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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 130865
Dear [Client]:
Subject: GST/HST INTERPRETATION
Permit Fees and Municipal Development Charges
This is […] concerning the application of the Goods and Services Tax (“GST”)/Harmonized Sales Tax (“HST”) to services provided by a regional municipality in connection with the issuance of building and service permits to land developers. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador; 14% in Prince Edward Island; and 15% in Nova Scotia. The Governments of New Brunswick and Newfoundland and Labrador have proposed to increase the rate of the HST in those provinces from 13% to 15% effective
July 1, 2016. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (the “ETA”) unless otherwise specified.
BACKGROUND
We understand that different levels of municipalities are involved in the approval of a land development agreement and the issuance of a building or service permit (the “permit”) to a land developer (the “land owner”). […][In your correspondence, you] explained that a land owner must generally obtain certain approvals from a regional municipality (also referred to as an “upper tier municipality”) of a land development agreement to connect, construct or replace municipal infrastructure such as watermains, sanitary sewers, and regional roads before a permit will be issued by a local municipality (also referred to as a “lower tier municipality”). In this respect, the provision of the permit is a split level decision-making process between both the upper and lower tier municipalities.
The approval of a land development agreement and the issuance of the permit grant legal permission to a land owner to start construction of an infrastructure project. The permit ensures that the infrastructure to be constructed meets the minimum standards set out in the various governing statutes and regional standards. Approvals of land development agreements typically involve a lengthy administrative process consisting of plan reviews, approvals and inspections, where multiple parties are involved in this process. Each municipality may have a different process for the approval of land development agreements. Depending on the nature of the proposed land development, the parties may include a regional municipality, a local municipality and other relevant parties, such as a conservation authority. The final permit is issued by the local municipality, but in many situations the permit cannot be issued without the approval of the land development agreement by the regional municipality and any other relevant parties. For example, in some situations the regional municipality is the only level that can approve water connections.
Generally, a land owner approaches a local municipality to apply for a permit, e.g., to construct a residential housing development on a tract of land. The local municipality would advise the land owner of the requirement for any necessary prior approvals related to the proposed land development agreement before the permit can be issued. These approvals are granted by another person, e.g., a regional municipality. The land owner must submit the planning application to the regional municipality, which must be accompanied with a land development agreement that includes the plan of the lands to be developed as well as drawings and specifications of the infrastructure. The staff of the regional municipality will review, examine and inspect all the information provided in the planning application for compliance with regional standards and provincial statutes, such as the Municipal Act, 2001, S.O. 2001, c. 25, and the Planning Act, R.S.O. 1990, c. 13. Before approving the land development agreement, the regional municipality may also advise the land owner of other necessary approvals, such as approval from a conservation authority.
A number of steps are required in connection with the issuance of a permit to the land owner. Fees are paid at the various steps in the administrative process where each municipality (both lower and upper tier) is responsible for setting the rates of its own planning application and approval fees as well as administration fees. These fees are imposed and collected by the particular municipality from the land owner to cover the municipality’s reasonable costs to administer and enforce its authority under the Municipal Act, 2001, the Planning Act, and the Safe Water Drinking Act, 2002, S.O. 2002, c. 32.
Municipalities are authorized under provincial statutes to collect these fees. For example, subsection 69(1) of the Planning Act permits a municipality to establish a tariff of fees for the processing of applications made in respect of planning matters to meet the anticipated costs of the municipality. The fees consist of various individual charges such as:
* Application fee;
* Plan Revision (pre-draft approval);
* Emergency extension (3 months);
* Draft approval extension (one year);
* Registration;
* Phased draft approval;
* Phase revision and sub-phasing;
* Exemption fee;
* Vacant land or common element;
* Final approval;
* Condominium conversion;
* Local official plan amendment;
* Legal administrative fees; and
* Development financial administrative fee.
In addition, fees may be charged for the review of the land development agreement by a regional municipality’s legal department to ensure that the agreement is consistent with regional plans. Other fees might be for engineering and inspection costs and for amendments to the regional municipality’s Official Plan. For example, a property in a rural area may not be permitted waste water services and therefore an amendment to the Official Plan may be required to provide such services to that property. The fees are generally recorded in a municipal bylaw and itemized on the planning application form.
