charge and collect tax on the consideration payable on the supply of the "additional materials". If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

CLARIFICATION OF ITEM 4, PAGE 7 OF FILE HQR0001577

The whole of item 4 is premised on a situation where finish charges in respect of "additional materials" are not included in the original sales agreement and the requirements of item 2, page 6 of file HQR0001577 are not satisfied. As such, the finish charges are not part of a single supply of a mobile home. The second paragraph of item 4 provides the rules for situations where only the materials are supplied, while the third paragraph of item 4 provides the rules for situations where materials are supplied and installed by XXXXX[.]

SALES TO END CONSUMERS

Statement of Facts

1. A mobile home will occasionally be sold directly to an end consumer rather than to a dealer as would normally occur.

Rulings Requested

You are requesting confirmation that once a mobile home has been placed on a foundation and affixed to same:

1. The home is considered to be real property for purposes of Schedule IX to the Act.

2. The finish charges will form part of a single supply of a mobile home and will follow the tax rate of the home itself, pursuant to Part IV of Schedule IX to the Act.

3. The place of supply for finish charges or other services performed on the home prior to its placement on a foundation and affixing to same, will be governed by Part V of Schedule IX to the Act.

4. You are requesting confirmation that where section 2 of Part I of Schedule IX to the Act deems a mobile home to be tangible personal property, the tax rate on the sale of a home would be determined by Part II of Schedule IX or, in the case of services, by Part V of Schedule IX to the Act.

Rulings Given

Based on the facts set out above, we rule that:

1. We confirm that your understanding is correct based on the understanding that if the supply of the home is made prior to the home being affixed to a foundation, for purposes of Schedule IX to the Act, the supply will be that of tangible personal property rather than real property.

2. We confirm that your understanding is correct, provided that the finish charges are part of the original sales agreement or the other requirements set out on item 2 of page 6 of file HQR0001577 are met.

3. Finish charges and other services performed on the mobile home prior to its being affixed to a foundation, are still considered part of a single supply of a mobile home if the conditions in item 1 or item 2, page 6 of file HQR0001577 are met. If the sales agreement calls for the home to be affixed to a foundation by XXXXX and possession and ownership of the home does not transfer to the purchaser until the home is affixed to a foundation, the single supply would be that of real property and the place of supply would be governed by the provisions of Part IV of Schedule IX to the Act.

4. If XXXXX supplies a mobile home by way of sale and the home is not affixed to a foundation at the time of the supply XXXXX will, for purposes of Schedule IX to the Act, be making a supply of tangible personal property. If the same agreement provides for services to be performed in relation to the mobile home before affixing it to the foundation, the place of supply of those services will be determined according to the provisions of Part V of Schedule IX to the Act.

PLACE OF SUPPLY (NOTED AS "CONCLUSION" REMARKS ON PAGE 8 OF YOUR LETTER OF JUNE 23, 1999)

Statement of Facts

1[.] XXXXX may sell a mobile home and finishing services are supplied after the home is affixed to a foundation.

Rulings Requested

1. You are requesting confirmation that for supplies involving only the sale of materials, the appropriate tax rate will be based upon where the materials are delivered or made available to the recipient of the supply. Typically, GST at 7% will apply where the goods are delivered or made available to the recipient of the supply in a non-participating province. Typically, the HST at 15% will apply where the goods are delivered or made available to the recipient in a participating province.

2. You are requesting confirmation that for transactions involving the sale of materials and the installation of such materials (after affixing the home to a foundation), the supply will be considered a service in relation to real property and the tax rate would be based on the provisions of Part IV of Schedule IX to the Act. Typically, GST at 7% will apply where the real property is located in a non-participating province. Typically, HST at 15% will apply where the real property is located in a participating province.

3. You are requesting confirmation that for transactions involving the sale of materials and the installation of such materials prior to affixing the home to a foundation, the supply will be considered a service and the tax rate will be based on the provisions of Part V of Schedule IX to the Act. Typically, GST at 7% will apply where the service is performed all or substantially all in a non-participating province, or the place of negotiation is in a non-participating province and it is not the case that all or substantially all of the service is performed outside the non-participating province. Typically, HST at 15% will apply if the service is performed all or substantially all in a participating province or the place of negotiation is in a participating province and it is not the case that all or substantially all of the service is performed outside the participating province.

