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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 197932
Subject: GST/HST INTERPRETATION
Thank you for your [correspondence] of March 13, 2019, in which you ask for our comments regarding a request from an organization to be designated a municipality in respect of the provision of sewerage services through a privately-owned wastewater collection, treatment and disposal system (i.e., a sewerage system) and the provision of unbottled water.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the facts as follows:
1. In [yyyy], the sewerage system in a mobile home park did not meet government standards. The landowner refused to upgrade the system, and wastewater from the park could not be conveyed to the municipal sanitation network because the network was saturated. The residents of the park were therefore at high risk of eviction.
2. In [yyyy], the [#] families in the mobile home park decided to create a Cooperative, which acquired the mobile home park from the landowner.
3. The Cooperative obtained authorization from the […][relevant provincial Ministry] to build a sewerage system and subsequently installed the system in accordance with the authorization.
4. In exchange for rent, the Cooperative supplies the residents with a site in the mobile home park, park management services, sewerage services and unbottled water.
5. The lease between the Cooperative and each of the residents shows the following:
* In addition to renting land and maintaining a road, the Cooperative offers a water service and empties the sumps.
* The rental cost set out is a global amount of $[…] per month. This amount is not allocated by service.
* The tenant does not have the option of acquiring the services offered separately or replacing them with other suppliers.
6. We will assume that the lease provides for the continuous possession of the sites by the residents for a period of at least one month. We will also assume that the mobile home park is a “residential trailer park” as that term is defined in subsection 123(1), and the residents of the mobile home park reside in “mobile homes” as that term is defined in subsection 123(1).
You would like us to confirm your conclusions, as follows, regarding the Cooperative’s eligibility for municipal designation:
1. The Cooperative’s supply to the residents of managing the mobile home park, renting land for mobile homes, sewerage services and unbottled water constitutes a single supply of a site in a residential trailer park made under a lease that is exempt under paragraph 7(b) of Part I of Schedule V.
2. The documents provided support that the Cooperative is engaged in a municipal activity and operates a water distribution network and sewer system. Therefore, it can be designated as a municipality under the definition of “municipality” in subsection 259(1) […].
3. A designation under section 22 of Part VI of Schedule V is not required because the supply of a service of installing and operating a water treatment device is part of the single supply of the site in the residential trailer park that is exempt under paragraph 7(b) of Part I of Schedule V.
4. A designation under section 23 of Part VI of Schedule V is not required because the Cooperative is not a government.
1. We do not have sufficient factual information to confirm your view that that provision of the sites in the mobile home park, related management services, sewerage services and unbottled water constitute single supplies of a site in a mobile home park. However, your view seems reasonable in the circumstances. Assuming that the Cooperative is indeed making single supplies of sites in a mobile home park, these supplies would be exempt under paragraph 7(b) of Part I of Schedule V.
2. Exempt supplies of sites in a mobile home park are not exempt supplies of municipal services for the purposes of the definition of “municipality” in subsection 259(1). Therefore, the Cooperative would be ineligible for municipal designation for purposes of section 259 in respect of activities involved in the making of these supplies.
3. The Cooperative would be ineligible for municipal designation under section 22 of Part VI of Schedule V, as it is not making supplies of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system.
4. We confirm your view that designations under section 23 of Part VI of Schedule V are granted only to governments.
If we were to assume that the provision by the Cooperative of sewerage services and unbottled water each constitute distinct supplies and are not constituent elements of the supplies of sites in the mobile home park, we would offer the following comments.
Water distribution, sewerage, or drainage systems
Section 22 of Part VI of Schedule V exempts the supply of a service, made by a municipality or by an organization that operates a water distribution, sewerage or drainage system and that is designated by the Minister to be a municipality for the purposes of this section, of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system.
The Minister of National Revenue may designate an organization that operates a water distribution, sewerage or drainage system to be a municipality for the purposes of section 22 of Part VI of Schedule V. The purpose of the designation is to exempt any separate supply the organization makes of installing, repairing, maintaining, or interrupting that system.
In addition, the Minister of National Revenue may designate a person who performs a municipal service to be a municipality for purposes of the public service body rebate provided in section 259. A municipal designation for purposes of section 259 applies to activities specified in the designation that involve making supplies of municipal services that are not taxable supplies. A person who is designated to be a municipality for purposes of this section will be entitled to claim a municipal rebate of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) paid on inputs acquired for use in making these supplies. Generally, the rebate is available to persons who operate in the public interest on a not-for-profit basis.
In this respect, municipal designation for purposes of section 22 of Part VI of Schedule V applies to an organization that operates a public sewerage system for or on behalf of a municipality where the municipality has transferred the functions, responsibilities, assets, risks and liabilities associated with the operation of the system in its entirety to the organization. The administrative guidelines for municipal designation exclude private systems, such as systems owned by private organizations that service private property.
