GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX XXXXX
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March 31, 1998
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Subject:
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GST/HST INTERPRETATION
Supply of Cemetery Plots by Registered Charities
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Dear XXXXX
This letter is in response to a letter (with attachments) of May 6, 1997, from XXXXX of your office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of cemetery plots by XXXXX made in the XXXXX[.]
Our understanding of the circumstances in this case is as follows:
1. XXXXX wrote a letter dated November xx, 19 xx to your office concerning the application of the GST to the supplies of cemetery plots made by it. XXXXX had initially indicated that one of the conditions which exists when making such a supply of cemetery plots, is that it may take back the plot after 99 years XXXXX had not however provided a sample contract which identified the 99 year clause. It initially appeared that the 99 year clause was a verbal understanding. Further, there was no transfer of title to the purchaser of the cemetery plot.
2. XXXXX indicated that in doing some of the research prior to issuing the GST Interpretation on January 30, 1996, he contacted the XXXXX to determine the treatment for supplies of cemetery plots on this basis. The XXXXX advised XXXXX that where no transfer of title occurs, the transaction is not considered a supply by way of sale but rather a supply by way of licence. On January 30, 1996, your office replied to the client on that basis.
3. XXXXX has also indicated that most rulings found on the Revenue Canada database seem to treat supplies of cemetery plots to individuals by charities as sales. Under these conditions, and prior to the amendments to the Excise Tax Act (ETA) announced on April 23, 1996, the supply was a taxable supply under section 165 of the ETA because of the exclusion from exemption by virtue of paragraph (c) of section 25 of Part VI of Schedule V to the ETA. XXXXX submits that after the amendments announced on April 23, 1996 have become law, such supplies will continue to be taxable when supplied by public service bodies under paragraph 25(c) of Part VI of Schedule V to the ETA and taxable under the exclusion of paragraph 1(l) of Part V.1 of Schedule V for charities who are not public institutions.
4. In the case of XXXXX, since the supply was determined to be a supply by way of licence, the original interpretation given to XXXXX provides that the supply is taxable under section 165 of the ETA in conjunction with paragraph 25(f) of Part VI of Schedule V to the ETA (prior to the amendments announced on April 23, 1996 which are in effect, with certain exceptions, in respect of supplies for which consideration becomes due or is paid without having become due after 1996). As a result of the amendments to the ETA, supplies of real property by way of licence by a charity that is not a public institution, is now exempt under the new section 1 of Part V.1 of Schedule V to the ETA.
5. On September 19, 1997, XXXXX provided a copy of XXXXX XXXXX[.]
14. The real property of the owner of a cemetery that is used as such, and the lots or plots when conveyed by the owner to individual proprietors for burial sites shall not be liable to be seized or sold in execution or under judgment or attached or applied to the payment of debt or passed to the assignee under any bankruptcy or insolvency law.
15. Where a lot or plot has been sold by the owner of a cemetery for burial site, the conveyance or transfer need not be registered for any purpose whatever, and shall not be affected by XXXXX; nor shall any judgment, mortgage or encumbrance subsist on any lot so conveyed or transferred.
16. The conveyance of a burial lot or plot may be in the following form:
Take notice that the (giving name of owner), in consideration of dollars, paid to it by , of , the receipt whereof is hereby acknowledged, doth grant unto the said his heirs and assigns lot of land in the cemetery of the said owner, called and situate in the of , which lot is delineated and laid down on the map of the said cemetery, and is therein designated by the name of , containing by admeasurement superficial feet; to have and to hold the herein above named premises, etc.
17. All lots or plots of ground in a cemetery, when numbered and conveyed or transferred by the owner of the cemetery as burial sites shall be indivisible, but may afterwards be held and owned in undivided shares.
25(2) No person, and no corporation by its officer, employee, or agent, shall sell or offer for sale, or lease or rent or offer to lease or rent, a lot, plot, compartment, or other space, in a cemetery, columbarium, or mausoleum owned by him or it, unless he or it holds a valid subsisting licence for the purpose issued to him or it under this Part by the board.