Rulings Given

Based on the facts set out above, we rule that:

1. Regarding Ruling Request 1, with respect to a sale of materials only, the tax rate will be based upon where the materials are delivered or made available to the recipient of the supply. Pursuant to section 165 and Part II of Schedule IX to the Act, the GST at 7% will apply where the goods are delivered or made available to the recipient of the supply in a non-participating province. Where the materials are delivered or made available to the recipient in a participating province, the HST at 15% will apply.

2. Regarding Ruling Request 3, a supply involving the sale of materials and the installation of such materials prior to affixing the home to a foundation will be considered the supply of a service. The tax rate will be based on the provisions of section 165 and Part V of Schedule IX to the Act. The GST at 7% will apply where the service is performed all or substantially all in a non-participating province, or the place of negotiation is in a non-participating province and it is not the case that all or substantially all of the service is performed outside the non-participating province. The HST at 15% will apply if the service is performed all or substantially all in a participating province or the place of negotiation is in a participating province and it is not the case that all or substantially all of the service is performed outside the participating province.

Interpretation Given

With respect to Ruling Request 2, whether any particular service is considered a service in relation to real property is a question of fact on which we are unable to provide a ruling. Generally, however, services performed by XXXXX in relation to the sale of a mobile home which has been affixed to a foundation will be considered as a supply of a service in relation to real property and therefore governed by the provisions of section 2 of Part IV of Schedule IX to the Act. In determining whether a particular service is "in relation to real property", we would again refer you to policy paper P-169R.

HOMES SOLD TO DEALERS FOR INVENTORY PURPOSES

Statement of Facts

1. A mobile home is sold to a dealer who holds the home as inventory. The home has not been presold to a customer.

2. The dealer places the home on a lot for display. Occasionally, the home is affixed to a foundation at a dealer's lot. Generally, however, the home is not affixed to a foundation but is placed on some type of temporary support. Finishing work is done to the home such as finish of interior trim, installing the roof cap and installing the gable ends.

3. Typically, the home will be on display for several months before it is sold to a purchaser.

Rulings Requested

1. You are requesting confirmation that, other than for purposes of Schedule IX to the Act, finishing charges provided for a mobile home situated on a dealer's lot constitute part of a single supply of real property and that where the dealer is registered for the GST/HST and is not an individual, the provisions of subsection 221(2) apply.

2. For purposes of Schedule IX to the Act, finishing charges provided for a mobile home situated on a dealer's lot will be part of a single supply of tangible personal property.

Ruling Given

Based on the facts set out above, we rule that:

With respecting to Ruling Request 1, finishing items provided for a mobile home situated on a dealer's lot constitute part of a single supply of real property (other than for purposes of Schedule IX to the Act) and the provisions of subsection 221(2) will apply, provided that the dealer is not an individual and is registered for the GST/HST.

Interpretation Given

With respect to Ruling Request 2, we are unable to provide a ruling on whether finishing items provided for a mobile home situated on a dealer's lot constitute a supply of tangible personal property or real property. We can however, provide the following interpretation.

For purposes of Schedule IX to the Act, the finishing items constitute part of a single supply of a mobile home. Pursuant to section 2 of Part I of Schedule IX, where the home is not affixed to land, the supply of the home (which includes the finishing items) will be that of tangible personal property. If the home is affixed to land, the supply of the home (which includes the finishing items) may be that of tangible personal property or real property. Whether a mobile home affixed to a foundation can be considered real property is a question of fact and law, requiring an examination of the degree and object of annexation and other factors that may be relevant.

CREDIT NOTES

Statement of Facts

1[.] XXXXX will issue a credit note where property is returned by a purchaser to XXXXX or where XXXXX made a billing error on a supply.

2. On some occasions, a dealer may make a bulk return of axles and issue an invoice to XXXXX for the property.

Ruling Requested

You are requesting confirmation that XXXXX may choose to refund or credit the tax on a credit note, but that it is not required to do so.

Ruling Given

Based on the facts set out above, we rule that:

Where the conditions of paragraph 1(a) or (b) of the Ruling Given on page 10 of file HQR0001577 are met, pursuant to subsection 232(2[)] XXXXX may choose to refund or credit the tax, but it is not required to do so. Where the provisions of subsection 221(2) applied to the original supply, XXXXX cannot refund or credit the tax as no tax was charged or collected on the supply.

The rulings provided herein are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

The foregoing interpretations represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretations provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

b.c.c.:          XXXXX