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.
DATE: January 3, 2019
[Addressee]
Case Number: 161401
Subject: GST/HST Ruling
Supplies by […][Regional District A] to […][Regional Hospital District A]
We are writing further to our telephone conversation of [mm/dd/yyyy], […], concerning the application of the GST/HST to supplies of administrative services by […][Regional District A] to […][Regional Hospital District A]. […].
We apologize for the delay in this response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
[Regional District A]
1. In 1965, amendments to the Municipal Act of British Columbia provided for the creation of regional districts. Over the next five years, a total of 29 regional districts were incorporated. Regional districts are made up of municipalities, referred to as member municipalities, and unincorporated areas, referred to as electoral areas. Regional districts are local government service providers that exist to play three service-related roles:
- they are the local governments for their electoral areas, responsible for providing basic local services such as community planning, water supply, fire protection and nuisance regulation
- they provide local government inter-municipal or sub-regional services across jurisdictional boundaries of municipalities and electoral areas such as large scale recreation centres that benefit multiple municipalities, community and regional parks, regional growth management and regional airports
- they are responsible for providing regional services to their entire regional communities, such as, economic development, water supply, sewerage disposal, and solid waste management.
2. […].
3. […].
4. Pursuant to subsection 41(1) of the Local Government Act, on the recommendation of the minister, the Lieutenant Governor in Council may, by letters patent, incorporate the residents of an area into a regional district for the purpose of exercising powers conferred on the regional district under this Act or under any other enactment.
5. Pursuant to paragraph 41(2)(b) of the Local Government Act, the letters patent must specify the municipalities and electoral areas that comprise the regional district.
6. […][More information about the Local Government Act]
7. […]
8. […]
9. According to the Letters Patent, [Regional District A] comprises […][certain municipalities].
10. Section 185 of the Local Government Act states that “Recognizing that regional districts are an independent, responsible and accountable order of government within their jurisdiction, the purposes of a regional district include
(a) providing good government for its community,
(b) providing the services and other things that the board considers are necessary or desirable for all or part of its community,
(c) providing for stewardship of the public assets of its community, and
(d) fostering the current and future economic, social and environmental well-being of its community.”
11. Under section 193 of the Local Government Act, [Regional District A] is a corporation, and under section 194 of the Local Government Act, the governing body of [Regional District A] is its board. The financial plan is approved and adopted by the board by way of a budget bylaw in March and must be adopted prior to March 31st as per subsection 374(1) of the Local Government Act.
12. [Regional District A] has a board of […][#] directors comprising electoral area directors who are elected directly by rural area voters […] and municipal directors who are first elected to a municipal council and are then appointed by council to the regional district board […]. Annually, the board elects its chair who establishes committees to deal with issues such as land use planning, environmental management, water supply, etc.
13. [Regional District A] was determined to be a municipality as a special purpose provincially established organization pursuant to paragraph (b) of the definition of "municipality" in subsection 123(1) with an effective date of [mm/dd/yyyy].
14. [Regional District A] is registered for GST/HST purposes effective [mm/dd/yyyy], and claims the public service body (PSB) rebate for municipalities.
[…][Regional Hospital District A]
15. Regional hospital districts were created under the 1967 Regional Hospital Districts Act at the same time and with the same boundaries as regional districts. Their purpose is to contribute a local share of capital funding for hospital planning and construction. Funds are raised through property taxation to service or retire debt incurred by borrowing, to generate a reserve fund for future capital projects, or to pay for a capital project in a particular fiscal year. Regional hospital districts do no operate hospitals. That is the responsibility of the regional health authorities.
16. [Regional Hospital District A] was incorporated in [yyyy] under the Regional Hospital Districts Act.
17. According to paragraph […] of the Letters Patent dated [mm/dd/yyyy], the Board of Directors of [Regional Hospital District A] shall exercise the powers and carry out the duties assigned to regional hospital districts in the Regional Hospital Districts Act, the Regulations made thereunder and the Letters Patent.
18. Section […] of the Letters Patent states that the powers, duties and obligations of [Regional Hospital District A] are those matters enumerated in the Regional Hospital Districts Act, the Regulations and the Letters Patent, […].
19. Section […] of the Letters Patent provides, in part, that [Regional Hospital District A] is empowered and shall, subject to the approval of the Minister of Health Services and Hospital Insurance pursuant to clause 21(1)(c) of the Regional Hospital Districts Act, assume the annual debt charges (principal and interest) of the member municipalities with respect to debentures issued for the purpose of financing hospital projects.
20. […].
