Emphyteutic Leases

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-174

Date of Issue

March 31, 1995


The nature of the supply of an "emphyteutic lease" for purposes of the Excise Tax Act (the Act).

Legislative Reference(s)

Provisions of the Act relating to supplies of real property. The applicable provisions will depend on the determination made under this policy.

National Coding System File Number(s)


Effective Date

January 1, 1991


Issue and Decision

An emphyteutic lease is a type of lease which is found in civil law in the Province of Quebec. In some respects, it is similar to long-term leases found in common law provinces. Essentially, an emphyteutic lease is a lease whereby the emphyteutic lessor permits an emphyteutic lessee to use the land (and any immovables on it) for a given period of time (not less than 10 years nor more than 100 years) in return for a consideration.

The consideration has two components: (1) monetary consideration as rent (which does not have to be annual); and (2) consideration from the undertaking of constructions or improvements or both which considerably increase the value of the property. At the end of the lease period, all improvements made to the land by the lessee revert back to the emphyteutic lessor (with or without compensation to the lessee for such constructions).

A supply of real property under an emphyteutic lease is considered a supply of real property by way of lease, licence or similar arrangement for GST purposes. The consideration payable in respect of the arrangement includes both the monetary rent and the value of the constructions and/or improvements to the land, as may be applicable. The timing of liability rules for supplies by way of lease, licence or similar arrangement apply in respect of the applicable consideration. Depending on the circumstances, sections 190 and 191 may apply to trigger the self-supply rules. Subsection 221(2) and 336(l) of the Act will not apply. However, other transitional rules, such as section 340 of the Act, dealing with prepayment of rents may apply.

Issues relating to the determination of the consideration and timing of liability will be addressed in a separate policy statement.

An agreement which was initially characterized as an emphyteutic lease may lose that characteristic during the lease period, for example, as a result of the triggering of default provisions in the agreement. Regardless of the characterization of the agreement as an emphyteutic lease or an ordinary lease, the agreement is still considered to be a "lease" for the purposes of the Act and not a "sale".



An emphyteutic lease agreement dated November 30, 1992, is for a term of 99 years. The property is located in Quebec. The lessor agreed to grant the lessee an emphyteutic lease of the property subject to the terms in the agreement. Included in the agreement are terms that provide that:

(a) the lessee undertakes to make specific constructions which will cost one million dollars [lessee's obligation];

(b) at the expiration of the agreement the lessor will become the owner of all buildings and improvements on the property without compensation to the lessee [reversion];

(c) certain "wrongs" (which include failure by the lessee to pay any installments of rent, taxes or insurance premiums, or any other amount payable under the agreement on their due date), if not cured within specified limits, will lead to default and possibly termination of the agreement by the lessor [default and remedies]; and

(d) the lessor has the right to cancel the agreement if the lessee has not commenced specified construction by May 1, 1993 [improvements].

Ruling Requested

Is the supply of real property under the agreement a supply by way of "sale" or by way of "lease, licence or similar arrangement" for purposes of the Excise Tax Act?

Ruling Provided

The supply made under the agreement is considered to be a supply of real property by way of lease, licence or similar arrangement for purposed of the Excise Tax Act.

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