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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 204710
Business Number: […]
May 25, 2021
Dear [Client]:
Subject: GST/HST RULING
Amounts paid to a municipality pursuant to a licence agreement
Thank you for your letter of November 5, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to amounts being paid under the terms of a licence agreement. 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 that:
1. […][The Municipality] is a municipality as defined in subsection 123(1) of the ETA, and is registered for GST/HST purposes.
[…][ACo]
2. […], operating as [ACo], provides programs that […][install][…][X], and […].
3. […], [ACo] provides its programs to numerous municipalities […]. These programs involve the […][installation of X]. These programs include the maintenance and servicing [by ACo] of […][X], including installation, repair and replacement, and […].
4. […]. Under the program, [ACo] proposed to […][install X], at no cost to [the Municipality], […] in [the Municipality]’s public spaces.
5. According to […], [the Municipality]’s staff reviewed [the Municipality]’s by-laws and found that none of [the Municipality]’s by-laws would restrict the implementation of such a program. Under the program, […][X] will be sponsored by local small businesses that will not only pay for the program in its entirety, but also allow for a small revenue stream to [the Municipality].
[…][The Licence Agreement (the Agreement)]
6. On [mm/dd/yyyy], [the Municipality] entered into […][the Agreement] with [ACo] under which [the Municipality] agreed to permit [ACo] to install […][X] on [real property] […] owned, or under the control of [the Municipality] within the jurisdiction of [the Municipality]. The term of [the Agreement] is […] commencing [mm/dd/yyyy] and ending on [mm/dd/yyyy], […].
7. According to [the Agreement], […]. […] [the sites where X are installed] within [the Municipality] […][are] mutually determined by [the Municipality] and [ACo], with the final approval of the sites being given by [the Municipality]. [ACo] fully owns [X] and is solely responsible for the installation, maintenance, repair, and if required, the removal of [X].
8. According to […] [the Agreement], [ACo] will pay […] to [the Municipality] […] for the duration of the agreement. […]
9. […][Other matters clarified in the Agreement].
10. According to […] of [the Agreement], the parties agree and expressly confirm that [the Municipality] has conferred upon [ACo] certain […] rights to use municipal lands in connection, and solely in accordance, with the terms of the agreement. […][Other matters clarified in the Agreement].
11. […][Information about the Municipality]
12. […][Information about the payments made by ACo to the Municipality under the Agreement]
RULING REQUESTED
You would like to know whether the payments made by [ACo] to [the Municipality] under the terms of [the Agreement] are consideration for a taxable supply.
RULING GIVEN
Based on the facts set out above, we rule that payments made by [ACo] to [the Municipality] under [the Agreement] are consideration for a taxable supply of a right to use municipal real property. Accordingly, the payments are subject to GST/HST.
EXPLANATION
Subsection 165 of the ETA imposes GST/HST on the value of the consideration for the supply of most goods and services made in Canada. “Consideration” is defined, in subsection 123(1), to include any amount that is payable for a supply by operation of law. A “supply” is defined, in part, to be the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition. A “taxable supply” is defined as a supply made in the course of a commercial activity. “Commercial activity” excludes the making of an exempt supply.
In accordance with subsection 136(1) of the ETA, a supply by way of lease, licence or similar arrangement of the use or right to use real property is deemed to be a supply of the real property. In the absence of a specific exempting provision, such a supply would be taxable and subject to the GST/HST. Under the terms of [the Agreement] between [the Municipality] and [ACo], [the Municipality] provides [ACo] with […][the right] to use municipal lands for a period of […]. The supply of […][this right] to use municipal lands is deemed, under subsection 136(1), to be a supply of real property.
Paragraph 146(e) of the ETA provides, in part, that a supply of a right to enter, to have access to or to use property of the municipality, when made for consideration by a municipality shall, for greater certainty, be deemed to be made in the course of a commercial activity, except where the supply is an exempt supply.
Paragraph 20(c) of Part VI of Schedule V to the ETA exempts, in part, the supply of a licence, permit, quota or similar right when supplied by a municipality. However, paragraph 20(l) of that Part excludes from exemption a supply of a right to enter, to have access to or to use property of the municipality.
Exemptions for supplies of real property made by public service bodies (which include a municipality) are generally found in section 25 of Part VI of Schedule V. However, this provision specifically excludes supplies of real property by a municipality.
As there are no provisions that would exempt [the Municipality]’s supply of [the right] to use municipal lands, the amounts paid by [ACo] to [the Municipality] is consideration for a taxable supply and are subject to GST/HST.
[…]. As a GST/HST registrant, [the Municipality] is responsible for collecting and remitting GST/HST on all taxable supplies (other than zero-rated supplies) of property and services in Canada. For additional information on the obligations of a GST/HST registrant, please refer to GST/HST Guide RC4022, General Information for GST/HST Registrants.
For more information on the application of the GST/HST to municipalities please refer to GST/HST Guide RC4049, GST/HST Information for Municipalities.
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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 416-200-6519. 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,
Marlon Latchana
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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