26(2) The board may issue, in such form as is prescribed in the regulations, a licence to the owner of a cemetery, columbarium, or mausoleum and to any person as agent for such an owner, authorizing the licensee to sell, lease, or rent or, on behalf of the owner, to offer for sale, lease, or rent, lots, plots, compartments, or other space in the cemetery, columbarium, or mausoleum.
27. No owner of a cemetery, columbarium, or mausoleum shall sell, lease, or rent any lot, plot, compartment, or other space therein unless the form of the contract of sale, lease, or rental has been approved by the board.
28(1) From all moneys received on the sale, lease, or rental of a lot, plot, compartment, or other space in a cemetery, columbarium, or mausoleum, the owner thereof shall deduct and set aside for perpetual care such portion of those moneys as may be prescribed in the regulations.
39. For the purpose of carrying out the provisions of this Act according to their intent, the Lieutenant Governor in Council may make such regulations as are ancillary thereto and are not inconsistent therewith; and every regulation made under, and in accordance with the authority granted by, this section has the force of law; and, without restricting the generality of the foregoing, the Lieutenant Governor in Council may make regulations
(k) respecting the licensing of owners and agent for the sale, lease, or rental of lots, plots, compartments, and other space, in cemeteries, columbaria, and mausolea; and fixing the terms and conditions that must be observed by the licensees;
6. On January 5, 1998, XXXXX forwarded the following supplemental documents from XXXXX These documents are simply samples provided in order to illustrate the type of supplies that XXXXX is currently making.
a. A XXXXX, dated October xx 19 XXXXX in which XXXXX granted to an individual and her descendants, for a sum of XXXXX the right to use a specific lot situated in the XXXXX, to be used for the purpose of a burial ground for a term of ninety-nine years. The right of burial could not be transferred without the consent of XXXXX[.]
b. A document from the XXXXX dated April x, 19 xx, in which XXXXX XXXXX XXXXX granted to XXXXX for a sum of XXXXX the right to use a specified lot situated in the cemetery to be used for the purpose of a burial ground for a term of one hundred years. The right of burial could not be transferred without the consent of XXXXX[.]
7. In a telephone conversation on January 12, 1998 (XXXXX/Dimitrakopoulos), XXXXX indicated that he had contacted the XXXXX in order to determine what basis the XXXXX had advised that the cemetery plots at issue were regarded as a licence. XXXXX was generally told that the cemetery plots at issue are considered by the XXXXX to be licences because they were not registered on title.
Interpretation Requested
Your concern is whether all supplies of cemetery plots are to be considered supplies by way of sale (even though there is no transfer of title) and therefore those supplied by XXXXX would continue to be taxable pursuant to section 165 in conjunction with the exclusion under paragraph 1(k) of Part V.1 of Schedule V to the ETA. Since the initial interpretation to the client originally provided resulted in an audit and assessment of XXXXX and that XXXXX is now collecting tax on its supplies of cemetery plots, you require further clarification on the Department's policy concerning the application of the GST/HST to the supply of cemetery plots in XXXXX prior to advising XXXXX otherwise.
Interpretation Given
Based on the information provided we are of the view that:
1. For purposes of the application of the GST/HST, supplies of cemetery plots in XXXXX could be made either by way of sale or by way of lease, licence or similar arrangement.
2. The supplies of cemetery plots as illustrated in the sample documents outlined above would be considered as supplies of real property by way of lease, licence or similar arrangement rather than supplies of real property by way of sale.
3. After 1996, and prior to September 15, 1992 (subject to the transitional rules regarding the introduction of the GST) the supplies of cemetery plots as illustrated in the sample documents would be supplies of real property by way of lease, licence or similar arrangement made by a charity which would be exempt by virtue of section 1 of Part V.1 of Schedule V to the ETA (after 1996) or section 25 of Part VI of Schedule V to the ETA (prior to September 15, 1992). The tax status of the supply would be exempt irrespective of whether the supply was characterized as a lease rather than a licence or a similar arrangement.
