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: 103495
May 10, 2011
Dear [Client]:
Subject:
GST/HST RULING
[...] [Joint Venture Election]
Thank you for your letter of March 18, 2009 in which you requested that we reconsider our ruling issued to [...] [Municipality A] on [mm/dd/yyyy] (copy enclosed), regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to an inter-municipal agreement. We regret the delay in responding to you.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
You state in your letter that you agree with CRA's understanding of the facts as set out in our ruling of [mm/dd/yyyy] issued to [Municipality A]. Therefore, for purposes of this reconsideration request, the facts will be as set out in GST/HST Ruling case [...], a copy of which is enclosed.
RULINGS REQUESTED
In your request for reconsideration, you ask that we address the possibility that the [...] Agreement provided for review constitutes a joint venture entered into by the following municipalities: [Municipality A, Municipality B, Municipality C, and Municipality D].
You ask that we confirm that:
1. The [...] ("the Agreement") entered into by the parties constitutes a joint venture;
2. The parties are eligible to elect pursuant to section 273 with respect to the activities of this joint venture; and
3. As participants in a joint venture, the payments made under the Agreement to fund the operating deficit of the waste disposal activities by [Municipality B, Municipality C and Municipality D] to [Municipality A] are contributions to the joint venture in order to fund operating losses and are not consideration for the taxable supply of administrative services.
Rulings Given
1. We rule that the Agreement constitutes a joint venture for purposes of the joint venture election provided for in section 273.
2. We rule that the activities provided for in the Agreement constitute the "disposal of waste", as these terms are used in paragraph 3(1) of the Joint Venture (GST/HST) Regulations and that, consequently, the parties to the Agreement can make the election provided for in section 273.
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 their validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Subsection 3(1) of the Joint Venture Regulations (GST/HST) has been amended to include "the disposal of waste, including the collection and transportation of waste that is in furtherance of that disposal" as a prescribed activity. This amendment is deemed to have come into force on June 1, 1991. The amendments to the Joint Venture Regulations have been made pursuant subsection 17(2) of the Regulations Amending Various GST/HST Regulations, No. 2 (iFootnote 1) . The entering into force of the amendment is provided for under section 62 of the amending regulations. The amending regulations have been published in the March 16, 2011 issue of the Canada Gazette, Part II.
Where an election is made under section 273, paragraph 273(1)(c) provides that all supplies of property or services made by the operator of the joint venture to the co-venturers are deemed not to be a supplies to the extent that the property or services are acquired by the co-venturers for consumption, use or supply in the course of commercial activities for which the agreement was entered into. As a result, where paragraph 273(1)(c) applies to a supply, such a supply is not subject to GST/HST.
Where a co-venturer does not acquire a supply for consumption, use or supply in the course of a commercial activity, paragraph 273(1)(c) does not apply and the supply is subject to the general rules, unless subject to another exception under another provision. Based on the information provided, the administrative services provided by
[Municipality A] to [Municipality B, Municipality C and Municipality D] (the Municipalities) are acquired by the Municipalities for the purpose of making exempt supplies. Therefore, these services are not considered to be acquired by the Municipalities for consumption, use or supply in the course of a commercial activity. As a result, paragraph 273(1)(c) does not apply to the supply by [Municipality A] of these administrative services to the Municipalities and are subject to GST/HST.
INTERPRETATION
With respect to ruling request #3, we are unable to provide a ruling in this circumstance as we have not been provided with all the relevant facts surrounding each transaction. For example, we are unable to determine, based on the facts provided, whether the payments made by the Municipalities to [Municipality A] constitute a reimbursement by the Municipalities of expenses incurred by [Municipality A] as agent of any or all of the municipalities.
We therefore provide you with the following interpretations:
Based on the information provided, the payments made by the Municipalities to [Municipality A] in respect of the operating costs pursuant to section [...] and [...] of the Agreement appear to be consideration for taxable supplies pursuant to section 165.
Where a payment (or a part of it) made by the Municipalities to [Municipality A] pursuant to section [...] of the Agreement is made in respect of the acquisition of capital real property or improvements thereto by [Municipality A] as agent of the Municipalities, the payment (or that part of it) would be considered to be a reimbursement by the Municipalities to [Municipality A]. Payments of this nature are not consideration for a supply and therefore not subject to GST/HST.
Explanation
Where an amount is identified as consideration for a taxable supply, it is subject to GST/HST under the general rules unless an exception applies, such as paragraph 273(1)(c). Where consideration for a supply is payable under a joint venture agreement, it remains consideration for a supply.
Based on the information provided, the expenses described in paragraph [...] of the Agreement appear to be for the acquisition of supplies that are used by [Municipality A] in the course of supplying administrative services to the Municipalities. Therefore, the payments in respect of the acquisition of these inputs would constitute consideration payable by the Municipalities for the administrative services supplied by
[Municipality A] under the Agreement.
However, a payment or part of a payment made under section [...] of the Agreement may be attributable to the acquisition of capital real property and/or improvements thereto by [Municipality A] as agent of the Municipalities. This would be the case where [Municipality A] makes a payment to the supplier for the acquisition of the capital real property and/or improvements thereto where ownership is attributed to the Municipalities in the proportions determined under paragraph [...] of the Agreement. Consequently, where [Municipality A] pays the supplier of such capital real property (or improvements thereto) for acquiring such ownership, the payment by the Municipalities to
[Municipality A] would be considered a reimbursement of amounts incurred by [Municipality A] as agent of the Municipalities. In such situations, the reimbursement would not constitute the payment of consideration to [Municipality A] for a supply made by [Municipality A] and would therefore not be subject to GST/HST.
If you require clarification with respect to any of the issues discussed in this letter, please call me at (613) 952-8815.
Yours truly,
Raymond Labelle
Senior Rulings Officer
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
i 1 Registered as SOR/20011-56
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