21. [Regional Hospital District A]’s principal activities are to finance […] capital construction projects and capital equipment purchases for health care facilities within [Regional District A]. The funding is cost-shared with the province […]. [Regional Hospital District A] does not operate any facilities. These activities are funded through property taxes and debenture debt. […]
22. Pursuant to subsection 20(1) of the Hospital District Act (formerly named the Regional Hospital Districts Act), the purposes of a regional hospital district are the following:
(a) to establish, acquire, construct, reconstruct, enlarge, operate and maintain hospitals and hospital facilities;
(b) to grant aid for the establishment, acquisition, reconstruction, enlargement, operation and maintenance of hospitals and hospital facilities;
(c) to assume obligations of any member municipality, or any improvement district not within the definition "municipality", or any hospital corporation, or any member treaty first nation, with respect to the repayment of money borrowed and provided for the financing of hospital projects and interest on it, or to provide reimbursement to a municipality, improvement district, hospital corporation or member treaty first nation for money provided for financing hospital projects that were raised or obtained otherwise than by borrowing;
(d) to act as the agent of the government in receiving and disbursing money granted out of the hospital insurance fund;
(e) to act as the agent of a hospital for receiving and applying all money paid to or for the hospital by the government of Canada;
(f) to exercise and perform the other powers and duties prescribed under this Act as and when required.
23. Pursuant to section 23 of the Hospital District Act, [Regional Hospital District A] board has the authority and responsibility for the preparation, approval and adoption, by bylaw, of [Regional Hospital District A] annual budget no later than March 31st each year.
24. The board of [Regional Hospital District A] is made up of elected officials from member municipalities and electoral areas of [Regional District A].
25. [Regional Hospital District A] was determined to be a municipality as a special purpose provincially established organization pursuant to paragraph (b) of the definition of "municipality" in subsection 123(1) with an effective date of [mm/dd/yyyy].
26. [Regional Hospital District A] is not registered for GST/HST purposes as it does not make taxable supplies, and revenue is wholly derived from property tax requisitions. Administrative expenses are incurred and [Regional Hospital District A] claims the PSB rebate for municipalities for the GST/HST paid on these expenses.
[…]
[Regional District A] provides administrative support services to [Regional Hospital District A] and invoices [Regional Hospital District A] for these services but does not charge the GST/HST. It is their position that [Regional Hospital District A] is a regional municipality […] and that GST/HST does not apply to supplies between them as the supplies are exempt under section 28 of Part VI of Schedule V.
[RULING REQUESTED]
You have asked whether the supplies of administrative support services by [Regional District A] to [Regional Hospital District A] are exempt under section 28 of Part VI of Schedule V.
[…]
Section 28 of Part VI of Schedule V exempts the following:
A supply between
(a) a municipal body and any of its para-municipal organizations,
(b) a para-municipal organization of a municipal body and any other para-municipal organization of the municipal body,
(c) a regional municipality and any of its local municipalities or any para-municipal organization of any of those local municipalities,
(d) a para-municipal organization of a regional municipality and any local municipality of the regional municipality or any para-municipal organization of the local municipality, or
(e) a regional municipality or any of its para-municipal organizations and any other organization (other than a government) the designated activities of which include the provision of water or municipal services within an area over which the regional municipality has jurisdiction,
but not including
(f) a supply of electricity, gas, steam or telecommunication services made by a municipal body or a para-municipal organization, or a branch or division thereof, that acts as a public utility, or
(g) any supply made or received by
(i) a provincially established designated body,
(ii) a para-municipal organization designated under section 259 of the Act or section 22 or 23, or
(iii) another organization referred to in paragraph (e), otherwise than in the course of the designated activities of the body or organization, as the case may be.
Section 1 of Part VI of Schedule V defines several terms for the purposes of Part VI of Schedule V. The following definitions are relevant in this case:
“local municipality” of a regional municipality means a municipality that has jurisdiction over an area that is within the area over which the regional municipality has jurisdiction;
“municipal body” means a municipality or a provincially established designated body.
