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: 199267
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Tax paid on construction services
Thank you for your letter of April 30, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to construction costs related to site preparation for the installation of a wheelchair lift, which is part of an all-encompassing […][renovation]. 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.
STATEMENT OF FACTS
We understand the following:
1. […] (the Corporation) is a registered charity within the meaning assigned to that expression by subsection 248(1) of the Income Tax Act and is a charity for GST/HST purposes. The Corporation is not registered for GST/HST.
2. The Corporation undertook, in [yyyy] and [yyyy], an all-encompassing [renovation], which included the purchase and installation of a vertical wheelchair lift [and other elements] […].
3. Minutes of a Corporation meeting of [mm/dd/yyyy] indicate […][the scope of the renovation project]
4. In the Corporation’s [yyyy] [request for proposals] document, […], which was given out to prospective contractors interested in bidding on the [renovation] project, the following wording is […][included]:
[…]
5. […][The request for proposals] document breaks down the work into [#] phases and asks that a separate price be provided to complete each phase […] as well as a […] price to complete all [#] phases as one contract.
6. The Corporation hired […](the Construction Contractor) to perform the entire work for […][all [#] phases of the renovation as one contract for] the all-encompassing [renovation]. The Construction Contractor bid/charged $[…] plus [GST/HST]. A spreadsheet prepared by the Construction Contractor breaks this total down by various categories, […].
7. The lift, and its installation, were not purchased from the Construction Contractor, but were purchased separately (and thus for additional cost) by the Corporation from a different supplier, […](the Lift Supplier). No […][GST/HST] was paid by the Corporation on the purchase of the lift and its installation, as they were considered to be zero-rated supplies. The installation was performed by the Lift Supplier. You confirmed in a phone conversation with [...] of the CRA on [mm/dd/yyyy], that the Construction Contractor was building the hoistway to the specifications provided by the Lift Supplier who would then come to install the lift into the hoistway once construction of it was complete. The installation was performed by the Lift Supplier.
8. The Corporation letter to award the contract to the Construction Contractor, contained the wording, […]
9. The site preparation work conducted by the Construction Contractor in regard to the lift generally consisted of excavation and construction of a hoistway and machine room.
10. A document prepared by the Construction Contractor estimates that included in the $[…] total charge for work regarding the all-encompassing [renovation], $[…] was the estimated portion attributable to work in relation to the lift. The document indicates, in part, […]
RULINGS REQUESTED
You would like to know:
1) whether the supply made by the Construction Contractor to the Corporation was zero-rated in part, that part being the portion of the charge by the Construction Contractor that relates to the construction of a hoistway and dedicated machine room and other work related to preparing the site for the installation of the lift; and
2) whether the [GST/HST] paid to the Construction Contactor on the part of the overall charge relating to the construction of a hoistway and dedicated machine room and other work related to preparing the site for the installation of the lift, was paid in error by the Corporation.
RULINGS GIVEN
Based on the facts set out above, we rule that:
1) the supply made by the Construction Contactor to the Corporation, of [all [#] phases of the renovation as one contract for] the all-encompassing [renovation], was not zero-rated and was subject to the GST/HST at the applicable rate;
2) the [GST/HST] paid to the Construction Contractor on the part of the overall charge relating to the construction of a hoistway and dedicated machine room and other work related to preparing the site for the installation of the lift, was not paid in error by the Corporation.
EXPLANATION
Generally most supplies of property and services made in Canada are subject to the GST/HST at the rate of 5%, 13% or 15% (depending on the province in which the supply is made), pursuant to section 165, unless they are specifically relieved under the ETA. For instance, supplies of particular medical devices (and certain services) that are specifically identified in Part II of Schedule VI are zero-rated (taxed at the rate of 0%). If a supply of a particular medical device or service is not included in Part II of Schedule VI, then the supply of the medical device or service would be subject to tax at the applicable rate, depending on the province in which the supply is made, unless another provision in the ETA applies to zero-rate or exempt the supply.
As mentioned, Part II of Schedule VI lists specific medical devices for human use that are zero-rated under the ETA. For instance, a supply of a chair, walker, wheelchair lift or similar aid to locomotion, with or without wheels, including motive power and wheel assemblies therefor, that is specially designed to be operated by an individual with a disability for locomotion of the individual is zero-rated. A supply of a service of installing, maintaining, restoring, repairing or modifying these devices is also zero-rated. The zero-rating can only apply if these medical or assistive devices are designed for human use or for assisting an individual with a disability or impairment.
Single Supply vs Multiple Supplies
The first step in determining the tax status of a transaction is to determine whether the transaction involves a single supply or multiple supplies. It is, therefore, necessary to determine
whether the work performed by the Construction Contractor constituted a single supply (Footnote 1) , or whether it constituted multiple supplies.
