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: 176138
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Law enforcement services
This letter refers to your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to amounts charged by […][Municipality A] to […][Municipality C].
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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.
STATEMENT OF FACTS
We understand that:
1. [Municipality A], […][Municipality B], and [Municipality C] are located in […][Province X], Canada and are all registered for GST/HST purposes.
2. In [mm/yyyy], [Municipality A] ran a job posting in a local newspaper that stated that [Municipality A] was seeking to hire a […] (Officer), in conjunction with two other […][nearby] municipalities, to provide services as described in the job posting and the position description. The Officer would be required to use his/her knowledge of by-laws, policies, and regulations, while using communication skills to seek compliance with municipal by-laws by members of the public. The position description stated that the Officer would be responsible for enforcing municipal by-laws and providing public information to ensure the protection of residents, property, and employees.
3. On [mm/dd/yyyy], [Municipality A] passed By-law […][#A1] being a by-law to enter into a Service Agreement for the shared services of an Officer with [Municipality C] and [Municipality B]. [Municipality B] subsequently withdrew from this Service Agreement, and By-law [#A1] was later repealed by By-law […][#A3] (see #6 below).
4. On [mm/dd/yyyy], [Municipality A] passed By-law […][#A2] being a by-law to appoint an Officer for [Municipality A]. This by-law permitted [Municipality A] to delegate certain legislative and quasi-judicial powers to the Officer.
5. On [mm/dd/yyyy], [Municipality C] passed By-law […][#C1] to authorize the Service Agreement with [Municipality A] and also passed By-law […][#C2] to appoint an Officer.
6. On [mm/dd/yyyy], [Municipality A] passed By-law [#A3] being a by-law to enter into a (new) Service Agreement for the shared services of an Officer with [Municipality C], and to repeal By-law [#A1].
7. The recitals to the Service Agreement provide that [Municipality A] has hired the Officer to provide services described in the job description, [Municipality A] agrees to share the services of the Officer with [Municipality C], and both [Municipality A] and [Municipality C] agree that the Officer is an employee of [Municipality A].
8. Under the terms of the Service Agreement, the parties agree that:
- [Municipality C] will use the Officer for [#] hours per week;
- [Municipality C] will pay [Municipality A] the hourly rate at which [Municipality A] is remunerating the Officer, plus a […] premium to cover the costs of benefits and vacation time, plus GST/HST;
- [Municipality C] will pay [Municipality A] for any mileage incurred by the Officer while working in [Municipality C];
- [Municipality A] will invoice [Municipality C] on a monthly basis for each hour worked by the Officer, to a maximum of [#] hours per year;
- in the event of prosecution, each party is responsible for legal costs arising in their own area; and
- [Municipality C] will maintain insurance to cover the Officer and his/her related performance or non-performance, for the entire term of the agreement.
9. On [mm/dd/yyyy], the following additional information was provided:
- The Officer is solely an employee of [Municipality A] and [Municipality A] issues a T4 slip.
- The Officer has to be officially appointed by [Municipality C] and is under [Municipality C]’s control and direction while working within its boundaries.
- When undertaking any duties under the appointment by [Municipality C], notices are issued in the name of [Municipality C] using its computer systems, and all related receipts or collections by the Officer accrue to [Municipality C] only. Likewise, when undertaking any duties under the appointment of [Municipality A], notices are issued in the name of [Municipality A] using its computer systems, and all related receipts or collections by the Officer, accrue to [Municipality A].
- Amounts invoiced to [Municipality C] by [Municipality A] are treated as revenue in [Municipality A]’s books and records.
10. [Municipality A] has invoiced [Municipality C] for the Officer’s hours and expenses, plus GST/HST. [Municipality C] is of the opinion that [Municipality A] is making a supply of a law enforcement service that falls within paragraph 20(g) of Part VI of Schedule V, and is therefore exempt.
RULING REQUESTED
You would like to know if amounts invoiced by [Municipality A] to [Municipality C] are subject to GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that the amounts invoiced to [Municipality C] are consideration for a taxable supply and are subject to 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(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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.
EXPLANATION
Generally, section 165 provides that every recipient of a taxable supply made in Canada (other than a zero-rated supply) shall pay to Her Majesty in right of Canada tax in respect of the supply calculated on the value of the consideration for the supply.
In accordance with subsection 123(1), “taxable supply” means a supply that is made in the course of a commercial activity. This same subsection defines “commercial activity” to include a business carried on by the person except to the extent to which the business involves the making of exempt supplies.
Section 20 of Part VI of Schedule V to the ETA sets out a number of supplies involving regulatory functions that are exempt when made by a municipality or a government, or by a board, commission or other body established by a municipality or a government. Paragraph 20(g) of Part VI of Schedule V exempts the supply of a law enforcement or fire protection service made by a government, municipality or board, commission, or other body established by a government or municipality to a government or municipality or a board, commission or other body established by a municipality or government.
As a transactional tax, the application of GST/HST is determined on a supply-by-supply basis. Each supply must be evaluated independently in order to determine whether a particular exemption may apply. In determining the nature of a particular supply, a distinction must be made between the activities that comprise a particular supply and the supply itself. While the residents of [Municipality C] may view the activities of the Officer as the supply of law enforcement services by [Municipality C] to its residents, this does not translate to a supply of a law enforcement service by [Municipality A] to [Municipality C]. In other words, the end use of the Officer by [Municipality C] does not define the nature of the supply being made by [Municipality A]. Whether the supply of the Officer to [Municipality C] is a law enforcement service that falls within paragraph 20(g) of Part VI of Schedule V depends on an analysis of the facts surrounding the supply, which include the terms and conditions of the Service Agreement and the context in which the supply is being made, including the degree of [Municipality A]’s responsibility to the residents of [Municipality C].
Under the Service Agreement, [Municipality A]’s responsibility is to share the services of the Officer with [Municipality C] so that [Municipality C] may fulfil its own needs in order to provide for the health, safety, and well-being of its residents. The Service Agreement does not provide the Officer with a responsibility for the provision of law enforcement services to the residents of [Municipality C], nor does it result in an obligation on [Municipality A]’s part to provide law enforcement activities to the residents of [Municipality C]. In fact, before the Officer can carry out his or her functions, the Officer must be appointed by [Municipality C] as a duly authorized law enforcement officer. Once appointed, the Officer performs his or her functions under the control and the direction of [Municipality C]. All notices are issued in the name of [Municipality C] using its equipment, all receipts or collections accrue to [Municipality C], and insurance is maintained by [Municipality C] to cover the Officer and his or her related performance, or non-performance, of services within that jurisdiction.
In our view, [Municipality A] has not made an exempt supply of law enforcement services as described in paragraph 20(g) of Part VI of Schedule V, but rather a supply of personnel or human resources. [Municipality A] does not have any obligation to provide law enforcement services to the residents of [Municipality C]. Instead, [Municipality A] has an obligation to supply an Officer who has certain qualifications, and whose actions are an input to what may be a supply of law enforcement services made by [Municipality C] to its residents. As no other exemption would apply to [Municipality A]’s supply to [Municipality C], it is a taxable supply. Therefore, the salaries and related costs recovered by [Municipality A] from [Municipality C] are consideration for a taxable supply and are subject to GST/HST.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5201. 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,
Marlon Latchana
Senior Rulings Officer
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST / HST Rulings Directorate
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