“para-municipal organization” of a municipal body means an organization (other than a government) that is owned or controlled by the municipal body and that
(a) where the municipal body is a municipality,
(i) is designated under section 259 of the Act, or under section 22 or 23, to be a municipality for the purposes of that section, or
(ii) is established by the municipal body and determined, under paragraph (b) of the definition "municipality" in subsection 123(1) of the Act, to be a municipality for the purposes of Part IX of the Act, or
(b) where the municipal body is a provincially established designated body, is determined under that paragraph to be a municipality for the purposes of that Part,
and for the purposes of this definition, an organization is owned or controlled by a municipal body if
(c) all or substantially all of the shares of the organization are owned by the municipal body or all or substantially all of the assets held by the organization are owned by the municipal body or are assets the disposition of which is controlled by the municipal body so that, in the event of a winding-up or liquidation of the organization, those assets are vested in the municipal body, or
(d) the organization is required to submit to the municipal body the periodic operating and, where applicable, capital budget of the organization for approval and a majority of the members of the governing body of the organization are appointed by the municipal body;
Subsection 123(1) defines “municipality” to mean:
(a) an incorporated city, town, village, metropolitan authority, township, district, county or rural municipality or other incorporated municipal body however designated, and
(b) such other local authority as the Minister may determine to be a municipality for the purposes of this Part;
[RULING GIVEN]
[Regional District A] and [Regional Hospital District A] are municipalities under paragraph (b) of the definition "municipality" in subsection 123(1). Therefore, both entities meet the definition of “municipal body” as described above. However, neither entity is a para-municipality of the Province of British Columbia, as the Province is not a “municipal body”. Moreover, neither entity is a para-municipality of the other, as neither entity owns or controls the other, and neither entity established the other. Therefore, paragraphs 28(a), (b) and (d) do not apply.
Since neither entity is a para-municipality of the other, paragraph 28(e) could only apply if one of the entities were designated to be a municipality under subsection 259(1) in respect of provision of water or municipal services. Since neither entity has been so designated, paragraph 28(e) does not apply.
Finally, paragraph 28(c) could only apply if one entity were a regional municipality and the other entity were a local municipality within that regional municipality. […].
[Regional District A]
In British Columbia, the Local Government Act is the provincial statute that creates municipalities and regional districts and enables them to perform their assigned responsibilities and obligations. The Ministry responsible for regional districts is the Ministry of Municipal Affairs and Housing. [Regional District A] was incorporated under the Local Government Act and section 185 of that Act recognizes that regional districts are an independent, responsible and accountable order of government within their jurisdiction. Therefore, although “regional municipality” is not defined for the purposes of Part VI of Schedule V, it is our view that [Regional District A] is a regional municipality for purposes of section 28 of Part VI of Schedule V.
[Regional District A]’s member municipalities are “local municipalities”, as defined in section 1 of Part VI of Schedule V, as they are municipalities that have jurisdiction over an area that is within the area over which [Regional District A] has jurisdiction. Electoral areas are unincorporated jurisdictions whose citizens participate in electoral area governance. An electoral area would be a local municipality of [Regional District A] where it has been determined to be a municipality under paragraph (b) of the definition of municipality in subsection 123(1).
[Regional Hospital District A]
[Regional Hospital District A] was incorporated under the Regional Hospital Districts Act, now referred to as the Hospital District Act. The Hospital District Act is the provincial statute that creates and governs regional hospital districts, and the Ministry responsible for regional hospital districts is the Ministry of Health. The purpose of regional hospital districts is to contribute a local share of capital funding for hospital planning and construction. Funds are raised through property taxation to service or retire debt incurred by borrowing, to generate a reserve fund for future capital projects, or to pay for capital projects in a particular fiscal year.
Although the boundaries of regional hospital districts are typically the same as the boundaries of regional districts and their directors are usually the same directors who govern the regional district, [Regional Hospital District A] is not responsible for government over the area within its jurisdiction. [Regional Hospital District A]’s authority comes from the Hospital District Act under which its purpose is to provide funding for the establishment, acquisition, construction, reconstruction, enlargement operation and maintenance of hospitals and hospital facilities within its boundaries.
Therefore, [Regional Hospital District A] is not a regional municipality for purposes of section 28 of Part VI of Schedule V, and as [Regional District A] is a regional municipality, it is not a “local municipality”. Given the preceding, [Regional District A] is not a local municipality of [Regional Hospital District A]. Moreover, although [Regional District A] is a regional municipality, [Regional Hospital District A] is not a local municipality of [Regional District A]. [Regional Hospital District A] does not operate at a level of authority at the municipal level or as a lower tier municipality, as it is not responsible for government over an area within the area over which [Regional District A] has jurisdiction, at least not in the sense that “jurisdiction” was intended to be read in the context of the definition of “local municipality” (i.e., [Regional Hospital District A] only has “jurisdiction” over hospital-related funding and not governing). As a result, supplies between [Regional District A] and [Regional Hospital District A] are not exempt under paragraph 28(c) of Part VI of Schedule V.
As there are no other exempting or relieving provisions that apply, the supplies of administrative services by [Regional District A] to [Regional Hospital District A] are taxable, and the consideration is subject to the GST/HST.
[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 given in this letter provided that: none of the issues discussed in the ruling 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.]
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-984-2332.
Yours Truly,
Maria Forte-Long
Senior Rulings Officer
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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