All of the planning, application and approval fees that are charged at each step in connection with the review of the land development agreement must be paid in full, where applicable, prior to the issuance of a permit. These fees are due even if the permit is not issued to the land owner.
Our review of the Planning Act and information provided on the website of the Ontario Ministry of Municipal Affairs and Housing indicates that land use planning is an interest of the Government of Ontario (the Province) with the involvement of municipalities in making decisions and ensuring that planning decisions and planning documents are consistent with provincial policies. Section 1.1 of the Planning Act sets out its purposes:
1.1 The purposes of this Act are,
(a) to promote sustainable economic development in a healthy natural environment within the policy and by the means provided under this Act;
(b) to provide for a land use planning system led by provincial policy;
(c) to integrate matters of provincial interest in provincial and municipal planning decisions;
(d) to provide for planning processes that are fair by making them open, accessible, timely and efficient;
(e) to encourage co-operation and co-ordination among various interests;
(f) to recognize the decision-making authority and accountability of municipal councils in planning.
Under the Planning Act municipalities in Ontario have been delegated responsibility by the Province to process, review and approve development applications related to land use. This responsibility includes providing comments on how a proposed development may affect regional interests such as environmentally sensitive areas, municipal water supplies, regional roads, and wastewater treatment as well as ensuring that the provisions of the Planning Act and other related provincial legislation (e.g., the Building Code) are appropriately considered during the approval of land development applications. The responsibility may also involve providing comments on behalf of interested provincial ministries such as Environment, Agriculture, Municipal Affairs and Housing, and Natural Resources. Depending on the municipality, the responsibility may also include acting as the approval authority for official plans, official plan amendments, plans of subdivision, and plans of condominium. (Reference: www.mah.gov.on.ca)
We also understand that section 391 of the Municipal Act, 2001, authorizes a municipality to impose fees or charges on persons:
a) for services or activities provided or done by or on behalf of the municipality;
b) for costs payable by it for services or activities provided or done by or on behalf of any other municipality or local board; and
c) for the use of its property including property under its control.
INTERPRETATION REQUESTED
We were asked to provide clarification on the application of the GST/HST to supplies made by a regional municipality in connection with an application for a permit that is issued by a local municipality to a land owner. In particular, we were asked whether the fees charged by a regional municipality to a land owner may be deemed to be consideration for an exempt supply under section 189.1. Alternatively, we were asked whether the supplies made by a regional municipality would be elements of a single supply of a permit or similar right that is exempt under paragraph 20(c) of Part VI of Schedule V or separate supplies of municipal services that are exempt under section 21 of that Part.
INTERPRETATION GIVEN
The GST/HST is a transactional tax and the exempting provisions in Part VI of Schedule V apply on a supply-by-supply basis. These provisions set out specific criteria that must be met in order for a particular supply of a property or service to fall within those provisions. Each supply must be evaluated independently in order to determine whether a particular exemption applies and it will be a question of fact as to whether the criteria set out in an exempting provision is satisfied. This evaluation would include an analysis of the terms and conditions of the relevant legislation and/or the relevant contract or agreement for the supply.
We were not provided with sufficiently detailed information identifying the supplies made by a regional municipality in connection with the permit approval process relating to a land development agreement. We note that the relevant information that would be of assistance to provide a definitive response would include a planning application form as well as a municipal development permit bylaw, the municipal bylaw setting out the fees relating to land planning matters, and identification of the relevant legislation and regulations together with references to, and summaries of, the specific provisions of these bylaws, legislation and regulations.
We also note that the particular statutory authority pursuant to which a regional municipality charges the fees was not identified. Although we were advised that subsection 69(1) of the Planning Act authorizes the council of a municipality to establish a tariff of fees for the processing of applications made in respect of planning matters generally, we do not know to what extent this statutory authority applies because the specific fees that are charged under subsection 69(1) of the Planning Act were not identified. Further, some of these fees may be authorized under section 391 of the Municipal Act, 2001 which relates to services and activities done by or on behalf of a municipality. The statutory authority under which the fees are charged by the regional municipality may be of assistance in characterizing the supply made in connection with that fee.
