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]
Business Number: […]
Case Number: 159181
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of the GST/HST to Supplies made by […][a Municipality] to the […] First Nation
Thank you for your letter of December 13, 2013, concerning the application of the Goods and Services Tax (“GST”)/Harmonized Sales Tax (“HST”) to supplies that […][a Municipality] makes to a particular First Nation. We apologize for the delay in our response.
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 GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (“ETA”) unless otherwise specified.
BACKGROUND
We understand the facts as follows:
1. [The Municipality] is registered for GST/HST purposes.
2. [The Municipality] is a municipality as per subsection 123(1) of the ETA and, as such, is also a public sector body.
3. […] (the “First Nation”) is an Indian band as defined in the Indian Act.
4. [The Municipality] makes supplies of property and services to the First Nation.
5. Supplies to the First Nation may be made on or off reserve.
6. Supplies made off reserve include:
a. swimming lessons, and all other such “program lessons”;
b. program admissions, such as entry to the municipal swimming pool or skating rink;
c. facility rentals, such as hall rentals;
d. interment rights in the municipal cemetery;
e. equipment leases where the property is not delivered to the reserve by the municipality, or its agent; and
f. moorage at the municipal wharf.
7. Supplies made on reserve, for which [the Municipality] has not been charging the GST/HST, include:
a. municipal services, such as garbage collection; and
b. equipment leases where the property is delivered by the municipality, or its agent, to the reserve.
INTERPRETATION REQUESTED
You would like to know what constitutes “Band Management Activities,” and how the GST/HST applies to the supplies that [the Municipality] makes to […] First Nation.
INTERPRETATION GIVEN
Based on the information provided in your submission, we provide the following interpretation.
Under the ETA, supplies are generally either exempt supplies or taxable supplies. Exempt supplies are listed in Schedule V and are supplies for which there is no requirement to collect or report the GST/HST (i.e., they are not subject to GST/HST). Zero-rated supplies are listed in Schedule VI and are taxed at the rate of 0%.
Generally, persons making a taxable supply in Canada must collect the GST/HST pursuant to subsection 221(1). In accordance with section 165 every recipient of a taxable supply made in Canada is required to pay GST at the rate of 5%, or HST at the appropriate rate (as stated above), depending on the province in which the supply is made, calculated on the value of the consideration for the supply except where the supply is a zero-rated supply.
Relief of tax available to Indians and bands
Section 87 of the Indian Act exempts personal property of an Indian or band situated on a reserve. That is, the property must be situated on a reserve in order for tax relief to apply.
The CRA’s administrative policy described in GST/HST Technical Information Bulletin B-039, GST/HST Administrative Policy – Application of the GST/HST to Indians (“B-039”), is consistent with the relieving provisions of section 87 of the Indian Act affecting the personal property of an Indian or a band situated on a reserve.
Please note that B-039 does not apply to taxes imposed by First Nations that are administered by the CRA, such as the First Nation Tax or the First Nations Goods and Services Tax. As well, B-039 does not apply to First Nations that have a final and/or self-government agreement that includes a provision that tax relief under section 87 of the Indian Act no longer applies.
The CRA’s administrative policy also extends tax relief to band-empowered entities (“BEE”) that are situated on a reserve. A BEE is considered to be situated on a reserve when the entity maintains a presence on a reserve. A BEE that does not meet the condition of being situated on a reserve is not entitled to relief of the tax under B-039.
A BEE is defined in B-039 as “a corporation, board, council, association, society, or other organization that is owned or controlled by a band, a tribal council, or a group of bands other than a tribal council.”
The following criteria are used to determine whether or not an entity meets the owned or controlled condition in the definition of a BEE:
An entity is considered to be owned by a band, tribal council or a group of bands other than a tribal council if:
* the band, tribal council or group of bands owns all or substantially all [90 per cent or more] of the shares or holds all or substantially all of the memberships of the entity; or
* the band, tribal council or group of bands holds title to the assets of the entity or controls its disposition, such that in the event of wind up or liquidation, these assets are vested in the band, tribal council or a group of bands.
An entity is considered to be controlled by a band, tribal council or group of bands other than a tribal council if:
* the band, tribal council, group of bands or individual members of the band, tribal council or group of bands, appoint or elect a majority of the members of the governing body of the entity (e.g., directors); and
* the entity is required by legislation, by-laws, or an operating agreement, to submit to the band, tribal council or group of bands, its operating budget and where applicable, its capital budget for review and approval.
B-039 describes the tax relief available to bands and BEEs as follows.
