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.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 245576
Dear [Client]:
Subject: GST/HST ruling and GST/HST interpretation
Registration obligations regarding an agreement for Shared Facilities
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to registration obligations regarding an agreement for Shared Facilities. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your letter and the supplemental information provided, we understand the following:
1. […] (Developer 1), […] (Developer 2), and [….] (Developer 3) are real estate developers.
2. Developer 1 is the registered owner of the land municipally known as [Address 1] located in […][Canada]. Developer 1 intends to build a condominium project known as the “[…] [Project A Condo]”.
3. Developer 1 intends to develop the [Project A Condo] in two separate phases:
a) First phase, an initial registration incorporating the […][Project A Condo Phase 1]
b) Second phase, a phase registration incorporating the […][Project A Condo Phase 2]
Upon completion and registration of both the [Project A Condo Phase 1] and the [Project A Condo Phase 2], both developments together will be known as the [Project A Condo]. But before completion and registration of the [Project A Condo Phase 1] and the [Project A Condo Phase 2], they shall comprise separate properties.
4. Developer 1 will be developing the phased [Project A Condo] as the “[…][Project A Condo Declarant]”.
5. Developer 2 is the registered owner of the land municipally known as [Address 2] located in [Canada]. Developer 2 intends to develop a condominium project known as the “[…][Project B Condo]”.
6. Developer 2 will be developing the [Project B Condo] as the “[…][Project B Condo Declarant]”.
7. Developer 2 and Developer 3 are, as tenants in common, the registered owners of the [Project C Lands] known as [Address 3] located in [Canada]. Developer 2 and Developer 3 together, intend to develop a commercial building known as the “[…][Project C]”.
8. On [mm, dd, yyyy], [Project A Condo Declarant] (on behalf of […][Project A Condo Corporation), [Project B Condo Declarant] (on behalf of […][Project B Condo Corporation]) and the […][Project C Owner] entered into a Shared Facilities Agreement (the Agreement) in order to provide for the mutual use, maintenance, cost sharing and other matters relating to the Shared Facilities as well as to regulate and govern the use and enjoyment of various easements between the following properties.
a) [Address A] located in [Canada] ([Project A Condo),
b) [Address B] located in [Canada] ([Project Condo B]), and
c) [Address 3] located in [Canada] ([…][Project C]).
9. Developer 2 as [Project B Condo Declarant] is entering into the Agreement both in its capacity as the owner and developer of the proposed [Project B Condo] and together with Developer 3 as owners and developers of[Project C]. They will be entering into the Agreement as the developer, “[Project C Owner]”.
10. Developer 1 is entering into the Agreement both in its capacity as the “[…][Project A Condo Phase 1 Declarant]”, the declarant of the proposed […][Project A Condo Phase 1 Condo Corporation] and as […][Project A Condo Phase 2 Declarant]”, the declarant of the proposed […][Project A Condo Phase 2 Condo Corporation].
11. The [Project A Condo Phase 1 Declarant], is entering in to the Agreement for and on behalf of the [Project A Condo Phase 1], and on the understanding that as and when the same is registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project A Condo Phase 1 Declarant] and correspondingly the [Project A Condo Phase 1 Declarant] shall be automatically released, relieved and discharged from the obligations and/or liabilities relating to the [Project A Condo Phase 1].
12. The [Project A Condo Phase 1 Declarant] is entering in to the Agreement for and on behalf of the [Project A Condo Phase 2 Condo Corporation], and on the understanding that as and when the same is registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project A Condo Phase 1 Declarant] and correspondingly the [Project A Condo Phase 1 Declarant] shall be automatically released, relieved and discharged from the obligations and/or liabilities relating to the [Project A Condo Phase 2].
13. [Project B Condo Declarant] is entering into this Agreement for and on behalf of the […][Project B Condo Corporation] and when registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project B Condo Declarant] and correspondingly the [Project B Condo Declarant] shall be automictically released, relieved and discharged from the obligations and/or liabilities relating to the [Project B Condo].
14. [Project C Owner] is entering into this Agreement on its own behalf and upon any future disposition or other conveyance of [Project C Lands], any successor in title to the [Project C owner] shall, as a condition of such conveyance or other disposition, be required to assume all covenants and obligations of the [Project C Owner] and shall be automatically released, relieved and discharged from the obligations and or liabilities relating to the [Project C Lands].
15. Upon completion, [Project A Condo] and [Project B Condo] will be residential condominiums whereas [Project C] will be a commercial building.
16. Upon completion of the following residential buildings:
a) [Project A Condo Corporation] is the condominium corporation for the [Project A Condo], and
b) [Project B Condo Corporation] is the condominium corporation for the [Project B Condo].
17. [Project A Condo Corporation], [Project B Condo Corporation] and [Project C] will be responsible for the allocation of the Shared Facilities and costs between the buildings.