Without sufficiently detailed information we can only provide general comments with respect to our approach in interpreting section 189.1 as well as paragraph 20(c) and section 21 of Part VI of Schedule V in the context of the scenario described in the Background above.
Section 189.1 and paragraph 20(c) of Part VI of Schedule V
Section 189.1 provides that for the purposes of Part IX:
[W]here a person who is the holder of, or an applicant for, a right the supply of which is an exempt supply described by paragraph 20(c) of Part VI of Schedule V is required to pay to a government or municipality or a board, commission or other body established by a government or municipality an amount that is levied for the purpose of recovering the costs of administration of a regulatory program relating to the right and a failure to pay the amount would result in a denial or loss of, a restriction in the exercise of, or a change in the person’s entitlements under, the right, the government, municipality or body, as the case may be, shall be deemed to have made an exempt supply to the person and the amount shall be deemed to be consideration for that supply.
Paragraph 20(c) of Part VI of Schedule V exempts the following supplies made by a government or municipality or by a board, commission or other body established by a government or municipality:
c) a supply (other than of a right or service supplied in respect of the importation of alcoholic beverages) of
(i) a licence, permit, quota or similar right,
(ii) a service of processing an application for a licence, permit, quota or similar right, or
(iii) a right to have access to, or to use, a filing or registration system to make application for a licence, permit, quota or similar right.
Paragraph 20(c) of Part VI of Schedule V exempts both the supply of a licence, permit, quota or similar right and the supply of a service of processing an application for such a right, even where the licence, permit, quota or similar right is not granted.
However, neither exemption includes supplies of property or services that are conditions leading up to the supply of a right identified in paragraph 20(c) of Part VI of Schedule V. For instance […], the exemptions in paragraph 20(c) would not apply to separate supplies such as inspection, research, survey, consultation, planning and advisory services that may be related to a permit application.
Further, an administrative fee levied by a municipality must satisfy all of the following requirements to be deemed consideration for an exempt supply under section 189.1:
* the person paying the levy is a holder or applicant for a right that would be exempt under paragraph 20(c) of Part VI of Schedule V;
* the amount is levied for the purposes of recovering the costs of administering a regulatory program relating to the right; and
* a failure to pay the levy would result in a denial, loss of, a restriction in the exercise of, or a change in the persons entitlement under the right.
Based on the limited information provided, it is our understanding that fees are charged for various supplies made by the regional municipality, including pre-draft approval of a Plan Revision, an emergency extension, a condominium conversion, legal administration services, etc. There is nothing in the information provided that would suggest that any of the enumerated fees would meet all of the requirements listed in section 189.1.
[…][Your correspondence] also referred to the Canada Revenue Agency’s GST/HST Policy Statement P-077R2, Single and Multiple Supplies and suggested that since a supply of a permit or similar right is an exempt supply (under paragraph 20(c) of Part VI of Schedule V), it is reasonable to conclude that a single supply of a permit or similar right would include “all charges to the land owner including the planning application/approval charges”; i.e., the charges made by the regional municipality to the land owner will be part of the consideration for an exempt supply of a permit or similar right made by the local municipality.
First, we would like to note that the principles discussed in P-077R2 apply to a particular transaction that consists of several elements. According to this administrative policy, the determination of whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies is based on a determination of fact. Several questions are suggested to help the reader determine whether a transaction consists of a single supply or multiple supplies. One of these questions considers the number of suppliers involved and indicates that the provision of property and/or services by two or more suppliers generally indicates that multiple supplies are being made, even if the various supplies are provided together. Thus the single supply or multiple supplies analysis is relevant where there is a single supplier with respect to a particular transaction.
Where a person is contracting with more than one supplier, it generally follows that multiple supplies are being made. Each supplier is making a supply that is independent of the other and each supplier receives consideration for the particular supply that it makes to the recipient.
With respect to the scenario in question, we note that a requirement that the fees related to the review and approval of a land development agreement be paid in full to the regional municipality prior to the issuance of a permit by a local municipality is not evidence, in and of itself, that the services provided by the regional municipality in connection with those fees are elements of a single supply. Further, many of the fees identified are payment for a separate supply, e.g., approval of a plan amendment or a condominium conversion.
