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: 206226
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Municipal transit services
Thank you for your [correspondence] of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to public passenger transportation services provided by charities and non-profit organizations. We apologize for the delay in our 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.
We understand that […][the Organization] is a registered charity that provides door-to-door, wheelchair accessible transportation options to all […][area] residents. [The Organization] has been designated as a municipality pursuant to subsection 259(1) of the ETA, in respect of its supplies of exempt municipal transit services.
[The Organization] is a member of […][the Association]. [The Association] and its members provide transportation to seniors, persons with disabilities and […] [individuals] with barriers to transportation to travel to and from medical appointments, educational programs, social and recreation opportunities and errands. Member organizations heavily subsidize riders in need but also collect fares. Members are either registered charities or non-profit organizations. Some members have been designated as a municipality in respect of exempt municipal transit services, and others have not applied for municipal designation. You stated that there is some uncertainty as to application of the GST/HST to the supplies of public passenger transportation services by the different organizations.
INTERPRETATION REQUESTED
You would like an interpretation of the GST/HST implications to the supply of public passenger transportation services by charities and non-profit organizations. Specifically, the application of the GST/HST to the supply of public passenger transportation services, the eligibility for the public service bodies’ (PSB) rebate, and municipal designation in order to be eligible for the PSB rebate at the municipal rate.
INTERPRETATION GIVEN
Generally, all supplies of property and services made in Canada are subject to the GST/HST unless the supply is specifically identified as being an exempt supply or a zero-rated supply. “Exempt supplies” are listed in Schedule V and are not subject to GST/HST. “Zero-rated supplies” are taxable at the rate of 0% and are listed in Schedule VI.
Paragraph 24(a) of Part VI of Schedule V exempts a supply (other than a supply made to a transit authority) of municipal transit services.
A “municipal transit service” is a public passenger transportation service (other than a charter service or a service that is part of a tour), or a right that exclusively entitles an individual to use the service, that is supplied by a transit authority.
“Transit authority” includes a non-profit organization that receives funding from a government, municipality or school authority to support the supply of public passenger transportation services where all or substantially all (90% or more) of the supplies made by the organization are supplies of public passenger transportation services provided within a particular municipality and its environs, or rights entitling individuals to use the services.
A “non-profit organization” is a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada.
It is a question of fact whether, at any particular time, a person meets the definition of a non-profit organization for ETA purposes. In particular, whether a person meets the criterion of operating solely for a purpose other than profit must be determined on an ongoing basis. For more information, see GST/HST Policy Statement P-215, Determination of whether an entity is a Non-Profit Organization for Purpose of the Excise Tax Act (‘ETA’).
Supplies of a charter service or a service that is part of a tour by a non-profit organization are generally GST/HST taxable.
A charity is excluded from the definition of non-profit organization and is, therefore, not a transit authority. For GST/HST purposes, “charity” means a registered charity or registered Canadian amateur athletic association for income tax purposes, but does not include a public institution. As such, a charity’s supplies of public passenger transportation services, or a right that exclusively entitles an individual to use the service, are not municipal transit services that are exempt under paragraph 24(a) of Part VI of Schedule V.
However, section 1 of Part V.1 of Schedule V exempts supplies of property or a service made by a charity unless specifically excluded under paragraphs (a) to (p) of that section. There are no exclusions that apply to the supply of public passenger transportation services, or a right that exclusively entitles an individual to use the service. There are also no exclusions for a charter service or a service that is part of a tour. Therefore, supplies of public passenger transportation services, charter services, and services that are part of a tour by a charity are exempt under section 1 of Part V.1 of Schedule V and are not subject to the GST/HST.
A “public institution” means a registered charity for income tax purposes that is a school authority, a public college, a university, a hospital authority or a local authority determined to be a municipality for GST/HST purposes.
Section 2 of Part VI of Schedule V exempts supplies of property or a service made by a public institution unless specifically excluded under paragraphs (a) to (q) of that section. There are no exclusions that apply to the supply of public passenger transportation services, or a right that exclusively entitles an individual to use the service. There are also no exclusions for a charter service or a service that is part of a tour. Therefore, supplies of public passenger transportation services, charter services, and services that are part of a tour by a public institution are exempt under section 2 of Part VI of Schedule V and are not subject to the GST/HST.
To summarize:
* Supplies of municipal transit services (that are not made to a transit authority) are exempt from the GST/HST when they are made by a non-profit organization that is a transit authority.
* Supplies by a non-profit organization of a charter service or a service that is part of a tour are generally GST/HST taxable.
* Supplies of public passenger transportation services, charter services or a service that is part of a tour are exempt from the GST/HST when they are made by a charity or a public institution.
Public Service Bodies’ (PSB) Rebate
Certain PSBs are eligible to claim a PSB rebate of a percentage of the GST and the federal part of the HST paid or payable on eligible purchases and expenses. A PSB is eligible for a PSB rebate if it is a charity, a qualifying non-profit organization or a selected public service body on the last day of a claim period or on the last day of the fiscal year that includes that claim period. A GST/HST registrant has up to four years from the due date of its GST/HST return for the claim period in which it incurred the expense to file a rebate application. A non-registrant for purposes of the GST/HST has up to four years from the last day of the claim period in which it incurred the expense to file a rebate application.
A “qualifying non-profit organization” is a non-profit organization whose percentage of government funding is at least 40% of its total revenue.
A charity or qualifying non-profit organization is eligible to claim a 50% PSB rebate of the GST and the federal part of the HST paid or payable on eligible purchases and expenses.
