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
XXXXX
Case Number: 97253
January 6, 2009
Dear XXXXX:
Subject:
GST/HST RULING
GST and the XXXXX Agreements between the City and the Church
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to transactions contemplated in the above noted agreements. We apologize for the delay in providing you with our response.
All legislative references are to the Excise Tax Act ("the ETA") and the regulations thereunder, unless otherwise specified.
Statement of Facts
We understand the following:
1. Subsection XXXXX of XXXXX XXXXX permits a municipality to impose, as a condition for the granting of a development permit, that certain developers construct or pay for all or a portion of a municipal improvement with "excess capacity" ifootnote 1.
2. Subsection XXXXX of the XXXXX provides that where the municipality has imposed on a developer ("Frontender"), the requirement to pay for one or more municipal improvements with excess capacity ("oversizing"), the agreement between the municipality and the Frontender may also provide for the municipality to reimburse the cost incurred by the Frontender in respect of the oversizing.
3. Where a municipality has entered into an agreement with a Frontender that provides for the municipality to reimburse the Frontender an amount in accordance with Fact #2, the municipality is required under subsection XXXXX of the XXXXX to enter into agreements with subsequent developers ("Latecomers") seeking development or subdivision approval for lands that benefit from the oversizing.
4. The municipality, by entering into agreements with such Latecomers, is permitted to require the Latecomer to pay an amount ("Latecomer fee"), as determined by the municipality. For purposes of this ruling, the term "Latecomer fees" refers to amounts payable by the Latecomer to the municipality. Latecomer fees are used by the municipality to reimburse some or all of the costs incurred by a Frontender in respect of the oversizing.
5. The XXXXX ("the City") and the XXXXX ("the Church") entered into XXXXX ("the First Agreement") on XXXXX.
6. Under the First Agreement, the Church, as an owner of certain lands legally described XXXXX ("the Church Land"), applied for a development permit from the City with respect to the Church Land.
7. The First Agreement sets out the procedures under which the Church Land will be developed as well as amounts paid or payable by the Church to the City for the development permit.iifootnote 2. XXXXX of the First Agreement provides that as one of the conditions precedent for the issuance of a building permit, the Church will be required to pay amounts as its proportionate share of the costs incurred by prior developers, including the City, who have previously installed, constructed or paid for the installation and/or construction of certain off.site and oversized utilities or arterial roadways which will service the Church Land. In addition, the Church will be required to pay amounts as its proportionate share of the costs of future off.site and oversized services from which the Church Land will benefit, such amounts being referred to in the First Agreement as "the XXXXX". The XXXXX are Latecomer fees as described in Fact #4 and are referred to as such in the remainder of this letter.
8. Under the First Agreement, the Church agreed to pay the Latecomer fees prior to making connection to the sanitary sewer system or within XXXXX years of the date of the First Agreement, whichever occurs first.
9. The Church also agreed to construct and install certain municipal improvements as identified in XXXXX of the First Agreement. For example, the Church agreed to construct the XXXXX paved road, sidewalks, curb, and gutter and to maintain XXXXX for XXXXX years.
10. The City and the Church also entered into XXXXX (the Second Agreement) on XXXXX. Under the Second Agreement, XXXXX provides that the Church agrees to pay the Latecomer fees that total $XXXXX. You have indicated that the Church has paid this amount to the City and has also paid GST of $XXXXX in respect of this amount. The total amount of $XXXXX was paid by way of cheque dated XXXXX, payable to the City and issued by the XXXXX on behalf of the Church. This amount was added to the Church's loan account with this organization.
11. Under XXXXX of the Second Agreement, the City acknowledges that the Church is required to pay for the construction of all or a portion of the storm and sanitary trunk sewers in excess of the requirement for the Church Lands. The City shall, at such time as other land benefiting from the storm and sanitary trunk sewers is developed or subdivided, enter into agreements with developers of that other land that require those developers to pay an amount as a condition of the City issuing a development permit to those developers. Upon the City's receipt of payment of such amounts from those developers, and providing the Church has fulfilled its requirements under the Second Agreement and is not otherwise in default under the Second Agreement, the City agrees to pay the Church a pro-rata share of the amount the City receives from those developers. XXXXX also provides that the City is not obligated to pay the Church any amount the City is prevented by law from recovering from the developers and that if a court orders the City to repay monies to the developer, the Church has to repay such amounts to the City. In this respect, the Church is a Frontender as described in Fact #2.
12. You have indicated that the City has subsequently paid the Church $XXXXX, including GST of $XXXXX.
13. The Church is a "charity" as defined in subsection 123(1) and is not registered for the GST/HST. You have indicated that the Church has claimed and received a public service body rebate in the amount of $XXXXX in respect of the GST paid to the City as indicated in Fact#10.