Property
Tax relief applies to property acquired by a band or an unincorporated BEE where that property is either acquired on a reserve or is delivered to a reserve. An incorporated BEE can acquire property relieved of tax on a reserve or delivered to a reserve if the property is for band management activities (“BMA”). There is no tax relief available to Indians, bands, or to BEEs (whether incorporated or unincorporated) on property acquired off a reserve that is not delivered to a reserve.
Services
Tax relief applies to services acquired on or off a reserve by a band or a BEE when those services are acquired for BMA or for real property on a reserve.
BMA is defined in B-039 to be “activities or programs undertaken by a band or [BEE] that are not commercial activities for which they would otherwise be entitled to claim input tax credits. In determining whether the acquisition of a supply is for band management, the output of the activity or program will be the determining factor, as opposed to the objectives of the activity or program.”
BMA are those activities conducted by bands and BEEs with regard to their normal administration, programs, services and activities that are designed and/or are delivered for the well-being or assistance of band members and are generally similar to those provided by other levels of government. These include, for example, activities related to business development, staff training, social assistance, education, and housing.
The band or BEE must provide a certificate to the supplier attesting to the fact that the property or services acquired by the band or BEE are for BMA or for real property on a reserve. There is no tax relief available to a band or BEE on taxable services acquired by the band or BEE for real property off a reserve.
We note that there is an exception to the explanation above. Indian bands and BEEs will pay the GST/HST on off-reserve purchases of transportation, short-term accommodation, meals and entertainment. A rebate to recover the GST/HST paid on these purchases may be available to the Indian band or band-empowered entity where certain conditions are met.
The commercial activities of a band or a BEE are generally excluded from up-front relief of the tax. Commercial activities generally give rise to credits for GST/HST registrants in terms of the GST/HST they expend on inputs.
An understanding of the term BMA is useful when we explain the application of the GST/HST to your submission of examples of property and services provided by [the Municipality] to the First Nation. An explanation of the application of the tax to your particular examples follows.
Swimming lessons, and all other such program lessons held at locations in [the Municipality], supplied to the First Nation
For the application of the GST/HST to the supply of services (such as a supply of instruction in swimming) the following will apply: services acquired on or off a reserve by the First Nation for BMA or for real property on a reserve are not subject to the GST/HST.
As a result, if the First Nation acquires the supply of instruction in swimming for its members who are instructed off a reserve, and the First Nation provides documentation stating that the service is being acquired for BMA, it would be relieved of the GST/HST. If a member of the First Nation acquires the supply, the tax relief would not apply.
However, please be advised, there is also an exemption, pursuant to section 12 of Part VI of Schedule V to the ETA, which may apply to supplies made by [the Municipality] and provided to the First Nation or its members, as well as to any other recipient. Section 12 exempts the supply made by a public sector body, such as a municipality, of a membership in, or services supplied as part of a program that is established and operated by the body and that consists of a series of supervised, instructional classes or activities in athletics, outdoor recreation, music, dance, arts, crafts or other recreational pursuits where the nature of the activities, or the level of skill required, is such that the program can reasonably be expected to be provided primarily to children 14 years of age or under. This includes day camps organized for such children but does not include camps or programs involving overnight supervision throughout a substantial portion of the program. This section also provides an exemption for supplies of memberships in, or services supplies as part of, recreational programs provided primarily for underprivileged or mentally or physically disabled individuals.
Program admissions to a municipal swimming pool or skating rink at locations in [the Municipality] that are supplied to the First Nation or to an Indian individual by [the Municipality]
Program admissions, such as the supply of a right to enter and make use of municipal real property (e.g., swimming pool, ice rink), are classified for GST/HST purposes as supplies of intangible personal property (“IPP”). In order for IPP to be relieved of the GST/HST it must be considered to be situated on a reserve, so there must be sufficient factors to support the connection to the reserve. As no real property that belongs to [the Municipality] is located on a reserve, there are not enough factors that would support the tax relief described in B-039.
There may, however, be an exemption provided in Part VI of Schedule V that applies to a supply of program admissions. For example, if [the Municipality] provides supplies of admissions to a place of amusement, the admissions would be exempt from the GST/HST, to any recipient, if the maximum consideration for a supply made by the municipality of such an admission does not exceed one dollar. A “place of amusement” is defined in the ETA to include any place the purpose of which is to provide any type of amusement or recreation. Swimming and skating are recreations.
Facility rentals, such as hall rentals, ice rink rentals, pool rentals held at facilities owned by [the Municipality] and located there, supplied to the First Nation
Facility rentals made by way of lease, licence, or similar arrangement, are supplies of real property. Relief of the tax for the First Nation concerning real property applies only to real property on a reserve. There are exemptions for supplies of real property in Part I of Schedule V to the ETA; however, none of these apply to your scenario. As a result, such supplies would be subject to the GST/HST.
