Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 111571
June 16, 2009
Subject:
GST/HST INTERPRETATION
Tax Status of Sewer Services Supplied by a Private Developer
Dear Sir:
This is further to your XXXXX queries made throughout XXXXX to this office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sewer services provided to the residential subdivision of XXXXX (the Subdivision).
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
The Subdivision lies within the XXXXX area, near the northern end of XXXXX in XXXXX. It is isolated and bounded by XXXXX. The Subdivision was developed by a private developer, XXXXX (the Developer) XXXXX (the City). At the time of development, there were no municipal sewer services available for the Subdivision. We understand that municipalities in the XXXXX allow development to occur even though the land may be distant and isolated from municipal services. These developments can proceed on the condition that the developer can provide services such as water and sewer on-site. As a condition of residential development, the Developer was required to construct and maintain a sewer utility for the Subdivision.
XXXXX As noted above, the sewer utility in question was established before the Subdivision fell within the boundaries of the City. The City did not assume the operation of the sewer utility nor does it currently have an agreement with the Developer for the Developer to operate the utility on its behalf. We understand that there are no legal contracts or written agreements between the Developer and the City for the provision of sewer services within the Subdivision on behalf of that municipality. We also understand that the City does not have a budgetary allocation to provide sewer services in the Subdivision nor does it provide any funding for the operation of this utility.
Instead, the Developer continues to own 100% of the sewer utility and operates it on its own behalf under the name XXXXX to supply sewer services to the Subdivision. There is an understanding that the homes within the Subdivision must be hooked up to this utility before the City will issue an occupancy permit for a residence.
Interpretation Requested
We understand that you would like the exemption under section 21 of Part VI of Schedule V to be extended to include the sewer services supplied by the Developer to the Subdivision. We understand that it is your view that the Developer is supplying sewer services on behalf of the City on the basis that the bylaws and policies of the City require that all development be connected to a sewer utility and that the City does not itself provide sewer services to the Subdivision.
Interpretation Given
All supplies of goods and services made in Canada are taxable for GST/HST purposes, with certain exceptions listed in Schedule V as being exempt. Accordingly, the tax always applies unless there is a specific exemption for a particular supply.
The exempting provisions are exceptions to the general principle that tax is to be charged on all supplies made for consideration by a GST/HST registrant. The exempting provisions contain various conditions that must be met. As we have not been provided with signed copies of bylaws and agreements from the City, we are unable to provide a GST/HST ruling. Therefore we will provide an interpretation of the relevant provisions of the legislation.
Section 21 of Part VI of Schedule V exempts a supply of a municipal service made by a municipality or government or on behalf of a municipality or government to a recipient who is an owner or occupant of real property situated in a particular geographic area, where the recipient (herein after referred to as a resident) has no option but to receive the service from the municipality or government. This section does not exempt services supplied to individual households on a fee-for-service basis.
When a private company acts as the legal supplier of a service, its supplies are not exempt unless it can be demonstrated, with documentary evidence, that its supplies are municipal services made on behalf of a government or municipality to residents in a particular geographic area. Thus it will be a question of fact whether a private company is making a supply of a municipal service on behalf of a municipality that residents have no option but to receive from the municipality.
A finding that a private company is making a supply of a municipal service on behalf of a municipality that residents have no option but to receive from the municipality must therefore be supported by facts and documentary evidence to demonstrate that:
• the particular service represents a public concern rather than a private concern;
• the municipality has the mandate to provide the particular service to the recipients in question;
• the recipients have no option but to receive the particular service from the municipality; and
• the private company is acting on the municipality's behalf in providing this service to the recipients.
Whether a particular service represents a public concern and is provided to all residents within a municipality would be supported by a relevant degree of public service involvement in the provision of the service. The degree of such involvement may be gauged by the manner in which the service is funded and the extent it is provided with the use of public funds, and whether the service is supplied in the course of a municipality's responsibilities. The degree of public service involvement would also be reflected in the legislation and bylaws that apply to the particular municipality: whether the provision of the service is linked to these legislation and bylaws and whether a municipality is responsible for providing the service in question. Accordingly, the characterization of whether a service is a municipal service requires an analysis of the complete context in which the service is provided.
When a private company supplies a service which is limited to a specific group of households situated on private land and there is no public service involvement in the provision of the service, these factors would suggest that the context in which this service is provided is that of a private concern. In addition, if the residents receive the service because they opted out, either directly or by implication, of a service that would otherwise be delivered by a municipality, this would suggest that the service is not a municipal service that residents have no option but to receive from the municipality. For instance, if there are alternate delivery options for the service and this service may also be supplied by private commercial businesses in a competitive market, the service is less likely to constitute a public concern that is a responsibility of a municipality.
You advised that the City requires residents to enter into agreements with the private utility company; however, this requirement alone does not demonstrate that the City has engaged private companies to provide sewer services on its behalf. The sewer utility in question is a private utility that is operated independently of the City. The context in which the sewer services are provided to the Subdivision indicates that these services represent a private concern that is 100% owned and operated by a private company acting on its own behalf. There is no public service involvement in the provision of these services, either in terms of public funding or responsibility.
Among the factors that indicate that there is no public service involvement in the provision of the sewer services is the absence of a bylaw authorizing an agreement between the City and the Developer for the provision of sewer services by the Developer on behalf of the City. In addition, we understand that the City took action to notify residents that the sewer utilities are not provided by the City.
For instance, we understand that in XXXXX, there is a mandatory requirement set out in legislation that municipalities must pass bylaws. In addition, where municipalities chose to impose requirements for services, which would include sewer services, they must pass bylaws to do so. Therefore, as evidence that this is a non-optional municipal service, we would expect to see a bylaw that authorizes an agreement between the City and the Developer describing how the City has engaged the Developer to provide, on its behalf, sewer services to the residents of the Subdivision.
XXXXX
In summary, there are no facts or documentary evidence to support an extension of the scope of the exemption under section 21 of Part VI of Schedule V to the sewer services in question that are supplied by the Developer to the Subdivision. Rather, the information indicates that the context in which the services in question are provided represents a private concern: the Developer alone supplies these sewer services.
When a municipality itself supplies sewer services to its residents where the residents have no option but to receive, these services would generally be exempt from GST/HST. In contrast, private sewer services do not come within the application of the exemption in section 21 of Part VI of Schedule V and are therefore taxable supplies.
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 CRA 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 contact Chantal Desrosiers, Manager, Municipalities and Health Care Services Unit at 613-941-3268. 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,
Philippe Nault
Director
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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