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: 111920
Attention: XXXXX
XXXXX
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
GST/HST on remuneration, and travel and living expenses for third party managers managing a funding arrangement for a First Nation
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the remuneration fee, and travel and living expenses for a third party manager managing a funding arrangement for a First Nation. We apologize for the delay in responding to your request for an advanced ruling.
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.
The Government of Canada and the Government of Ontario have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of the HST in Ontario. The HST will come into effect in Ontario on July 1, 2010, at a rate of 13%, consisting of a 5% federal part (equivalent to the existing GST) and an 8% provincial part. In addition, the Government of Canada and the Government of British Columbia have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of the HST in British Columbia. The HST is proposed to come into effect in British Columbia on July 1, 2010, at a rate of 12%, consisting of a 5% federal part (equivalent to the existing GST) and a 7% provincial part.
Legislation required to implement the HST in Ontario has received Royal Assent by the Parliament of Canada and the Legislative Assembly of Ontario. Legislation required to implement the HST in British Columbia has received Royal Assent by the Parliament of Canada. Required provincial legislation has been introduced but is still under consideration by the Legislative Assembly in British Columbia. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Government of Ontario has announced details of the rules which may eventually apply, the required regulations have not yet been made by the Government of Canada.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
ADVANCED RULING REQUESTED
You have requested an advanced ruling. Unfortunately, we are unable to provide you with a ruling in accordance with GST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service (enclosed). A GST/HST ruling is a written statement the Canada Revenue Agency (CRA) provides to a client that sets out the CRA's position on how the relevant provisions of the legislation apply to a clearly defined fact situation of the client. The CRA will issue a ruling only when the person requesting the ruling has provided all the relevant facts of a transaction or series of transactions. Instead, for your assistance, we are providing the following interpretation.
We understand that XXXXX enters into various XXXXX. XXXXX may enter into a Third Party Management Agreement (Agreement) with a Management Company. Under the Agreement the Management Company acts as a "third party manager" (Manager) for a specific Indian band named in the Agreement. We understand that the XXXXX provides funding for the programs and services referred to in the Agreement to the Manager which is to be held by the Manager in trust for the purposes provided for in the Agreement. A "Funding Account" is set up from which the Manager may draw funds to administer programs and services to community members of the band. The Manager is to administer the funds according to the terms of the Agreement.
The Management Company receives payment for its services but this payment is not to be drawn from the Funding Account. The Management Company is to invoice XXXXX and XXXXX will pay the invoice per the Agreement. A draft of the invoice containing XXXXX and XXXXX that the Manager is to complete and submit to XXXXX has been provided to us. XXXXX is for the Manager's remuneration (fee) and XXXXX is for the travel and living expenses that are to be reimbursed. There is a section at the end of the invoice that refers to the GST/HST that may be applicable
You have asked the following question:
What is the application of the GST/HST to the management fee (remuneration), and the travel and living expenses invoiced by the Manager?
Interpretation Given
For purposes of this interpretation we are assuming that the Management Company is a GST/HST registrant.
Tax status of the management fee, and the travel and living expenses:
Generally, section 165 provides that every recipient of a taxable supply in Canada shall pay the GST/HST at the applicable rate calculated on the value of the consideration for the supply.
Section 122 provides that Part IX of the ETA is binding on Her Majesty in right of Canada in all aspects, meaning that XXXXX is required to pay the GST/HST on its purchases of taxable supplies.
As a general rule, every person who makes a taxable supply in Canada is required to collect the tax payable by the recipient in respect of the supply. Therefore, establishing the value of the consideration for the taxable supply is important for purposes of calculating the GST/HST payable.
For GST/HST purposes, the term "consideration" is defined in subsection 123(1) to include any amount that is payable for a supply by operation of law. Furthermore, consideration generally includes any amount that a recipient is required to pay in respect of a supply of property or services.
In our view, the provision of management services such as those provided by a third party manager would be taxable supplies under the ETA. The management fee, and the travel and living expenses (Management Company's fee) shown separately on the invoice are merely two components of the value of the consideration for the supply of acting as third party manager.
It is the CRA's administrative position that where a person enters into an agreement with XXXXX to act as a third party manager for an Indian band that the supply is considered to be made to the Indian band for band management activities. Although acting as a third party manager under the Agreement is a taxable supply, the effect of this position is that the GST/HST will not be collectible on the Management Company's fee because the supply of this service to the Indian band is relieved of the GST/HST as provided for in GST/HST Technical Information Bulletin B-039, GST/HST Administrative Policy - Application of the GST/HST to Indians. Therefore, even though XXXXX is the one receiving the invoice and actually responsible for making payment to the third party manager, the supply is relieved of the GST/HST.
If the Management Company includes the tax it has paid on travel and living expenses on the invoice, (whether or not it is entitled to an input tax credit) but does not charge the GST/HST on the Management Company's fee, it is not charging or collecting GST/HST on the supply. In this instance, the GST/HST that the Management Company has paid merely forms part of the value of consideration for the services being supplied. Whether the GST/HST paid on travel and living expenses by the Management Company should be recoverable from XXXXX where it is recoverable through the input tax credit mechanism in place for GST/HST registrants is a contractual matter between XXXXX and the Management Company.
Eligibility of the Management Company to claim input tax credits:
Third party managers appointed by XXXXX through an Agreement acquiring property and services on behalf of Indian bands will be eligible for relief of the GST/HST on the same basis as Indian bands. Therefore, relief of the GST/HST will apply to property and services acquired on behalf of the Indian band by the Management Company under the Agreement where the conditions in B-039 are met. However, the Management Company will not be eligible to claim the GST/HST paid or payable on property and services that are acquired on behalf of the Indian band as input tax credits. That is because the property and services are not acquired by the Management Company for consumption, use or supply in the course of its commercial activities, but are purchased on behalf of the band pursuant to the authority vested in it through the Agreement.
However, as the service of acting as third party manager provided by the Management Company under the Agreement is a taxable supply, it forms part of its commercial activities. The Management Company is eligible to claim input tax credits for the GST/HST paid or payable on the acquisition/importation of property or services to the extent that they are for consumption, use or supply in the course of its commercial activities, and the conditions set out in section 169 are met. That is, even if the Management Company's fee charged to XXXXX is relieved of tax, any GST/HST paid or payable on inputs related to that commercial activity may be eligible for input tax credits (e.g. the GST/HST on Management Company's electrical bill).
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.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7957.
Yours truly,
Dave Caron
Manager
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Enc.: GST/HST Memorandum Series 1.4
UNCLASSIFIED
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