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: 189355
October 27, 2020
Dear [Client]:
Subject: GST/HST RULING
[…][Whether a subcontractor is an agent of a contractor]
Thank you for your letter of [mm/dd/yyyy], concerning whether a subcontractor acquired permits as an agent, and the resulting application of the goods and services tax/harmonized sales tax (GST/HST) to a subsequent supply by the subcontractor. We apologize for the delay in this response.
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:
1. […][The contractor] is […] located in […][the Municipality], […][Province A]. It provides […] services.
2. [The contractor] entered into an agreement with [the Municipality] to perform […] work in [the Municipality].
3. […][the subcontractor] […] provides […] services […].
4. [The contractor] and [the subcontractor] entered into […] [an] Agreement, dated [mm/dd/yyyy], for [the subcontractor] to perform […] services.
5. In accordance with section […] of the Agreement, [the contractor] will request that [the subcontractor] “…provide […] services through use of a work order(s) […]…”
6. The parties agreed under section […] of the Agreement that “[…]. In no event shall [the subcontractor] be authorized to enter into any agreements or undertakings for or on behalf of [the contractor] or to act as or be an agent or employee of [the contractor].”
7. Pursuant to section […] of the Agreement, “[…].” […], [the subcontractor] “…shall secure all permits, fees and licenses necessary […].” Finally, the parties agreed under section […] that “[…].”
8. The Agreement requires that [the subcontractor] submit for approval a […][tariff] to [the contractor], which will apply to all work undertaken under the Agreement. Once [a tariff is] approved, section […] of the Agreement provides that “…[the subcontractor] shall submit a lump sum price […] for any […][work order], which […] shall be consistent with the […][tariff]. The compensation to be paid to [the subcontractor] for the […][work] shall be set out in the […][work order].”
9. In order for [the subcontractor] to perform […] [work], it was required by [the Municipality’s] […](Footnote 1) ) (By-law) to obtain a […] permit. As stated in section […] of the By-law, […].
10. An applicant must, in order to receive a […] permit, complete and file an application for the permit and pay fees to [the Municipality], pursuant to […] of the By-law.
11. Pursuant to […] [of the By-law], a […] permit is not transferable.
12. The By-law also provides that:
- An applicant must maintain adequate insurance coverage […] and file proof of such coverage before a […] permit can be issued […];
- An applicant must provide adequate security […] before a […] permit can be issued […];
- […] a permit holder shall generally be responsible for all loss or damages arising from the work done by or for the permit holder; and
- A permit holder is required […] to indemnify […][the Municipality] from all causes of action, loss, costs or damages arising from the work […].
13. Two sample […] permits were provided. […].
14. In both cases the permits were issued by [the Municipality] to [the subcontractor]. Both permits also state that they are non-transferrable.
15. [The subcontractor] charges [the contractor] for the amount of the permit fees when it invoices [the contractor] for its […] services.
RULING REQUESTED
You would like to know whether [the subcontractor] acquired the […] permits as [the contractor’s] agent, in which case [the subcontractor] should not include the permit fees when it calculates HST on the amount of consideration it charges in respect of its supply of […] services to [the contractor], or as inputs into its supply to [the contractor], such that [the subcontractor] should include the permit fees when calculating HST on the amount of consideration it charges in respect of the supply.
RULING GIVEN
Based on the facts set out above, we rule that [the subcontractor] acquired the […] permits as inputs to its taxable supplies of […] services to [the contractor], such that the amount of the permit fees that [the subcontractor] charges to [the contractor] are included in the consideration for the supplies of the services on which HST applies.
EXPLANATION
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 given in this letter provided that: none of the issues discussed in the ruling 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.
Whether an agency relationship exists in a particular situation is a question of fact. As indicated in P-182R, Agency, the three essential qualities of an agency relationship are consent of both the principal and the agent, authority of the agent to affect the principal’s legal position, and the principal’s control of the agent’s actions.
In this particular case and pursuant to the Agreement, [the subcontractor] and [the contractor] did not consent to establishing a relationship of agent and principal. Further, [the subcontractor] is not authorized to enter into any agreements or undertakings for or on behalf of [the contractor]; thus, [the subcontractor] cannot affect [the contractor’s] legal position. Finally, [the contractor] does not control [the subcontractor’s] actions in the performance of the work. [The subcontractor] is responsible for obtaining all necessary elements in order to properly execute the work, such as ensuring it is properly licensed, has adequate insurance and security, as well as any necessary permits.
[…] permits must first be obtained before a person can legally perform […] [work] in [the Municipality]. Pursuant to […] the Agreement, [the subcontractor] is required to secure all permits, fees and licenses necessary […]. As evidenced by the two […] permits that were provided, [the subcontractor] is listed as the permit holder in such cases. These […] permits are not transferrable.
Because [the subcontractor] is required to obtain […] permits in order to fulfil its contractual obligations to [the contractor] to provide […] services, the permits are an essential input into [the subcontractor’s] supplies of such services. As a result, [the subcontractor] is not acquiring the […] permits as an agent of [the contractor], and the amount of the fees incurred by [the subcontractor] to acquire the permits that it charges to [the contractor] are included in the consideration for its taxable supplies of the […] services made in [Province A] (the […] services are in relation to real property that is situated entirely in [Province A]) on which HST is calculated.
If you require clarification with respect to any of the issues discussed in this letter, […]. 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,
Roger Yuen
B.Mus., M.Mus., ARCT., J.D., LL.L., M.Fisc.
Senior Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 References in this letter to the By-law reflect the amended By-law, which came into force on [mm/dd/yyyy].
Email this Content