18. Under paragraph […] of […], the Shared Facilities of the [Project A Condo Phase 1], [Project A Condo Phase 2], the [Project B Condo] and [Project C] include:
- shared Units (if any),
- the common roadway,
- the parking garage,
- the common elements mechanical room located […][in Project A Condo Phase 1],
- the common elements electrical transformer vault located […][in Project A Condo Phase 1],
- the common elements electrical switch gear vault […][located in Project A Condo Phase 1],
- any equipment located within the aforementioned switch gear vault and the transformer vault,
- the common elements bicycle storage room located on Level A of [Project A Condo Phase 1],
- exhaust fans in the parking garage, and
- life safety systems.
19. Article [#] of the Agreement lists and describes the maintenance and repair work associated to the three buildings.
a) Article [#], states that any work related to the Shared Facilities undertaken prior to the creation of the Shared Facilities Committee shall be carried out and completed under the direction and control of [Project C] in the case of any Shared Facilities upon the[Project C Lands], and
b) Any work related to the Shared Facilities undertaken or required to be undertaken after the creation of the Shared Facilities Committee shall be the sole responsibility of the Shared Facilitates Committee and be carried out and completed under the direction and control of the Shared Facilities Committee.
20. The Shared Facilities Committee means the committee formed in accordance with the provisions of Article [#] of this Agreement that will manage, control and/or operate the Shared Facilities.
21. Under Article [#] of the Agreement, it states that until the turnover of the [Project B Condo], it can appoint up to two additional members to the Shared Facilities Committee. The Shared Facilities Committee will consist of three members, one of which will be appointed by [Project C] and the remaining two members will be appointed by and be the members of each of the boards of directors of each of the Condominium Corporations. Each of the Condominium Corporations will also appoint an alternative member to fulfill the obligation of the appointed member when unavailable to ensure timely and full functioning of the Shared Facilities Committee.
22. Each condominium corporation will be responsible for a proportionate share of the Shared Facilities costs and is outlined under Article [#] of the Agreement. It is agreed that the Shared Facilities costs are allocated and paid on the basis of each of the Condominium Corporations and [Project C] as follows:
[…]
a) [Project A Condo Phase 1 Declarant], [Project A Condo Phase 2 Declarant] and [Project B Condo] will not pay or be responsible for any portion of the Shared Facilities costs for or in respect of the buildings while the condominium corporation is not yet registered. [Project C] will not be responsible for any portion of the Shared Facilities costs for or in respect of [Project C] prior to completion of construction and the commencement of paid tenant occupancies (i.e. excluding any rent free of fixturing period and any occupancies not involving the payment of market rents to [Project C] pursuant to a lease agreement) within the completed [Project C] development.
b) During the time of any initial partial tenant occupancy of the [Project C] development, [Project C]’s Proportionate Share shall be pro rated in proportion to the extent of the partial occupancy (e.g. if 50% of the premises within [Project C] premises are occupied then their Proportionate Share will be reduced by 50%)
23. You indicate that when expenses are incurred, the invoices are being issued to the Agreement as “[Project B] SF” ([Project B] Shared Facilities) and are paid from a shared bank account and not invoiced or paid directly by one of the developers. However, detailed documentation such as an invoice or signing authority documents were not provided.
24. You indicate that the signing authority for the Agreement is held by the condominium manager along with three other committee members but the details were not provided.
25. The Agreement is not incorporated and there is no partnership agreement between the members. The only documentation that outlines the relationship between the three developers is the Agreement provided with the incoming request.
RULING REQUESTED
1. Is the Agreement considered to be making a taxable supply with respect to the share of the facilities costs allocated in the Agreement and paid by each of the condominium corporations?
2. Is the Agreement considered a person for GST/HST purposes as defined under the Excise Tax Act (ETA) and if so, is the Agreement required to register for the GST/HST and collect the GST/HST on the Shared Facilities costs incurred?
RULING GIVEN
Based on the facts set out above, we rule that the Agreement is not “a person” as defined in subsection 123(1) of the ETA, and therefore is not engaged in a commercial activity and cannot register for purposes of the GST/HST.
EXPLANATION
Under subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the GST/HST except where:
a) the person is a small supplier (i.e., annual worldwide taxable sales, including those of the person's associates, do not exceed $30,000);
b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
c) the person is a non-resident person who does not carry on any business in Canada.
Pursuant to subsection 123(1), a “person” means an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind.
A “taxable supply" is defined in subsection 123(1) to mean a supply that is made in the course of a commercial activity.
Under subsection 123(1), a "commercial activity" of a person includes a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent it involves the making of exempt supplies by the person. It also includes making a supply (other than an exempt supply) of real property, including anything done by the person in the course of or in connection with the making of the supply.
Based on the information provided, it appears that the condominium developers entered into an agreement to share and allocate expenses for the maintenance and operational costs of the Shared Facilities. Notwithstanding that expenses are billed to the Agreement, there is nothing in the information provided to indicate that the Agreement is a person as defined in subsection 123(1). Therefore the Agreement is not engaged in a commercial activity and is not eligible to register for the GST/HST.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-407-5134.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Monica Ma
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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