RULINGS REQUESTED
You would like to know:
1. whether the GST applies to the Latecomer fees paid by the Church to the City, and
2. whether the amounts paid by the City to the Church under XXXXX of the Second Agreement constitute a price reduction for purposes of subsection 232(2).
Rulings Given
Based on the facts set out above, we rule that:
1. The GST does not apply to the Latecomer fees. The Latecomer fees are payable in respect of a supply by the City of a permit or similar right, which is an exempt supply under paragraph 20(c) of Part VI of Schedule V to the ETA.
2. Subsection 232(2) does not apply to the amounts paid by the City to the Church pursuant to XXXXX of the Second Agreement.
3. The Church is not required to collect GST from the City in respect of the construction and installation services (municipal improvements) provided by the Church to the City. The construction and installation services provided by the Church to the City are exempt under section 1 of Part V.1 of Schedule V to the ETA.
4. The Church is required to remit the amount paid by the City to the Church as or on account of GST (XXXXX).
5. The Church was not entitled to claim a 50% rebate for the amount paid by the Church to the City as or on account of GST (XXXXX).
6. The Church is entitled to claim a rebate under section 261 for the amount paid by the Church to the City as or on account of GST (XXXXX) provided that the time limitation for filing an application is met.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Ruling #1
Since the Church's requirement to pay the Latecomer fees (XXXXX) is set out in the First and Second Agreements as a condition precedent for the issuance of a building permit or development permit, the Latecomer fees are regarded as consideration for the supply of a permit. For GST purposes, such supplies are exempt in accordance with paragraph 20(c) of Part VI of Schedule V to the ETA.
Ruling #2 and #3
Subsection 232(2) does not apply to the amounts paid by the City to the Church pursuant to XXXXX of the Second Agreement. The amounts paid by the City to the Church pursuant to XXXXX of the Second Agreement are paid in respect of the construction and installation services (municipal improvements) provided by the Church to the City. The construction and installation services provided by the Church to the City are exempt under section 1 of Part V.1 of Schedule V to the ETA.
Ruling #4
As a non-registrant, the Church is required to include any amount collected as or on account of tax in its net tax calculation. Given that the City paid $XXXXX to the Church as or on account of the GST, the Church is required to file a GST/HST return for the calendar month during which the amount was paid to the Church and report that amount on line 103 of the return. The Church is required to remit any positive amount of net tax that is reported in that return by the end of the following calendar month. As a non.registrant, the Church would complete Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non-Personalized) to report and remit its net tax. The Church can order this form by using the online order form on the Canada Revenue Agency (CRA) Web site at www.cra.gc.ca/orderforms, or by calling the CRA at 1-800-959-2221. See the information below regarding the rebate for tax paid in error for information relating to the filing of this return.
Ruling #5 and #6
As indicated in Ruling #1, the Church was not required to pay tax to the City in respect of the Latecomer fees. Amounts paid by the Church as or on account of tax, in circumstances where the tax was not payable, cannot form part of a rebate claim made by the Church under section 259 as such amounts do not form part of the "non-creditable tax charged", which forms the basis of a rebate under section 259. However, the Church is entitled to claim a rebate under section 261 for the tax paid in error to the City in respect of the Latecomer fees which are consideration for an exempt supply.
We have contacted XXXXX at the Summerside Tax Centre who is responsible for processing general rebate claims. A copy of this letter together with the background information on the Church's claim has been forwarded to XXXXX attention at the Summerside Tax Centre for processing. Given that you initially contacted the CRA in XXXXX with respect to this matter, the Church's rebate application will be dated effective XXXXX, the date your letter was received by the CRA by way of facsimile transmission. We request that the Church send its completed GST/HST return, as explained above, to XXXXX to ensure that it is processed in conjunction with the Church's rebate application. The return should be sent to:
Summerside Tax Centre
Attention: XXXXX
Rebates Division
275 Pope Road
Summerside, PE C1N 5Z7
XXXXX will contact you if further information is required to confirm the amount of tax paid tax in error by the Church. If it is determined that a rebate is payable to the Church, the Church's claim will be processed, taking into account the fact that the Church has already received 50% of the amount paid as or on account of GST by having claimed a public service body rebate. In addition, any outstanding amount of net tax will also be taken into account. Please feel free to contact XXXXX at XXXXX should you wish to enquire about the status of your rebate claim.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-3772 or Hugh Dorward at (613) 954-4393. 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.
Respectfully,
Marcel Boivin
Manager, Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
i 1. The term "excess capacity" is defined in subsection 651(5) of the MGA as "any capacity in excess of that required for a proposed development or subdivision".
ii 2. We note that Schedule F to the First Agreement contains provisions that omit, substitute or add a number of clauses to the First Agreement.
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UNCLASSIFIED
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