6 July 2004 GST/HST Interpretation 50485 - Employee benefits

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.

Thank you for your letter XXXXX, wherein you requested information regarding the determination of Indian bands as municipalities for purposes of the Excise Tax Act (ETA).

In your letter, you indicated that for GST/HST purposes your firm provides various services toXXXXX. You asked what information is required by this office in order for an Indian band to be determined a municipality for purposes of obtaining GST/HST rebates. In addition, you enquired as to when an Indian band, once determined to be a municipality, would be entitled to file GST/HST rebate claims. That is, could a band file municipal rebates for the four years prior to the date of its determination as a municipality or only from the date when it has been determined to be a municipality. Further, you asked whether an Indian band, once determined to be a municipality, could still be entitled to claim other non-municipal rebates (General Rebates Code 8 and Code 1 and other Public Service Bodies Rebates), as referenced in Technical Information Bulletin B-039R - GST Administrative Policy - Application of GST to Indians (B-039R).

The following is in response to your questions.

The Minister of National Revenue may determine an organization to be a municipality under paragraph 123(1)(b) of the definition of "municipality" in the ETA. An organization may qualify for determination as a municipality if it provides municipal services within a local jurisdiction. Generally, municipal services include fire and police protection, water distribution, sewerage or drainage systems, administration or other control functions, local planning, improvement or development, and library services.

Where an organization is determined to be a municipality it has the benefit of municipal status for all purposes of the ETA. Therefore, as a determined municipality, a number of supplies made by the organization may be exempt under one or more of the provisions set out in Schedule V to the ETA. The organization will be entitled to claim the municipal rebate for GST/HST paid on its purchases to the extent that the organization is not eligible to claim an input tax credit (ITC).

In order for an organization, such as an Indian band, to be determined a municipality for GST/HST purposes, it must provide documentation to support its request. For example, to be determined to be a municipality, the Indian band would have to submit documentation to demonstrate that it is providing municipal services to residents within the geographical area for which it has local jurisdiction.

A description of the documents that are required for determination purposes can be found in the enclosed guide entitled GST/HST Information for Municipalities (Guide). Reference to the determination of Aboriginal bodies, including Indian bands, can be found on pages 5 and 8. Additional information can also be found in the enclosed Technical Information Bulletin B-046 - "Administrative Guidelines for Municipalities" (B-046).

All requests for municipal determination should be sent to the attention of the Director, Public Service Bodies and Governments Division, 14th floor, Tower A, Place de Ville, 320 Queen Street, Ottawa, Ontario, K1A 0L5.

An organization that is determined to be a municipality retroactively may be eligible to claim the Public Service Body rebate of 57.14% of the GST it incurs on all eligible purchases and expenses for which it cannot claim an ITC. On or after February 1, 2004, an organization determined to be a municipality may be entitled to claim a full rebate (i.e., 100%) of the GST and the federal portion of the HST. Recent amendments to the ETA may affect the tax status of supplies made by municipalities.

The Canada Revenue Agency may consider, on a case-by-case basis, a request for an effective date of municipal determination prior to the date of the application. Retroactive determinations are subject to considerations such as the legislative time limits for claiming rebates and whether determination as a municipality will change the tax status of its supplies.

In response to your enquiry regarding whether an Indian band that has been determined to be a municipality could claim other non-municipal rebates, as referenced in B-039R, it is our view that an Indian band would be entitled to claim a Code 8 and/or a Code 1 rebate in respect of its activities provided the conditions described in B-039R are met and the amount has not been previously rebated, refunded or claimed through an ITC. Please note, the definition of "non-profit organization" in subsection 123(1) of the ETA excludes a municipality.

Where an Indian band has paid GST/HST because the conditions described in B-039R are not met, it may be eligible to claim rebates at the applicable prescribed rate if it qualifies as a "selected public service body" ("(a) a hospital authority, (b) a school authority that is established and operated otherwise than for profit, (c) a university that is established and operated otherwise than for profit, (d) a public college that is established and operated otherwise than for profit, or (e) a municipality."), as defined in subsection 259(1) of the ETA.

Further, it should be pointed out that it is the tax status of its supplies that is affected by an Indian band's determination as a municipality, not the status of supplies that it acquires. That is, whether or not tax is due on a particular supply made to an Indian band is a question of fact. An Indian band would be relieved from the payment of GST/HST on its purchases where the conditions set out in B-039R are met irrespective of whether it has been determined to be a municipality.

In addition to the all-encompassing determinations under paragraph 123(1) of the ETA, you may wish to note that the Minister of National Revenue may designate an organization to be a municipality for the delivery of certain municipal services (e.g., supplies of installing, repairing or maintaining or interrupting services in respect of a public water distribution, sewerage or drainage system). This will have the effect of exempting certain supplies made by the organization.

Also, an organization may be eligible for designation as a municipality in respect of specified activities that involve the making of supplies of exempt municipal services. The organization would then be eligible to apply for a municipal rebate for the specified activities. Please note, the criteria outlined in B-046 do not apply to organizations applying for such designations. Organizations requesting designation are required to submit supporting documentation, as described in the enclosed Guide.

I trust the above is of assistance. Should you have any further questions or require clarification, please do not hesitate to contact me at 613-954-7952.

Aboriginal Affairs Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate

2004/06/22 — RITS 50675 — Application of the Goods and Services Tax (GST) to the Supply of Tangible Personal Property by an Auctioneer on Behalf of a Court