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: 128625
BN: [...]
August 18, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of GST/HST to [...] [the Additional Rate paid by User Groups]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to [...] [the Additional Rate] paid by [...] [User Groups] to the City of [...].
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.
Statement of Facts
We understand from your initial letter the following facts:
1. The City of [...] (the "City") operates an arena, [...] (the "Centre"), with [...] ice [...] [rinks] and community space used for a variety of sports programs and community events;
2. The City is the owner of the buildings and lands located at the Centre's premises, which are located at [...], [...] [City 1, Participating Province X];
3. Due to the growing demand for more Ice Time, the City is contemplating an expansion of the Centre which would add [...] more ice [rinks] to the premises, subject to approval by the City Council for such expansion;
4. The cost to the City of the expansion project is estimated to be $[...]. The City will finance $[...] of that amount by way of a non-tax supported debenture held by the Regional Municipality of [...] (the "Regional Government"). The City is held responsible by the Regional Government for the repayment of the Debenture;
5. To this end, the City has enacted By-law Number [...], which is a by-law to authorize a request for the issuing of debentures by the Regional Government for the expansion and renovation of the Centre;
6. If the expansion of the Centre is approved by the City's Council, then the [User Groups] (the "[User Groups") wish to purchase from the City and the City wishes to provide to the [User Groups] a guaranteed annual number of hours of ice rental ("Ice Time") at the Centre;
7. The [User Groups] and the City have entered into written agreements, the [User Group] Agreements (the "Agreements"). Each of the [User Groups] has signed an individual Agreement with the City;
8. The [User Groups] have agreed to pay a [...] (the "[Additional Rate") to the City, in addition to the usual fees for Ice Time, in order to provide the City with funds to offset the costs associated with adding ice [rinks] to the Centre. The [Additional Rate] is referred to in the Agreements as the [Additional] Rate, and the usual fees are referred to as the [...] [Usual Rate];
9. All Agreements contain the same terms and conditions, except for the minimum annual hours of Ice Time that each [User Group] has agreed to purchase;
10. The Agreement outlines the obligations of [User Groups], such as remaining incorporated, having one official representative, submitting a copy of its financial statement to the City, obtaining its Facility Permit;
11. The Agreement states the minimum hours of Ice Time that the [User Group] will purchase from the City;
12. The Agreement further provides that, on an annual basis, the City shall allocate the Ice Time at the City Arena in accordance with its policies and procedures, as amended from time to time. The City shall consult with the [User Group] as to the [User Group's] allocation of Ice Time; however, such consultation will be taken as guidance only;
13. The Agreement provides that the City is not obligated to complete the ice [rinks'] construction project, and may, in its discretion, terminate the Project at any time and for whatever reason. In the event that the City terminates the Project, the Agreement will terminate upon the written notice to the [User Group], and the City will not be liable in damages or otherwise to the [User Group] and the [User Group] will not be responsible for any cost associated with the Project;
14. The Agreement provides that the [User Group] shall pay the [Usual Rate], the [Additional] Rate, and the applicable taxes for the Ice Time in accordance with the terms and conditions as set out in the [User Group's] Facility Permit;
15. The Agreement requires the City to establish an account for funds accumulated at the [Additional] Rate (the "Arena Account"). The City is required by the Agreement to place funds accumulated at the [Additional] Rate into the Arena Account;
16. The Agreement provides that the City shall withdraw funds from the Arena Account only to repay its obligations under the debentures. In the event that there is any surplus of funds in the Arena Account at the end of the calendar year, such surplus of funds will be transferred to a specific reserve account ("[User Group] Reserve Account");
17. The Agreement states that as soon as practicable after the end of the calendar year, the City shall determine whether there is a shortfall of funds in the Arena Account. If there is a shortfall of funds in the Arena Account, then the City will withdraw funds from the [User Group] Reserve Account and place such fund into the Arena Account, only to repay its obligations under the debentures;
18. The Agreement further provides that if there is a shortfall of funds in the [User Group] Reserve Account, then the City will increase the [Additional] Rate in order to repay its obligations under the debentures;
19. The [User Group] acknowledges as a condition of the Agreement that it has no right, title or interest in either the Arena Account or the [User Group] Reserve Account, including any surplus of funds in such accounts at the expiration or termination of this Agreement. In the event that there is a surplus of funds in such accounts at the expiration (but not the termination) of this Agreement, the City shall consult with the [User Group] with respect to the use of such surplus of funds; however, such consultation will be taken as a guidance only;
20. The Agreement states that neither the Arena Account nor the [User Group] Reserve Account is being held by the City in trust for the [User Group], and the City is not obligated to furnish the [User Group] with an accounting of same, but shall provide the [User Group] with reports on a periodic basis; and
21. The Agreement provides that nothing in the Agreement is intended to make either party an agent, legal representative, subsidiary, joint venturer, partner, fiduciary, employee or servant of the other for any purpose. Neither party will make any express or implied agreements, guarantees, or representations, or incur any debt or obligation in the name of or on behalf of the other, and neither party will be obligated by or have any liability under any agreements or representations made by the other.