A charity or qualifying non-profit organization that is […][resident in a participating province is also] eligible for a […] PSB rebate of the provincial part of the HST paid or payable on eligible purchases and expenses.
For more information on how a non-profit organization determines its eligibility for the rebate, see […][Guide RC4034, GST/HST Public Service Bodies' Rebate] and Form GST523-1, Non-profit Organizations – Government Funding. For information on how a charity determines its eligibility for the rebate see […][Guide RC4034, GST/HST Public Service Bodies' Rebate].
A “selected public service body” includes a municipality. The Canada Revenue Agency (the CRA) may designate a person to be a municipality for certain municipal services that it provides. If a person is designated to be a municipality for particular exempt municipal services that it supplies, the person is considered to be a municipality only for the purpose of the PSB rebate and only for those particular exempt municipal services. The designation does not apply to the organization as a whole.
The municipal designation allows the person to apply for a rebate of the GST/HST using the municipality rebate factor, but only for the tax paid or payable on purchases and expenses used in the course of supplying the exempt municipal services for which the organization was designated.
A designated municipality is eligible to claim a 100% PSB rebate of the GST and the federal part of the HST paid or payable on eligible purchases and expenses to the extent that it intended to consume, use or supply the property or service in the course of its designated municipal activities (e.g., in the course of providing municipal transit services).
A designated municipality that is […][resident in a participating province may also be] eligible for a […] PSB rebate of the provincial part of the HST paid or payable on eligible purchases and expenses to the extent that it intended to consume, use, or supply the property or service in the course of its designated municipal activities in […][the participating province].
For more information, see Guide RC4034, GST/HST Public Service Bodies' Rebate.
Municipal designation
A non-profit organization that is a transit authority will have to apply for municipal designation in order to be eligible for the PSB rebate for municipalities relating to their supplies of exempt municipal transit services to members of the public.
A charity, or non-profit organization that is not a transit authority, that provides public passenger transportation services, or a right that exclusively entitles an individual to use the service, may apply to have the services designated to be exempt supplies of municipal transit services, as well as apply for municipal designation in order to be eligible for the PSB rebate for municipalities.
The following documentation must be included with the request for municipal designation:
* a copy of the organization’s incorporating documents
* a description of the public passenger transportation services provided and a description of the municipality and surrounding area in which the services are provided
* if it applies, a copy of a by-law authorizing the municipality to enter into an agreement with the organization and a copy of the agreement between the municipality and the organization for the purpose of providing the services
Written requests for municipal designation, together with supporting documents, should be mailed to:
Director
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
11th Floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
Organizations seeking municipal designation may also send the request with supporting documents electronically through the Submit documents service in the My Business Account or Represent a Client portals on the Canada.ca web site. This service is available if the organization or its representative has registered to these portals.
Once an organization has been designated to be a municipality, it is responsible for advising the CRA of any changes that may affect its status as a municipality. This would include where a non-profit organization becomes a charity, a structure change due to amalgamation or merger with another organization, or any changes in the manner in which it is funded or operated (for example, the organization no longer meets the criteria to be a transit authority).
When an organization no longer qualifies for designation as a municipality, it will no longer be entitled to a municipal rebate regardless of whether its designation as a municipality has been revoked.
Additional information on municipal transit services and municipal designation can be found in Guide RC4049, GST/HST Information for Municipalities.
Registration for GST/HST purposes
Generally, GST/HST registrants must charge and collect the GST/HST on all taxable (other than zero-rated) supplies of property and services they make in Canada. For GST/HST purposes, a registrant is a person who is registered or required to be registered for the GST/HST. A person who is a “small supplier” (generally, a person who falls below a specific taxable revenue threshold) is not required to be registered for the GST/HST and is therefore not a registrant (unless the person decides to register voluntarily). A person who is not a GST/HST registrant is generally not required to collect the GST/HST.
In general, a non-profit organization is a small supplier if the total consideration that became due, or was paid without becoming due, for taxable supplies made by the non-profit organization, or an associate of the non-profit organization, in a calendar quarter and over the last four consecutive calendar quarters did not exceed a threshold of $50,000. This amount would not include revenues from exempt supplies of exempt municipal transit services and exempt supplies of public passenger transportation services.
A charity is a small supplier if it meets either of the following two tests:
* if its total revenues from taxable (that is, not exempt, such as the examples noted above) supplies of property and services (other than sales of capital property, supplies of financial services and certain payments for goodwill), and those of associated persons, has not exceeded $50,000 in the current calendar quarter and the previous four consecutive calendar quarters; or
* if it is the charity's first fiscal year; or if the charity is in its second fiscal year, its gross revenue from its first fiscal year was $250,000 or less; or if it is the charity's third or subsequent fiscal year, its gross revenue for either of its two preceding fiscal years was $250,000 or less. Gross revenue includes business income, revenues from taxable and exempt supplies, donations, grants, gifts, property income, investment income and any amount considered a capital gain less any amount considered a capital loss from the disposal of property for income tax purposes.
If a non-profit organization or charity makes only exempt (that is, not taxable) supplies of property or services, it is not eligible to be registered for GST/HST.
For more information, see Guide RC4081, GST/HST Information for Non-profit Organizations, Guide RC4082, GST/HST Information for Charities and GST/HST Info Sheet GI-067, Basic GST/HST Guidelines for Charities.
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 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 interpretation 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 289-257-6196. 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,
Maria Forte-Long
Municipal Sectors Unit
Legislative Policy and Regulatory Affairs Branch
Excise and GST/HST Rulings Directorate
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