26 November 2004 GST/HST Interpretation 50527 - Segregated Fund Early Withdrawal Fees

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.

Dear XXXXX:

Thank you for your letters XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supplies described below.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

1. The City XXXXX (Charter) enacts and regulates the activities of the Corporation of XXXXX (the City) within the boundaries of the City XXXXX.

2. The XXXXX has legal title to all the roads in XXXXX.

3. According to XXXXX of the Charter, the City controls and manages the streets within the City's geographic boundaries.

4. XXXXX of the Charter gives the City the authority to pass by-laws regulating streets, and the parking of vehicles within the City. In particular, XXXXX gives the City the authority to install and use parking meters.

5. The City has passed several by-laws including a by-law on parking meters XXXXX.

6. The draft copy of Traffic by-law XXXXX is an example of a by-law that regulates "on street" parking in the City. In particular by-law XXXXX provides for the installation of traffic control devices XXXXX, the prohibition XXXXX and the restriction of parking XXXXX for various reasons relating to the management of traffic flow in the City.

7. In general, parking prohibitions such as, "No Parking" or "No Stopping" signs are found in residential areas to enforce parking on one side of the street.

8. In general signs restricting parking relate to specific periods during the day. Examples of this type of signs are "No Stopping XXXXX" and "No Stopping XXXXX.

9. The City has approximately XXXXX on street parking spaces of which XXXXX are metered parking spaces.

10. XXXXX. Therefore, metered parking represents XXXXX% of net available street parking. Parking meters generate approximately $XXXXX dollars per year, or an average of $XXXXX per meter.

11. By-law XXXXX regulates metered parking on streets, in public parking facilities and on public parking sites. Since XXXXX parking meter rates have been set at $XXXXX per hour as regulated by by-law XXXXX (Metered Street Parking). XXXXX. However, Metered Street Parking considered for the purposes of this application ruling is limited to on street parking controlled by meters.

12. By-law XXXXX regulates the duration of use, during specific periods of the day. XXXXX.

13. By-Law XXXXX requires payment for the use of metered space XXXXX. The violation of by-law XXXXX results in an offence XXXXX.

14. Free parking at metered spaces may be available outside the hours referred to in XXXXX.

Ruling Requested

An application ruling on:

Whether the supply of street parking in the City XXXXX including the supply of Metered Street Parking and the supply of street parking that is not Metered Street Parking (NMSP) is exempt in accordance with section 10 of Part VI of Schedule V of the Excise Tax Act (ETA).

Ruling Given

Based on the facts set out above, we rule that

The characteristics of Metered Street Parking and NMSP are different; NMSP is not in the same class as the supply of Metered Street Parking. If Metered Street Parking is considered as the supply under consideration, section 10 of Part VI of Schedule V to the ETA will not apply as less than "substantially all" Metered Street Parking is supplied for no consideration. Therefore, the supply of Metered Street Parking continues to be a taxable supply for GST purposes.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and the transaction for which you requested a ruling.

Explanation

In general, the Canada Revenue Agency (CRA) applies the "substantially all" test in section 10 of Part VI of Schedule V to the ETA to supplies where 90% of the supplies are so similar to the supply under consideration that they are considered to be in the same class. To determine whether "substantially all" of a recurring supply like parking is supplied for no consideration similar properties of parking are considered. To define the relevant class of supplies the "similarities" and "differences" between the supplies of property within the class is analyzed to determine the appropriate class for the purposes of the "substantially all" test in section 10 of Part VI of Schedule V to the ETA. In the present situation the supply under consideration is the supply of Metered Street Parking. Therefore, it is necessary to determine whether the supply of NMSP is so similar to Metered Street Parking that these supplies should be considered to be in the same class of supply for the purposes of applying section 10 of Part VI of Schedule V to the ETA. The following description of the similarities and differences between NMSP and Metered Street Parking will help to determine if the two supplies are within the same class.

Similarity

Supplies of Metered Street Parking and NMSP are both offered and regulated by the City

Differences

Location

Supplies of Metered Street Parking are usually found in urban areas where the supply of parking is limited. Supplies of NMSP are usually found in areas that are less urban in nature, or outside the downtown core.

Compliance Impact

Supplies of Metered Street Parking have an impact on the person parking a vehicle within a space. The City requires a person using a metered space to pay a fee and follow the directions on the meter XXXXX. The person could also be subjected to a time restriction depending on when the person uses the metered space XXXXX. The failure to observe these restrictions results in an offence XXXXX. Therefore, the impact on the road user differs depending on whether the road user is receiving supplies of Metered Street Parking or NMSP.

Administrative Impact

The City is required to install and maintain the meters XXXXX, employ people to collect the revenue and issue tickets when time limits have expired. In general, the administrative impact of offering NMSP is limited to the provision of the space and the enforcement of various NMSP restrictions or prohibitions.

Purpose

In general, when the City supplies Metered Street Parking its purpose is to regulate parking and raise revenue. When the City supplies NMSP its primary purpose is to regulate street parking. Therefore when the City supplies NMSP its revenue collection function is limited to the collection of revenue through fines and tickets when NMSP violations occur.

The comparison referred to above suggests that NMSP supplies are quite different from supplies of Metered Street Parking. Therefore, NMSP and Metered Street Parking constitute two different supplies. As Metered Street Parking is supplied for consideration section 10 of Part VI of Schedule V to the ETA does not exempt the supply of Metered Street Parking made by the City.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.

Yours truly,

Manjula Vethanayagam
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/12/13 — RITS 51623R — Paragraph 1(m) of Part III of Schedule VI to the ETA