4. Prior to 1997 but after September 14, 1992, it is necessary to determine whether the supplies of the cemetery plots illustrated in the sample documents are supplied by way of lease or similar arrangement (which would be exempt by virtue of section 25 of Part VI of Schedule V to the ETA) as opposed to whether the supplies of the cemetery plots are supplied by way of licence (which would be taxable under section 165 in conjunction with the exclusion from exemption under paragraph (f) of section 25 of Part VI of Schedule V to the ETA) as the application of the GST/HST would differ depending on the manner of the supply.
5. Whether the supplies of cemetery plots as illustrated in the sample documents can be distinguished as supplies by way of lease rather than by way of licence or even by way of similar arrangement is a question of fact and law.
Although the supplies of cemetery plots as illustrated in the sample documents contain certain elements normally associated with a lease and certain elements normally related to a licence or an easement with a term, upon examining the information provided, The XXXXX and the common law regarding real property, we believe that the better view is to regard the supplies of cemetery plots at issue as being supplied by way of licence.
Consequently, where supplies of the cemetery plots are similar to the supplies illustrated above and have been made prior to 1997 but after September 14, 1992, then such supplies would be considered as being supplied by way of licence and therefore taxable pursuant to section 165 of the ETA as a result of being excluded from exemption under section 25 of Part VI of Schedule V to the ETA by virtue of paragraph (f) of section 25 of Part VI of Schedule V to the ETA.
Explanation
The Supply of a Cemetery Plot is a Supply of Real Property for GST/HST Purposes
The definition of "real property" is defined in subsection 123(1) of the ETA and includes in respect of property in any place in Canada, other than Quebec, messuages, lands and tenements of every nature and description and every estate or interest in real property, whether legal or equitable.
Subsection 136(1) of the ETA provides that for the purposes of Part IX, a supply, by way of lease, licence or similar arrangement, of the use or right to use real property or tangible personal property shall be deemed to be a supply of real property or tangible personal property, as the case may be.
In light of the relatively broad definition of real property in Part IX of the ETA and pursuant to subsection 136(1) of the ETA, it is our view that the supply of the cemetery plots at issue are supplies of real property for GST/HST purposes.
General Comments Concerning A Supply of Real Property By Way of Sale and Supply By Way of Lease, Licence or Similar Arrangement
Supply of Real Property By Way of Sale
Subsection 123(1) of the ETA provides that "sale" in respect of property, includes any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property.
Policy Statement P-111 "The Meaning of Sale with Respect to Real Property" provides that for purposes of the provisions relating to supplies of real property which refer to transfers of ownership, "ownership" generally refer to the legal ownership (that is "titled" ownership in the case of the underlying real property), rather than equitable ownership of property. Accordingly, references to agreements of sale or agreements to transfer ownership of the underlying real property are generally to the ownership of the property that is transferred on the closing of the transaction.
A determination of whether there has been a transfer of possession could be relevant in respect of supplies of real property by way of sale. A person may be in possession of real property if that person is entitled to hold, control or occupy the property either with or without the right of ownership to the property.
A transfer of possession under an agreement to transfer ownership must be distinguished from a transfer of possession under an agreement to transfer property by way of lease, licence or similar arrangement. The former constitutes a sale while the latter does not.
Supply of Real Property By Way of Lease, Licence or Similar Arrangement
The term "lease, licence, or similar arrangement" is not defined in the ETA. However Policy Statement P-062 "Distinction Between Lease, Licence and Similar Arrangement" provides the Department's views concerning the different elements of this term.
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 agreement.
In the common law provinces, it has generally been determined that a lease normally confers exclusive possession, while a licence of real property normally would not. A person may be considered to have a right of exclusive possession, and therefore a lease of the real property even where the right is subject to some limits, such as restrictions on the use to which a property may be put. An agreement that imposed such limits could still be regarded as a lease, unless the other terms of the agreement clearly revealed an intention to have a licence.