Interment rights in the municipal cemetery
Generally, for GST/HST purposes, a lot or plot in a cemetery, a crypt, a niche, or any other similar place used for the interment of human remains are considered a form of real property. Cemetery operators generally provide interment rights by way of lease, licence or similar arrangement. Given the specific use and purpose of the lot, plot, crypt or niche, and the fact that an individual acquiring it may have little or no control over it, supplies of such real property are generally supplies made by way of licence. GST/HST Technical Information Bulletin B-093R, Application of the GST/HST to Cemetery Products and Services (available at: http://www.cra-arc.gc.ca/E/pub/gm/b-093/README.html) sets out CRA’s interpretive policy with respect to the application of the GST/HST to supplies of interment rights.
[The Municipality] is licenced as a cemetery operator pursuant to […][an Act of the Province], and as such, the municipality is making supplies of interment rights. Where the acquisition of an interment right is one of real property, the place of supply is where the real property is located. In this case, as the […][Municipal Cemetery] is not located on a reserve, there is no relief from the GST/HST under B-039 for the First Nation or for a member of the First Nation. Thus, the supply of the interment rights will be subject to GST/HST.
Leases of equipment supplied to the First Nation
The First Nation may acquire taxable supplies of equipment from [the Municipality], including equipment acquired by way of lease, off a reserve without paying the GST/HST, if the First Nation provides the certification and the property is delivered to a reserve by the municipality or the municipality’s agent (e.g., a common carrier).
If the First Nation uses its own vehicle to transport the equipment to the reserve, the acquisition is subject to the tax.
More information applying to leases of equipment to Indian bands can be found in Policy Statement P-230, Application of the Excise Tax Act (ETA) to Leases, Licences and Similar Arrangements of Tangible Personal Property by Indians, Indian Bands and Band Empowered Entities. This document can be accessed on the CRA’s website at http://www.cra-arc.gc.ca/E/pub/gl/p-230/README.html.
Moorage at the municipal wharf, located in [the Municipality], supplied to the First Nation
Moorage may be defined as the fastening of a boat in place with cables, lines or anchors. If the boat is attached by rope, cable, or chain to a device attached, directly or indirectly, to land, the supply of the moorage is a supply of a right to use real property.
If this description of moorage applies to the supply made by [the Municipality], the supply made to the First Nation is the right to use real property of the municipality. As such, there is only one exemption which may apply, which is pursuant to section 13.2 of Part I of Schedule V. A supply of moorage is exempt when made to any recipient who is the owner, lessee or person in occupation or possession of a floating home, and the right to use the mooring facilities or a wharf is for a period of at least one month in connection with the use and enjoyment of the home as a place of residence for individuals. As this provision is applicable to all persons, if the First Nation is the recipient of the supply the certification is not required.
Garbage collection, sewer services, fire protection, and public works services supplied to the First Nation on a reserve
Generally speaking, taxable supplies of services acquired by the First Nation which are performed for BMA or for real property on a reserve are relieved of the GST/HST. As a result, [the Municipality] generally does not have to collect tax from the First Nation for the services described in our heading for this segment if the First Nation provides certification.
However, no such certification is required to be provided for services that are exempt pursuant to Part VI of Schedule V. For example, the supply of a service of garbage collection, including the collection and delivery of recyclable materials made by [the Municipality] to any recipient including the First Nation, is exempt from the GST/HST pursuant to subsection 20(h) of Part VI of Schedule V. As well, the supply and delivery of unbottled water to any recipient is generally exempt pursuant to section 23 of Part VI of Schedule V.
The term “public works” applies to a broad category of infrastructure services. For particular information concerning the application of the GST/HST to such services, please refer to GST/HST Guide RC4049, GST/HST Information for Municipalities on the CRA’s website at http://www.cra-arc.gc.ca/E/pub/gp/rc4049/README.html. For example, under the heading, “Other exempt municipal services,” you will find the following information:
The following services made by a municipality, or by a board, commission, or other body established by a municipality, are also exempt:
* installing, replacing, repairing, and removing street or road signs, barriers, street or traffic lights, or any similar property;
* removing snow, ice, or water;
* removing, cutting, pruning, treating, or planting vegetation;
* repairing or maintaining roads, streets, sidewalks, or similar or adjacent property; or
* installing accesses or egresses.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-1175. 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,
Dwight Kostjuk
Aboriginal Issues and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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