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
[Addressee]
Case Number: 181082a
Dear [Client]:
Subject: GST/HST INTERPRETATION
Expense allowances of elected municipal officers and school board members
As a result of the repeal of subsection 81(3) of the Income Tax Act effective January 1, 2019, we have conducted a review of rulings and interpretations issued on the subject of the eligibility for a public service bodies’ rebate on expense allowances of elected municipal officers and school board members. This review brought to our attention the GST/HST Interpretation issued to you dated March 21, 2017. We are issuing this interpretation letter to update and clarify the information in our letter of March 21, 2017.
Your request for an interpretation of December 1, 2016 uses the term, “First Nations” throughout, [and] we assume that your interpretation request does not apply to First Nations that have signed final self-government agreements, because such self-governing First Nations cannot be compared in a reasonable manner to a municipality, as their responsibilities are much broader. Accordingly, we will refer and apply our interpretation to Indian bands as defined under subsection 2(1) of the Indian Act.
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.
INTERPRETATION REQUESTED
Our GST/HST Interpretation dated March 21, 2017 attempted to answer the following two questions:
1. If an Indian band that has been determined as a municipality for GST/HST purposes may qualify for a partial public service bodies’ rebate, as described in GST/HST Policy Statement P-097R2, Expense Allowances of Elected Municipal Officers and School Board Members (P-097R2), in respect of a non-accountable expense allowance provided to an elected officer (for example, an elected chief and an elected councillor) of the Indian band.
2. If an Indian band that has not been determined as a municipality for GST/HST purposes may qualify for the partial public service bodies’ rebate described in P-097R2 in respect of a non-accountable expense allowance paid to an elected officer of the Indian band.
INTERPRETATION GIVEN
A public service body, such as a determined municipality, may be able to recover a percentage of the GST and the federal part of the HST paid or payable on its eligible purchases and expenses by claiming a public service bodies’ rebate. A public service body resident in a participating province may also be able to claim a public service bodies’ rebate to recover a percentage of the provincial part of the HST paid or payable on its eligible purchases and expenses. The public service bodies’ rebate calculation is based on the “non-creditable tax charged” in respect of property or a service for a claim period. Generally, non-creditable tax charged is the GST/HST paid or payable on an eligible purchase or expense that a public service body cannot recover in any way other than by claiming the public service bodies’ rebate. For more information, see GST/HST Memorandum 13.5, Non-creditable Tax Charged.
Allowances paid
Section 174 enables a public service body to claim a public service bodies’ rebate in respect of allowances paid to an employee (Footnote 1) , such as an elected officer, for certain expenses to the same extent as would have been the case had the public service body incurred the expense directly. When the conditions under section 174 are met, the public service body is deemed to have paid the GST/HST in respect of the supply acquired by the employee and any consumption or use of the property or service is deemed to be consumption or use by the public service body and not by the employee.
Section 174 will apply where the following conditions are met:
1. The public service body pays an allowance to an employee of the public service body;
2. The allowance is paid to the employee for:
- supplies of property or services all or substantially all (90% or more) of which are taxable supplies (other than zero-rated supplies) acquired in Canada by the employee in relation to the public service body’s activities; or
- the use of a motor vehicle in Canada in relation to the public service body’s activities;
3. An amount in respect of the allowance is deductible by the public service body for income tax purposes, or would be deductible if the public service body were a taxpayer under the Income Tax Act and the activity were a business; and
4. In the case of certain travel and motor vehicle allowances, the public service body must ensure that:
- the allowance is reasonable for income tax purposes; and
- at the time the allowance was paid, the person considered it to be a reasonable allowance, and it was reasonable for the person to have considered it to be a reasonable allowance for income tax purposes.
For purposes of section 174, the term “allowance” is interpreted to have the same meaning it has for income tax purposes. Therefore, an amount constitutes an allowance for the purposes of section 174 where the amount meets all of the following criteria:
- the amount is predetermined,
- the amount is paid for a certain purpose;
- the amount paid is at the complete disposition of the person receiving it; and
- the person receiving the amount is not required to account for its use.
If an Indian band that has been determined to be a municipality for GST/HST purposes pays an allowance to an elected officer of the Indian band, section 174 could apply to enable the Indian band to claim a public service bodies’ rebate in respect of the allowance paid.
Allowances deemed to be paid
The legislation governing municipalities (Municipal Acts) of some provinces deem that a proportion of the total amount paid to an elected officer of a municipal council (salary, fees, indemnities and honoraria; a general expense allowance, a mileage or other travelling allowance) is an allowance for expenses. Where this is so, it is the CRA’s policy that the proportion so deemed to be an expense allowance will be accepted as an expense allowance.
Therefore, if an Indian band is governed by a Municipal Act of a province that deems a proportion of the total amount paid to the chief or a councillor in respect of their position as an elected officer of the band council to be an allowance for expenses, section 174 could apply to enable the Indian band to claim a public service bodies’ rebate in respect of the allowance deemed paid.
No allowance paid or deemed to be paid
Where an Indian band is not governed by a Municipal Act of a province that deems a proportion of the total amount paid to an elected officer to be an allowance for expenses, and where no allowance is actually paid, section 174 could not apply to enable the Indian band to claim a public service bodies’ rebate in respect of the amounts paid. Simply put, if there is no allowance paid or deemed to be paid, the conditions of section 174 cannot be met.
GST/HST Policy Statement P-097R2, Expense Allowances of Elected Municipal Officers and School Board Members
To clarify, P-097R2:
- Explains the application of section 174 to allowances that fell under former subsection 81(3) of the Income Tax Act.
- Does not deem that a proportion of the total remuneration paid to an employee, or elected officer, is an allowance for expenses.
- Does not expand a municipality’s public service bodies’ rebate entitlement beyond that provided in section 174 and the basic rules of the public service bodies’ rebate found in section 259.
P-097R2 is currently under review by the Canada Revenue Agency (CRA) as a result of subsection 81(3) of the Income Tax Act being repealed effective January 1, 2019.
Persons that may claim a Public Service Bodies’ Rebate
With respect to the second interpretation requested from the GST/HST Interpretation dated March 21, 2017, only the following persons may claim a public service bodies’ rebate:
- a charity;
- a qualifying non-profit organization
- a school authority, a university, or a public college that is established and operated otherwise than for profit;
- a hospital authority;
- a municipality;
- a facility operator; or
- an external supplier.
An Indian band that has not been determined to be a municipality for GST/HST purposes will only qualify for a public service bodies’ rebate in respect of a non-accountable expense allowance paid to an elected officer of the Indian band if the band is one of the entities listed above.
For more information, see RC4034, GST/HST Public Service Bodies Rebate.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations 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 613-670-7941. 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,
Trent MacDonald
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 The definition of employee in subsection 123(1) of the ETA includes an officer.
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