Under common law, a licence is in the nature of a right or privilege to enter upon and use the grantor's land in a certain manner or for a specified purpose. It is a personal right between the licensor and licensee and does not create any estate or interest in the property. In the common law provinces, a lease generally confers an interest in the real property, binding on the property owner and on other persons.
Other differences between a lease and a licence are that a lessee can generally sublet or assign its interest in the real property, subject to the terms of the lease; a licensee may not "sub-licence" or assign its rights to a third party, except by the express agreement of the licensor. Further, if real property is sold or the lease is assigned by the lessor, the interest of the lessee normally flows with the property; rights under a licence normally cease upon the sale of the property.
The actual reference in the agreement to the supply as a lease or a licence may be helpful but not necessarily conclusive.
There may be supplies of real property by way of similar arrangements which are not strictly leases or licences. An easement, for example, is the granting of an interest in real property (similar to a lease) which can be registered on title, but such interest normally provides for specific limited rights to the interest (similar to a licence). Accordingly, the supply of an easement otherwise than by way of sale, may be considered a "similar arrangement" to a lease or licence.
The determination of whether the supply of the real property is by way of sale or by way of lease, licence or similar arrangement may be reflected in the nature of the interest being transferred, the terms of the agreement or other documentation relating to the transfer, and the actual dealings among the parties involved. For instance, the grant of an easement may be in the nature of a grant of real property by way of sale or by way of similar arrangement. Where the easement gives the recipient the use or the right to use real property without legal ownership in the underlying property over a specified period of time, the supply would normally be considered to be by way of an arrangement similar to a lease or licence. Where the supply of the easement related to the actual grant or transfer of the equitable interest in the property and not to the use or right to use the property, the supply would normally be considered as being in respect of the sale of real property. For example, an easement granted in perpetuity for a single consideration may constitute a "sale".
Application of the GST/HST to Supplies of Real Property By a Charity
The sale of a cemetery plot by a charity to an individual would be a taxable supply by virtue of the exclusion from exemption under paragraph (c) of section 25 of Part VI of Schedule V to the ETA if the consideration became due or was paid prior to 1997. New Part V.1 of Schedule V to the ETA provides for a comprehensive list of exemptions applying only to charities. The provisions of new Part V.1 apply to supplies for which consideration becomes due or is paid after 1996. The sale of a cemetery plot by a charity to an individual would be a taxable supply by virtue of the exclusion from exemption under paragraph (k) of section 1 of Part V.1 of Schedule V to the ETA for supplies for which consideration becomes due or is paid after 1996.
A lease, licence or similar arrangement of real property supplied by a charity (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 section 25 of Part VI of Schedule V to the ETA provided none of the exclusions to section 25 apply. Leases of real property for a term of less than one month or any licence (regardless of the time period or term involved) supplied by a charity would be subject to GST under section 165 in conjunction with the exclusion from exemption under paragraph (f) section 25 of Part VI of Schedule V to the ETA (unless another exempting provision other than section 25 of Part VI of Schedule V to the ETA applied) where the supply is made in the course of a business carried on by the charity and where the agreement was entered into after September 14, 1992 and the consideration became due or was paid before 1997. Leases of real property for a term of one month or more supplied by a charity would be exempt pursuant to section 25 of Part VI of Schedule V to the ETA for supplies where the agreement was entered into after September 14, 1992 and the consideration became due or was paid prior to 1997.
Since easements can not be classified as either leases or licences because they have features of both, and may in certain cases be considered a "sale" of real property (for example, where they are granted in perpetuity for a single consideration), they should be treated as being outside the scope of paragraph (f) of section 25 of Part VI of Schedule V to the ETA, effective for agreements entered into after September 14, 1992 (where the consideration became due or was paid prior to 1997), and consequently exempt of tax pursuant to section 25 of Part VI of Schedule V to the ETA from such time provided the other exclusions to section 25 of Part VI of Schedule V to the ETA do not apply.
