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: 143163
March 31, 2014
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of the GST/HST to the supply of a right of entry or user under section 162
Thank you for your letter of March 13, 2012, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of a right to use real property for the disposal of drilling waste and to access water.
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 (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the facts to be as follows:
1. […] (Landowner) owns land and supplies the right to enter and use the land for the disposal of drilling waste (created during the process of drilling for oil) to various environmental waste disposal companies (Disposal Co.) who act as agents for companies exploring for oil.
2. […] (Agreement) is signed between a Disposal Co. and the Landowner for the purpose of the disposal of drilling waste.
3. The Landowner provided two sample Agreements:
a. […] Agreement [1] between the Landowner and […] (Disposal Co. 1) acting as agent for […] (Oil Co. 1).
b. […] Agreement [2] between the Landowner and […] (Disposal Co. 2) acting as agent for […] (Oil Co. 2).
4. As per the Agreements, Disposal Co. 1 and Disposal Co. 2 agree to pay the Landowner on behalf of Oil Co. 1 and Oil Co. 2 respectively, consideration for the supply of the use of the land for the disposal of the drilling waste.
5. Currently the Landowner is collecting and remitting GST on the […][consideration].
6. Agreements were not provided for the supply of water access.
INTERPRETATION REQUESTED
You would like to know the application of the GST/HST to the supply of the right to use the land for the disposal of the drilling waste. You also inquired into the application of the GST/HST to the supply of water access to oil and gas companies.
INTERPRETATION GIVEN
Where all of the relevant agreements are not provided, the CRA will not issue a binding ruling. With this letter we are issuing an interpretation which provides general guidance.
Generally, every recipient of a taxable supply made in Canada shall pay GST/HST calculated at the rate of 5% on the value of the consideration for the supply (13% if the supply is made in Ontario, New Brunswick, and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia).
Subsection 162(2) provides, in part, for the following:
162(2) Natural resources — For the purposes of Part IX of the ETA, the supply of
(a) a right to explore for or exploit a mineral deposit, a peat bog or deposit of peat or a forestry, water or fishery resource, or
(b) a right of entry or user relating to a right referred to in paragraph (a)…
…shall be deemed not to be a supply and any consideration paid or due, or any fee or royalty charged or reserved, in respect of the right shall be deemed not to be consideration for the right.
It is understood, as per the sample agreements that a particular Disposal Co. is acting as an agent of a particular Oil Co. in disposing of drilling waste. The Oil Co. is also understood to be in possession of a right or rights to explore for or exploit a natural resource for the purposes of paragraph 162(2)(a). The Disposal Co. enters into […] Agreement [3] with the Landowner to dispose of drilling waste which is a byproduct of Oil Co. exercising that right.
When a party who is exercising a right to explore for or exploit a natural resource on under paragraph 162(2)(a) acquires the right to enter or use real property to dump waste created from exploiting that natural resource, the supply of the right to enter or use the real property is considered “a right of entry or user relating to a right referred to in paragraph (a)” under paragraph 162(2)(b) and is, therefore, deemed not to be a supply. Any consideration paid or payable for the supply of the right of entry or user would not be subject to the GST/HST.
Where an Oil Co. possesses a right or rights to explore for or exploit a natural resource under paragraph 162(2)(a) and an agency relationship exists between a Disposal Co. and an Oil Co. the requirements of paragraph 162(2)(b) would be met. Where there is no agency relationship, or where Oil Co. does not have a right or rights to explore for or exploit a natural resource under paragraph 162(2)(a) paragraph, 162(2)(b) does not apply and the supply of the right of entry or user would be subject to the GST/HST.
Where a landowner supplies the right of access to real property to a Disposal Co. so that the Disposal Co. has access to a water source and the Disposal Co. is the agent of a person who is the recipient of the supply of a right under paragraph 162(2)(a) as discussed above, the supply of this right of access is also considered a right of entry or user pursuant to paragraph 162(2)(b).
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 Canada Revenue Agency 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 613-954-5124. 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,
Angela Stachowski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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