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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 107633
Business Number: [...]
September 24, 2010
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Tax Status of School Bus Transportation
Thank you for your letter of July 8, 2008, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the agreement you entered into with another school board. I apologize for our delay in responding.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that:
1. In 2005 the Ontario Ministry of Education mandated all school boards in Ontario to create transportation consortia to provide school bussing services to coterminous boards.
2. Memorandum 2006 SB13 dated July 11th, 2006, set out the Ontario Ministry of Education's requirements for these transportation consortia, which included the following:
a) All school boards in Ontario are expected to provide transportation through consortia by September 2008.
b) Participation in a consortium can be in the form of a full partner or a purchaser of service. Full partnership boards in a consortium have equal representation in matters of consortium governance. Boards that opt to purchase transportation from a consortium may or may not have representation on the body that governs the transportation consortium.
c) As part of the organization and governance structure requirements, consortia must:
1) Be managed by a single entity;
2) Have a Board of Directors acting as management which represents each of the partner boards equally;
3) Have a clearly defined dispute resolution mechanism;
4) Have a clearly documented human resources plan; and
5) Have written agreements outlining the governance structure and policies.
d) All boards must submit their consortia plans to the Ministry of Education by November 17, 2006.
e) All consortia plans will be subject to an Effectiveness and Efficiency review to ensure that transportation is being administered, planned and delivered effectively and efficiently.
f) Appendix 1 of the memo gives a listing of proposed transportation consortia sites.
3. Further to these requirements [...] [the School Board] agreed with another school board in the region (the other Board) to incorporate a new entity (the transportation consortium) which would provide school bussing services to both Boards.
4. In the written agreement between [the School Board] and the other Board dated [mm/dd/yyyy]:
a) The Preamble provides in part that:
1) Each of the two Boards currently provides a service of school bussing and that each is desirous of creating a common administration of student transportation.
2) Both Boards will participate in a shared service for transportation of their respective students with each other by incorporating a transportation consortium.
3) The establishment of transportation consortia has been mandated by the Ontario Ministry of Education.
b) Paragraph [...] provides definitions of key terms of the agreement.
c) Paragraph [...] states that the Boards agree to jointly carry out the objects of the transportation consortium and to provide a common administration for transportation services for students within their jurisdictions. It further provides that the transportation consortium will manage and administer all home-to-school-to-home transportation, school-to-school transportation, and special needs transportation within the Boards' jurisdiction.
d) Subparagraph [...] requires the transportation consortium to enter into common contracts with transportation service providers.
e) Paragraphs [...] provide for the supervision of the transportation consortium by a management committee (CMC). [...]. The day to day management of the transportation consortium would be provided by a General Manager. [...].
f) Paragraph [...] mandates the transfer of each Board's transportation staff to the transportation consortium. [...].
g) Paragraph [...] provides that the costs associated with the management of the affairs of the transportation consortium and the cost responsibilities of each Board shall be as set out in Schedule [...].
h) Paragraph [...] confirms that the transportation consortium shall provide transportation services in accordance with the Boards' transportation policies. This paragraph also describes each Board's obligations regarding disclosure of changes to their transportation policies.
i) Paragraph [...] states that the transportation consortium shall be responsible to obtain and maintain its own liability insurance.
j) Paragraphs [...] set out provisions regarding the agreement term, early termination of the agreement, the mediation and arbitration of disputes, the payment of indemnities for costs incurred and for other general matters.
k) Schedule [...] contains a preamble which states that all new assets purchased in the name of the transportation consortium shall be the property of the transportation consortium alone. It further provides that [...].
l) The remainder of Schedule [...] to the agreement sets out the formulae to be used to calculate each Board's share of the management, administration and transportation costs of the transportation consortium.
m) Schedule [...] to the agreement describes the make up, roles and responsibilities of the CMC.
n) Schedule [...] to the agreement sets out the roles and responsibilities of the General Manager.
o) Schedule [...] to the agreement provides some specific duties of the General Manager including: [...].
p) Schedule [...] to the agreement describes the mediation and arbitration procedures to resolve any dispute which arises between the Boards.
q) [...] is a graphic entitled [...].
5. The transportation consortium was incorporated by Letters Patent issued by the Ministry of Government Services on [mm/dd/yyyy].
6. Since its incorporation, the transportation consortium has entered into contracts with transportation service providers with a view to provide bussing services to the Boards.
7. The Boards have transferred all right, title and interest in their transportation assets to the transportation consortium. Since September 2008 the Boards have not entered into any common contracts with transportation service providers.
8. Since September 2008 the Boards have paid the transportation consortium to provide school bussing services in accordance with the agreement dated [mm/dd/yyyy].
