Principles re "in respect of" exclusion
Determining connection between service and property
46. The following guidelines help in determining whether the connection between the service and the real or tangible personal property is sufficient for the service to be "in respect of" the property for purposes of paragraphs 7(d) and (e) and paragraphs 23(b) and (c) of Part V of Schedule VI.
(a) Was the service designed, developed or undertaken to fulfil or serve a particular need or requirement arising from or relating to the property? This guideline involves determining the purpose or objective of the service.
- contract between supplier and recipient
(b) The purpose or objective of the service may often be determined by examining a written contractual agreement for the supply between the supplier and the recipient of the service. If there is no formal written agreement, other documentation such as purchase orders, correspondence between the parties or invoices or receipts may be useful in establishing the purpose or objective of the service. It is important that the supplier's understanding of the purpose or objective of the service, as reflected in the contractual agreement with the non-resident customer, be taken into consideration. The supplier's perspective is important because it is the supplier who must determine whether the consideration for the service is zero-rated. The Department may assess a supplier for uncollected GST/HST, whichever is applicable, if the supply was zero-rated in error.
- relationship between service and property
(c) Is the relationship between the purpose or objective of the service and the property reasonably direct? The relationship between the service and the real or tangible personal property must be more direct than indirect for the service and the property to be considered by the Department to be "in respect of" each other for purposes of paragraphs 7(d) and (e) and paragraphs 23(b) and (c) of Part V of Schedule VI. If some object comes between the service and the property, the connection becomes more remote.
Service and property in respect of each other
47. A service and property would generally be regarded as being in respect of each other pursuant to the above guidelines if the purpose of a service is to:
- physically count the property;
- appraise or value the property;
- physically protect or secure the property; or
- enhance the value of the property.
Similarly, if the service is aimed at effecting or dealing with the transfer of ownership of, claims on or rights to real property or tangible personal property, or determining title to the property, the service will generally be regarded as in respect of property, and will therefore be excluded from the zero-rating provision.
Examples of Canadian real property exclusion
48. The following are examples of services that are considered to be in respect of real property for purposes of Part V of Schedule VI:
- services physically performed on the real property (e.g., construction and maintenance);
- services that enhance the value of the real property, affect the nature of the real property, relate to preparing the real property for development or redevelopment, affect the management of the real property, or affect the environment within the limits of the real property (e.g., engineering, architectural services, surveying and subdividing, management services, security services);
- services related to;
- the transfer or conveyance of the real property or the proposed transfer or conveyance of the real property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of the real property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of real property as a result of a will or testament);
- a mortgage interest or other security interest in the real property; or
- the determination of the title to the real property.
