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: 152123
Dear [Client]:
Subject: GST/HST RULING
Water and sewerage services
This letter refers to your authorized representative's letter received on March 4, 2013, addressed to Carol Skillen, concerning the application of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") to water and sewerage services provided by [...] ([...][Company A]).
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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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 (the "ETA") unless otherwise specified.
Statement of Facts
Based upon your incoming [correspondence], with its attachment, and our telephone conversations, we understand the following:
1. [Company A] is a limited partnership duly formed under the laws of British Columbia.
2. [Company A] owns the water and sewer facilities that service the structures noted in point 5 below.
3. [...] ([...][Company B]) and [...] ([...][Company C]) are both 100% owned by [Company A].
4. [Company B] and [Company C] both provide management and operating services to [Company A] for the facilities owned by [Company A].
5. A Certificate of Public Convenience and Necessity (CPCN) and Water Tariff was initially issued to [Company B] on [mm/dd/yyyy], by the BC Comptroller of Water Rights. This certificate allowed [Company B] to provide water service to a proposed [...] subdivision, [...]
6. [...] the original CPCN and Water Tariff that was issued to [Company B] actually pertained to infrastructure that was owned by [Company A]. [...] requested that the original CPCN issued to [Company B] be re-issued in the name of [Company A].
7. [Company B] and [Company C] have been amalgamated as of [mm/dd/yyyy], to form a new company called [...][Company D]. [Company D] will continue to manage and operate the water and sewer facilities owned by [Company A].
8. On [mm/dd/yyyy], CPCN No. [#] was issued to [Company A] to reflect that the assets, rights and licence of the water system were owned by [Company A].
Ruling Requested
You would like to know whether an invoice for the provision of water and sewer services issued by the owner of the infrastructure, [Company A], is required to have GST/HST applied. Furthermore, you ask to be provided information on the application requirements for municipal designation with respect to these services.
Ruling Given
Where possible we have provided a ruling. Where a ruling is not possible, we have provided an interpretation of the relevant provisions of the ETA as it applies to your enquiry. For a discussion on the application requirements for municipal designation, please refer to the section entitled "Additional Information".
Based on the facts set out above, we rule the following:
1. The supply of unbottled water by [Company A] to the residents of the [Company A] resort is exempt pursuant to section 23 of Part VI of Schedule V to the ETA. As a result, [Company A] is not required to charge or collect the GST on the supply of water.
This ruling is subject to the qualifications in the GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretation Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Generally, most supplies of property or services made in Canada are subject to the GST/HST, unless the supply is specifically zero-rated (subject to GST/HST at the rate of 0%) or exempt (not subject to the GST/HST). Zero-rated supplies are listed in Schedule VI and exempt supplies are listed in Schedule V.
Supply of water
Section 23 of Part VI of Schedule V exempts 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) 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. This section also exempts a service of delivering water when the service is provided by the person who supplies the exempt water.
In accordance with the above-noted provision, the supply of water made by [Company A] through its facilities is exempt. [Company A] is not required to charge or collect the GST/HST for the supply of water.
ADDITIONAL INFORMATION
Supply of related services to the supply of unbottled water
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.
An organization that operates a water distribution, sewerage or drainage system may qualify for municipal designation for purposes of section 22 of Part VI of Schedule V to the ETA. This designation does not cause to exempt the supply an organization makes of operating another organization's system; rather the purpose of the designation is to exempt any separate supply the organization makes of installing, repairing, maintaining, or interrupting that system. Please note that this designation only applies to entities that operate a water distribution, sewerage or drainage system in its entirety rather than just a part of any of these systems. As a result, when an organization charges a separate fee for a supply described in this section, the supply will be exempt if the organization has been designated as a municipality for purposes of that section; otherwise, the supply is taxable and the fee is subject to the GST/HST.
As [Company A] is currently not designated to be a municipality for the purposes of section 22 of Part VI of Schedule V, any separate fees it charges to consumers for the supply of installing, repairing, maintaining, or interrupting the operation of a water distribution system does not fall within this section and is therefore subject to GST/HST.
A registrant is entitled to claim an input tax credit for the tax paid or payable on a property or service to the extent to which the property or service is for consumption, use, or supply in the course of a commercial activity of the registrant. A commercial activity does not include the making of exempt supplies.
Therefore, a registrant that makes taxable supplies of services related to a water distribution system and exempt supplies of unbottled water may be required to apportion its entitlement to input tax credits under the ETA.
Although [Company A] would not be entitled to ITCs based on the extent to which property or services are acquired for making exempt supplies, it may be entitled to claim a public service body (PSB) rebate of 100% of the GST or federal portion of the HST under section 259 of the ETA. The rebate is available on the GST or federal portion of the HST that is paid or payable on costs related to operating an entire water distribution system as well as in making exempt supplies of unbottled water if [Company A] were designated as a municipality under section 259 of the ETA.
In order for an organization to be designated as a municipality for purposes of claiming the PSB rebate, it must be making a supply of an exempt municipal service such as a supply under either section 22 or section 23 of Part VI of Schedule V. As [Company A] is not currently designated as a municipality for purposes of section 259, it is not eligible to claim PSB rebates.
An organization may submit a written request to be designated as a municipality in respect of such municipal supplies (e.g., for purposes of section 22 of Part VI of Schedule V) and for purposes of claiming the municipal rebate under section 259.
Requests should be sent to the following address:
Director
Public Service Bodies and Governments
Excise and GST/HST Rulings Directorate
Canada Customs and Revenue Agency
15th Floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
In support of this request, the applicant should also provide copies of:
* incorporating or other governing documents demonstrating that the person is the supplier of unbottled water;
* a description of the services provided and the area in which it is provided,
* a copy of a paid customer invoice showing a 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 its source, or other document such as a letter from a municipality where the water is taken free of charge.
For additional information regarding a designation as a municipality, please refer to GST/HST Guide RC4049, Information for Municipalities. For additional information on the rebate, please refer to GST/HST Guide RC4034, GST/HST Public Service Bodies' Rebate.
With the exception of the rulings provided, 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 905-721-5081. 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,
Masood Mustafa
Rulings Officer
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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