22. The Agreement does not contain any provisions which indicate that the [User Group] is liable for the repayment of the debenture held by the Regional Government, or that the City has assigned that liability to the [User Group], or that the [User Group] is liable to the City for the repayment of any debt.
Ruling Requested
You would like to us to confirm that:
1. the debt repayment made by the User Groups is not a prescribed provincial levy;
2. the payment of the [Additional Rate] is not consideration for a supply; and
3. in the event that we determine the payment of the [Additional Rate] to be consideration for a supply, that it is consideration for an exempt supply of a financial instrument or financial service.
Ruling Given
Based on the facts set out above, we rule that:
1. the [Additional Rate] paid by the User [Groups] is not a prescribed provincial levy;
2. the [Additional Rate] paid to the City is consideration for a supply; and
3. the [Additional Rate] is not consideration for an exempt supply of a financial service.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling 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
1. The [Additional Rate] is not a prescribed provincial levy
Subsection 154(2) states, in part, that the consideration for a supply of property or a service includes any tax, duty or fee imposed under an Act of Parliament other than a prescribed provincial levy. Provincial levies that are prescribed for purposes of section 154 of the ETA are found in the Taxes, Duties and Fees (GST/HST) Regulations (the "Regulations"). The [Additional Rate] paid by the [User Groups] is not included in those Regulations.
2. The [Additional Rate] is consideration for a supply
Pursuant to subsection 123(1) of the ETA, the term "consideration", for GST/HST purposes, "includes any amount that is payable for a supply by operation of law". The Agreement sets out the terms and conditions under which the [User Group] will purchase Ice Time from the City at the [Usual Rate] and the [Additional] Rate, and the City will supply Ice Time to the [User Group]. The amounts paid by the [User Group] on account of the [Usual Rate] and the [Additional] Rate are consideration for the supply of the Ice Time, as they are amounts payable by operation of law for the supply of the Ice Time.
3. The [Additional Rate] is not consideration for the supply of an exempt financial service
Generally, most supplies of financial services are exempt supplies under Part VII of Schedule V to the ETA. A service is a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition.
Paragraph (g) of the definition of financial service in subsection 123(1) provides that the making of any advance, the granting of any credit or the lending of money are financial services. A financial service also includes, under paragraph (c) of that same subsection, the lending or borrowing of a financial instrument, and under paragraph (d) the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a financial instrument. A "financial instrument" is defined in subsection 123(1) and includes a "debt security" which, in turn, is defined under that subsection to include a right to be paid money (e.g. under a loan). A financial instrument also includes a guarantee, an acceptance or an indemnity in respect of a debt security.
You have suggested that the City has a right to be paid money by the [User Groups] because of the Agreement, and that this right to be paid money is a debt security. However, neither the By-law nor the Agreement indicates that that the [User Group] has been granted or has accepted a debt security, either by the City or by the Regional Government. The Agreements between the City and the [User Groups] evidence the intention of both parties to agree to, and set the terms and conditions that relate to, the supply of Ice Time by the City to an [User Group], as well as the mechanism to determine the amounts of consideration that an [User Group] will pay to the City in respect of that supply. The [Additional Rate] represents consideration for this supply, and therefore does not represent consideration for the exempt supply of a financial service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8221. 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,
Kathryn Sigetich
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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