Ruling Requested
You would like to know if, for ETA purposes, the transportation consortium is acting as an agent of the Boards when it enters into contracts with transportation service providers.
Interpretation Given
Unless a specific provision of the ETA says otherwise, when an agent contracts for a supply on behalf of its principal, the principal is considered to have contracted for the supply. The ETA treats the agent as a conduit for a supply made by or to the principle.
Canada Revenue Agency Policy P-182R Agency sets out the circumstances under which the Canada Revenue Agency (CRA) will issue a ruling as to the existence of an agency relationship in a certain transaction:
It is the CRA's position that, for GST/HST purposes, a person is an agent with respect to a particular transaction if that person is an agent based on a determination of fact and an application of principles of law, certain of which are described below. As a result, the application of the GST/HST to a particular transaction may vary depending on whether a person is acting as an agent in respect of that transaction.
Upon request and where all parties consent, the CRA will give its views as to whether an agency relationship exists when all relevant documentation is provided in support of the request as set out in Section 1.4, Goods and Services Tax Rulings of Chapter 1 of the GST/HST Memoranda Series.
In addition, the CRA will, for the purpose of providing the ruling or interpretation, accept assertions made by the client as to the nature of the relationship. This acceptance should not be construed as agreement by the CRA with these assertions. These assertions would remain subject to verification under audit.
You have not forwarded the consent of either the other Board nor of the transportation consortium. We are therefore unable to provide a ruling as to the existence of an agency relationship. However, we have provided the following comments on the subject for your guidance.
Explanation
Agency is not defined in the ETA. The facts of each situation must be viewed against the requirements of the common law to determine if an agent-principal relationship exists. The attached copy of Policy P-182R Agency reviews the common law principles of agency and describes what the CRA considers the essential qualities of an agency relationship to be. In summary, these essential qualities of an agency relationship are:
1) Consent of Both Parties
The intention of the parties is always an important consideration. However a mere declaration by the parties that they have established, or not established, an agency relationship for a particular purpose is not conclusive in itself as to whether or not an agency relationship has been established.
2) Authority of the Agent to Affect the Principal's Legal Position
The most common example of the ability of the agent to affect the legal position of the principal is where the agent is authorised to enter into contracts with third parties on the principal's behalf. An agent's authority to affect the legal position of a principal can come about by agreement, operation of law, or other mechanisms such as the subsequent ratification of an agent's actions.
3) The Principal's Control of the Agent's Actions
In a true agency relationship, the principal exerts some degree of control over the agent. This will normally be evidenced in a requirement of the agent to obtain approvals from the principal before incurring liabilities on the principal's behalf, or a requirement for the agent to provide ongoing reports. In any event, the control the principal exercises over the agent will be greater than that exercised over an independent contractor. In some instances, the control may amount to no more than the principal ensuring that the agent remains within the scope the mandate given it by the principal.
In light of these essential qualities of an agency relationship, we can make the following observations regarding the documentation provided:
(1) The memorandum from the Ontario Ministry of Education does not mandate the school boards to use the consortia as their agents in contracting with transportation providers. In fact the memorandum specifically contemplates various legal relationships being maintained between school boards and their bussing consortia.
(2) The agreement of [mm/dd/yyyy]:
(a) paragraph [...] of the agreement states that consortium will manage and administer all home-to-school-to-home transportation, school-to-school transportation and special needs transportation;
(b) subparagraph [...] provides that the transportation consortium will enter into contracts with the transportation service providers;
(c) there is no indication in the agreement that [the School Board] would be bound by these agreements.;
(d) subparagraph [...] states that the Boards retain the power to manage the affairs of the transportation consortium, there is nothing to extend this to the day to day administration of school bussing, which is under the purview of the General Manager; and
(e) subparagraph [...] states that there is no intention among the Boards to create a joint venture or an agency relationship between the boards.
(3) The transportation consortium is not a party to the agreement.
(4) No other collateral documentation has been provided which evidences any acknowledgement by the Boards and the transportation consortium that they operate within an agency relationship or that describes the scope of the agency relationship.
To summarize, if the transportation consortium were contracting with the transportation service providers as the agent of [the School Board], the ETA would treat the transportation consortium as a conduit for any supply made by the transportation service provider to [the School Board]. If the transportation consortium was not acting as agent of [the School Board], then the transportation consortium would be an independent contractor who then contracted with the transportation service providers on its own behalf. However as you have not provided the consent of the transportation consortium or the other Board we cannot comment on whether or not an agency relationship exists.
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 Canada Revenue Agency 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 call me directly at 613-952-0329. 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,
Michael Mavis
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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