Organizations that operate only a part of a system, and organizations such as condominium corporations, residents’ associations and managers of residential or business parks that operate a private system solely for the benefit of their members, shareholders or tenants, do not qualify for municipal designation for purposes of section 259, or for purposes of section 22 of Part VI of Schedule V, under the policy and eligibility criteria guiding these designations because these private activities do not involve the supply of a municipal (public) service.
Further, the exemption in section 22 of Part VI of Schedule V applies to specific services performed on the system itself. This section refers only to a supply of installing, repairing, maintaining or interrupting the operation of the water distribution, sewerage or drainage system. For example, where a municipality charges a consumer a fee because of the interruption of the flow of effluent in a sewerage system connected to the consumer’s property, this service of interruption would be exempt. However, this section does not cover the supply of water made through the operation of a water distribution system nor does it cover the supply of collecting effluent made through the operation of a sewerage system.
Supplies of collecting and treating effluent and the disposal of treated effluent, when made by a person other than a municipality, will generally be taxable unless section 21 of Part VI of Schedule V applies.
Standard exempt municipal services
Section 21 of Part VI of Schedule V exempts a supply of a municipal service made by a government or a municipality or on behalf of a government or a municipality to a recipient who is an owner or occupant of real property situated in a particular geographic area, where the recipient has no option but to receive the service from the government or municipality. Sewerage services when supplied by municipalities generally fall within this section. For this section to apply to a person other than a municipality, the person must be making the supply of sewerage services on behalf of the municipality (other than as its agent). A municipal designation is not required for this section. However, a person who performs a municipal service on behalf of a government or municipality may be entitled to a municipal designation for purposes of the rebate in section 259, if the person meets the administrative guidelines.
When a private company acts as the legal supplier of a service, its supplies are not exempt unless it can be demonstrated, with documentary evidence, that its supplies are municipal services made on behalf of a government or municipality to residents in a particular geographic area. Thus, it will be a question of fact whether a private company is making a supply of a municipal service on behalf of a municipality that residents have no option but to receive from the municipality.
A finding that a private company is making a supply of a municipal service on behalf of a municipality that residents have no option but to receive from the municipality must therefore be supported by facts and documentary evidence to demonstrate that:
* the particular service represents a public concern rather than a private concern;
* the municipality has the mandate to provide the particular service to the recipients in question;
* the recipients have no option but to receive the particular service from the municipality; and
* the private company is acting on the municipality’s behalf in providing this service to the recipients.
Whether a particular service represents a public concern and is provided to all residents within a municipality would be supported by a relevant degree of public service involvement in the provision of the service. The degree of such involvement may be gauged by the manner in which the service is funded and the extent it is provided with the use of public funds, and whether the service is supplied in the course of a municipality’s responsibilities. The degree of public service involvement would also be reflected in the legislation and bylaws that apply to the particular municipality: whether the provision of the service is linked to these legislation and bylaws and whether a municipality is responsible for providing the service in question. Accordingly, the characterization of whether a service is a municipal service requires an analysis of the complete context in which the service is provided.
When a private company supplies a service which is limited to a specific group of households situated on private land and there is no public service involvement in the provision of the service, these factors would suggest that the context in which this service is provided is that of a private concern.
In addition, if the residents receive the service because they opted out, either directly or by implication, of a service that would otherwise be delivered by a municipality, this would suggest that the service is not a municipal service that residents have no option but to receive from the municipality. For instance, if there are alternate delivery options for the service and this service may also be supplied by private commercial businesses in a competitive market, the service is less likely to constitute a public concern that is a responsibility of a municipality.
Pursuant to paragraph 23(a) of Part VI of Schedule V, the supply of unbottled water (other than a zero-rated supply and a supply of water dispensed in single servings to consumers through a vending machine or at a permanent establishment of the supplier) is exempt when made by a person other than a government, or by a government designated by the Minister of National Revenue to be a municipality for the purposes of this section. In addition, the supply of a service of delivering water is exempt under paragraph 23(b) of this Part when that service is provided by the person that supplies the water (i.e., the owner of the water).
Supplies of unbottled water are considered to be standard municipal services. A person, such as a water hauler, water co-operative, or a private utility, that supplies unbottled water may be designated as a municipality under subsection 259(1) for purposes of claiming the municipal rebate for GST/HST paid on its purchases or expenses that are used to provide exempt water and delivery services specified in the designation.
Documentation to support municipal designation includes:
* a copy of incorporating documents or other governing documents demonstrating that the person is a supplier of unbottled water;
* a description of the services provided and a description of the municipality and surrounding areas in which the services are provided;
* a copy of a paid customer invoice showing the supply of unbottled water; and
* a copy of a purchase invoice for the unbottled water, a copy of a permit or other document allowing the person to take water from a government source, or any other document such as a letter from a municipality where the water is taken free of charge.
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 do not hesitate to call Desneiges Arbour at (613) 670-7943.
Municipal Sectors Unit
Legislative Policy and Regulatory Affairs Branch Division
Excise and GST/HST Rulings Directorate