New Part V.1 of Schedule V to the ETA provides for a comprehensive list of exemptions applying only to charities. The provisions of new Part V.1 apply to supplies for which consideration becomes due or is paid after 1996. Section 1 of new Part V.1 to the ETA exempts supplies of real property by a charity including supplies of real property by way of lease, licence or similar arrangement regardless of the term of the arrangement.
Characterization of Supplies of Cemetery Plots in XXXXX for GST/HST Purposes
Based on the information provided, cemetery plots in XXXXX could be provided either by way of sale or by way of lease, licence or similar arrangement.
A sale of a cemetery plot is referred to in sections 14 and 15, subsections 25(2) and 26(2), section 27, subsection 28(1) and paragraph (k) of section 39 of XXXXX[.]
Support for the view that cemetery plots in XXXXX could be supplied by way of lease, licence or similar arrangement is found in the reference to lease or rent in subsections 25(2) and 26(2), section 27, subsection 28(1) and paragraph (k) of section 39 of XXXXX[.]
Application of the GST/HST to Supplies of Cemetery Plots As Illustrated In the Sample Documents Outlined Above
Whether a particular supply of a cemetery plot is by way of sale as opposed to by way of lease, licence or similar arrangement is a question of fact and law. The parties to and the terms of the arrangement, the nature of the interest being supplied, and the actual dealings between the parties should be considered to determine how the supply is to be classified. Once determined, the applicable tax treatment discussed above would follow.
Based on the information provided the supplies of cemetery plots as illustrated in the sample documents outlined above would be considered supplies of real property by way of lease, licence or similar arrangement rather than supplies of real property by way of sale.
The supply of the cemetery plots illustrated in the sample documents give the individual recipients and their descendants the right to use the real property in a limited way (i.e., for burial purposes) without legal ownership in the underlying property for a fixed term (in one case 99 years in the other case a term of 100 years). In addition, the individual recipients and their descendants do not have the right to transfer their right to use the real property for burial purposes without the consent of XXXXX[.] Finally, one of the sample agreements refers to a "contrat du louage" which would roughly translate as a lease or rental contract.
The supply of the cemetery plots illustrated in the sample documents provide a right of use of the cemetery plot for burial purposes for a fixed term with no indication of a transfer of ownership or a transfer of possession under an agreement to transfer ownership. Consequently, such supplies would normally be considered to be by way of lease, licence or similar arrangement.
After 1996, and prior to September 15, 1992 (subject to the transitional rules regarding the introduction of the GST), the supplies made by a charity of cemetery plots as illustrated in the sample documents would be supplies of real property by way of lease, licence or similar arrangement which would be exempt by virtue of section 1 of Part V.1 of Schedule V to the ETA (after 1996) or section 25 of Part VI of Schedule V to the ETA (prior to September 15, 1992). The tax status of the supply would be exempt irrespective of whether the supply was characterized as a lease rather than a licence or a similar arrangement.
Prior to 1997 but after September 14, 1992, it is necessary to determine whether the supplies of the cemetery plots illustrated in the sample documents are supplied by way of lease or similar arrangement as opposed to whether the supplies of the cemetery plots are supplied by way of licence as the application of the GST/HST would differ depending on the manner of the supply.
If the supplies of the cemetery plots are considered to be supplied by way of lease or similar arrangement, then the supplies would be exempt by virtue of section 25 of Part VI of Schedule V to the ETA. However, if the supplies of the cemetery plots are considered to be supplied by way of licence, then these supplies would be taxable under section 165 in conjunction with paragraph (f) of section 25 of Part VI of Schedule V to the ETA as they would be excluded from the exempting provision under section 25 of Part VI of Schedule V to the ETA and no other exempting provision applies in these cases.