Further, the scenario involves more than one supplier: a regional municipality and a local municipality. The land owner must demonstrate to the local municipality that the proposed land development agreement complies with provincial statutes and regional standards. The regional municipality is the person who reviews the land development agreement for compliance or conformity with provincial statutes and regional standards. If the land development agreement is approved by regional municipality, then the local municipality may issue the permit to the land owner; i.e., we understand that it is not always the case that a permit will be issued. The review by the regional municipality of the land development agreement is a separate activity from the issuance of a permit by a local municipality.
In summary, without a description of a particular transaction(s) setting out in sufficient detail the services provided by the regional municipality as well as copies of all of the pertinent documents related to the transaction(s) the CRA cannot conclude that any of the supplies made by a regional municipality constitute elements of a single supply of a permit or of processing an application for a permit described in paragraph 20(c) of Part VI of Schedule V.
Section 21 of Part VI of Schedule V
Section 21 of Part VI of Schedule V exempts a supply of a municipal service, if
(a) the supply is
(i) made by a government or municipality to a recipient that is an owner or occupant of real property situated in a particular geographic area, or
(ii) made on behalf of a government or municipality to a recipient that is an owner or occupant of real property situated in a particular geographic area and that is not the government or municipality;
(b) the service is
(i) one which the owner or occupant has no option but to receive, or
(ii) supplied because of a failure by the owner or occupant to comply with an obligation imposed under a law; and
(c) the service is not one of testing or inspecting any property for the purpose of verifying or certifying that the property meets particular standards of quality or is suitable for consumption, use or supply in a particular manner.
A key condition of section 21 of Part VI of Schedule V is that the service is “one which the owner or occupant has no option but to receive”. We interpret this condition as meaning (in part) standard municipal services that are provided collectively to all owners or occupants of real property, such as road building, garbage collection, and sewer and water services; i.e., where the recipients receive the services by virtue of residing within the municipality. Optional services supplied to owners or occupants of real property on a fee-for-service basis are not covered under this section.
It is also noted that for purposes of the ETA, “property” is defined in subsection 123(1) to mean any property, whether tangible or intangible, and it includes a right or interest of any kind and a chose in action. The definition of “service” in subsection 123(1) excludes property. Therefore, supplies made by a municipality of permits or similar rights are not supplies of services under the ETA and therefore, such supplies would not be exempt under section 21 of Part VI of Schedule V. As discussed above, supplies of permits and similar rights are specifically included in paragraph 20(c) of Part VI of Schedule V. Therefore, any services provided by a regional municipality in connection with the supply of a permit or similar right would have to be separate supplies (and not elements of a single supply of a permit or similar right) before we could consider the application of section 21 of Part VI of Schedule V to these services.
The CRA would generally not consider services provided by a regional municipality as part of its responsibilities of reviewing, examining and inspecting the information provided in a planning application that is submitted by a land owner seeking approval for land development as constituting municipal services covered by section 21 of Part VI of Schedule V.
Further, the administrative process for approving land development agreements and issuing permits ensures that the proposed development and infrastructure that is to be constructed meets the minimum standards set out in various governing statutes and regional standards. Section 21 of Part VI of Schedule V specifically excludes services of testing or inspecting any property to verify or certify that the property meets particular standards of quality or is suitable for consumption, use or supply in any manner. Thus a service performed by municipal staff of reviewing, examining and inspecting a land development agreement to verify or certify that the proposed development and infrastructure meets the minimum standards set out in the governing statutes and regional standards would be excluded from this section.
Finally, we understand that the Planning Act imposes certain requirements for land use. Municipalities in Ontario have delegated responsibilities from the Province, which include reviewing and approving land use planning documents submitted by land owners and ensuring that the documents are consistent with provincial policies and plans. However, the requirements of land owners to comply with laws and regulations pertaining to land development, and the responsibilities of municipalities to review, examine and inspect land development agreements are not indicative of municipalities making a supply of a municipal service for which owners or occupants of real property have no option but to receive for purposes of section 21 of Part VI of Schedule V.
If further clarification is required concerning the tax status of the services provided by the regional municipality in connection with the approval of a land development agreement, please provide us with detailed information concerning the transaction(s) in question and all of the relevant documentation for our review and consideration.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-941-3268. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Chantal Desrosiers
Manager, Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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