The CRA will use the following principles to determine whether a transaction consisting of multiple elements is to be regarded as a single supply or multiple supplies:
1. Every supply should be regarded as distinct and independent.
2. A supply that is a single supply from an economic point of view should not be artificially split.
3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
The interrelationships among the various elements of the agreement, the purpose of an agreement, the needs of the customer, and the economic reality of the agreement are among the factors considered to determine whether an agreement provides for a single supply or multiple supplies. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply. Where the essential elements are part of a single composite supply, that single supply cannot be artificially split into separate supplies.
Multiple supplies occur when one or more of the elements can sensibly or realistically be broken out from the other elements. Conversely, two or more elements are part of a single supply when the elements are integral components; the elements are inextricably bound up with each other; the elements are so intertwined and interdependent that they must be supplied together; or one element of the transaction is so dominated by another element that the first element has lost any identity for fiscal purposes.
When performing an analysis, it is important that the analysis be confined to the transaction at issue, rather than referring to other possible transactions containing the same or similar elements. This process should not involve artificially splitting something that commercially is a single supply. Moreover, when examining an agreement, it should not be viewed in isolation. Rather, it must be examined in the context of other factors such as the intent of the parties, the circumstances surrounding the transaction, and the supplier's usual business practices. It may be appropriate in some cases to discount the terms of an agreement if they do not reflect the reality of the transaction.
For a supply with several components, an analysis would consider how the components work together, the needs of the recipient, and identify which components are ancillary or merely optional accessories or attachments.
CRA publication GST/HST Policy Statement P-077R2, Single and Multiple Supplies, is used to determine whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies. This is a determination of fact. A set of questions to help determine if a transaction consists of a single supply or multiple supplies can be found in GST/HST Policy Statement P-077R2. The questions are:
* Is the property/service provided by two or more suppliers?
* Is there more than one recipient?
* What did the supplier provide for the consideration received?
* Is the recipient made aware of the elements (in detail) that are part of the package?
* In the context of the particular transaction, does the recipient have the option to acquire the elements separately or to substitute elements?
In applying the guidelines set out in Policy Statement P-077R2 to the properties and services provided by the Construction Contractor, an important question to consider is what has been supplied for the payment made. Policy Statement P-077R2 also explains that the way in which the consideration for a transaction is set out does not in itself determine whether there are one or more supplies. For example, a single consideration does not automatically mean that there is one supply. Equally, separately identified consideration for certain elements do not necessarily mean that there are two or more supplies. Thus one cannot rely solely on the breakdown of charges on an agreement or invoice to conclude that a supplier is making multiple supplies of different goods and/or services. Rather, where two or more elements are so closely linked that they form objectively and from an economic point of view a whole transaction, all those elements constitutes a single composite supply for purposes of the GST/HST.
Based on the information provided, it is our view that the Construction Contractor is making a single supply when providing property and services to the Corporation.
The key factor to consider in making the determination as to what, and how many, supplies are made in a particular situation is the need/purpose of the Corporation when requesting the Construction Contractor’s services. From a supplier point of view, one must consider what the Construction Contractor was being requested to do or to provide that satisfies the request or need of the Corporation.
Based on the facts set out above, the elements of the transaction all work together to provide a working [...] system that meets the needs of the Corporation. Each of the component elements is integral to the transaction. The elements are inextricably bound up with each other. The elements are so intertwined and interdependent that they must be supplied together. To treat the supply as a transaction involving multiple supplies for GST/HST purposes would be an artificial split.
Consequently, it is our view that the work of the Construction Contractor, although it consisted of several elements […], constituted a single supply.
Characterization of Supply
Having determined that the work performed by the Construction Contractor consists of a single supply, the next step in determining the tax status of the supply is to characterize the supply, that is, to determine whether the supply is that of a property or a supply of a service.
Characterization of each supply requires considering whether there is a predominant element and whether any other elements are minor or ancillary in order to identify the essential character of the supply.
If there is predominant element of that supply, that element must be established in order to determine the nature of the supply. As such, if the predominant element of the single supply is determined to be a particular service, then the GST/HST status of the supply as a whole will be considered to be that of the particular service.
Based on the information provided, it is concluded that the Construction Contractor is making a single supply of a service.
Type of service being provided
The service provided by the Construction Contractor is that of all-encompassing […] renovations. This is the main need and concern of the Corporation.
Although an element of the supply involves work in relation to the lift, the characterization of the supply made by the Construction Contractor is not that of a service of installing the wheelchair lift. The supply is an overall, comprehensive single supply that is characterized as a supply of all-encompassing […] renovations.
There are no relieving provisions for a supply of all-encompassing […] renovations. Therefore, the supply of such a service by the Construction Contractor was subject to the HST.
As the supply was subject to the [GST/HST], there is no tax charged in error and the tax paid cannot be claimed as tax paid in error
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 rulings given in this letter provided that: none of the issues discussed in the rulings 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 306-807-5296. 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,
John Ware
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 A “supply” is defined in subsection 123(1), in part, to mean “…the provision of property or a service…”
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