Whether the supplies of cemetery plots as illustrated in the sample documents can be distinguished as supplies by way of lease rather than by way of licence or even by way of similar arrangement is a question of fact and law. The parties to and the terms of the arrangement, the nature of the interest being supplied, and the actual dealings between the parties should be considered to determine how the supply is to be classified. Once determined, the applicable tax treatment, discussed above, would follow.
Based on the information provided, XXXXX and the common law regarding real property, the supplies of cemetery plots as illustrated in the sample documents outlined above contain elements of a supply by way of lease. However, one can reasonably argue that the supplies of the cemetery plots at issue also contain qualities associated with a supplies by way of licence as well as characteristics associated with supplies by way of a "similar arrangement" to leases or licences.
Support for regarding the cemetery plots at issue as being supplied by way of lease can be found in The XXXXX which makes reference to "lease" or "rental". In addition, it can be argued that the individual recipients acquire exclusive subsurface rights required for burial and such burial rights are preserved even if the cemetery is sold or seized XXXXX[.] Finally one of the sample contracts is referred to as a XXXXX.
Moreover, one can argue the cemetery plots at issue should be characterized as being supplied by way of licence due to the unregistered and relatively limited right to use the real property (i.e., for burial purposes only for a term), the lack of exclusive possession over the surface of the cemetery plot (i.e., cemetery authorities generally have access to the surface of graves in order to maintain the grounds) and the limited ability to alienate the real property right (i.e., subject to the approval of XXXXX).
Furthermore, the cemetery plots at issue can reasonably be described as being supplied by way of a similar arrangement such as an easement for a term or an analogous interest. This is supported by the fact that the burial rights are preserved even if the cemetery is sold or seized (similar to a lease) but such interest provides for specific limited rights (similar to a licence).
In Hubbs v. Black (1918), 44 O.L.R. 545, 46 D.L.R. 583 (C.A.), the Ontario Supreme Court, Appellate Division found that the right to bury in another's freehold is an easement. Riddel J. indicated (at 46 D.L.R. 589) that "... while the right of burial is still called an easement, it is an exception to the general rule that an easement cannot be in gross."
However, the fact that XXXXX refers to a "lease" or "rental" may suggest that an easement was not contemplated by the provincial legislators.
In our view, a reasonable argument can be made that the supplies of cemetery plots as illustrated in the sample documents outlined above are licences. Although the supplies of cemetery plots at issue contain certain elements normally associated with a lease and certain qualities of a similar (e.g., an easement), we believe that the better view is to regard the supply of the cemetery plots at issue being supplied by way of a licence.
Consequently, in light of the discussion provided above, where supplies of the cemetery plots have been made prior to 1997 but after September 14, 1992 which are similar to the supplies illustrated above, such supplies are licences which would be taxable pursuant to section 165 of the ETA as a result of being excluded from section 25 of Part VI of Schedule V to the ETA by virtue of paragraph (f) of section 25 of Part VI of Schedule V.
Finally I would like to deal with the information provided by the XXXXX[.] As indicated near the beginning of this letter, XXXXX had contacted the XXXXX in order to determine what basis the XXXXX advised that the cemetery plots at issue were regarded to be a licence. XXXXX was generally told that the cemetery plots at issue would be regarded as a licence on the basis that they were not registered on title.
Although it is not unreasonable to classify the cemetery plots at issue as a supply by way of licence for the reasons outlined above, I would respectfully submit that the lack of registration of these cemetery plots is an insufficient basis to classify the supply as being a supply by way of licence. After all, XXXXX provides that even where a lot or plot sold by the owner of a cemetery for burial site, it need not be registered for any purpose and shall not be affected by XXXXX[.]
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8226.
Yours truly,
Costa Dimitrakopoulos
Senior Rulings Officer
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Legislative References: ss. 123(1) defn. of "real property", "sale"; ss. 136(1), s. 165, s. 261, 1/V.1/V, 25/VI/V
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