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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
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Case Number: 33953
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XXXXX
XXXXX
XXXXX XXXXX
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June 3, 2004
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Subject:
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GST/HST APPLICATION RULING
Tax Application of Road Construction Services Provided by the City of XXXXX to the Province XXXXX
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Dear XXXXX:
XXXXX
XXXXX
Statement of Facts
From the letters listed above and from telephone conversations with XXXXX of your office, our understanding of the facts, the transactions, and the purpose of the transactions is as follows:
1) The City has entered into a number of agreements with XXXXX concerning projects on roadways and bridges XXXXX
XXXXX
2) XXXXX
(a) XXXXX
(b) XXXXX
(c) XXXXX
(d) XXXXX
XXXXX
3) XXXXX
4) XXXXX
5) XXXXX
6) XXXXX
7) XXXXX
XXXXX
8) XXXXX
9) XXXXX
10) XXXXX
11) XXXXX
12) XXXXX
XXXXX
13) XXXXX
14) XXXXX
15) XXXXX
16) XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX.
17) XXXXX
18) XXXXX
XXXXX
19) XXXXX
XXXXX
20) XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
21) XXXXX
XXXXX
XXXXX
XXXXX
22) XXXXX
23) XXXXX
24) XXXXX
25) XXXXX
(a) XXXXX
i) XXXXX
ii) XXXXX
iii) XXXXX
iv) XXXXX
(b) XXXXX
26) In the course of carrying out eligible projects under the agreement XXXXX and the previous funding programs, the City acquires goods and services but also contributes staff and property for planning, engineering studies, supervision, inspection, etc. In performing these services, the City also uses its own facilities, furniture and equipment.
Ruling Requested
You have requested the following rulings:
1) That the City XXXXX is providing a taxable, zero-rated supply of road construction and related engineering/studies services to the Province XXXXX regardless of which provincial program that the consideration for supply is paid under.
2) That the City is entitled to claim full input tax credits on the GST paid in respect to all the inputs for the taxable road construction and related engineering/studies services.
3) That the road construction and related engineering/studies services are not exempt supplies under any provision of Schedule V of the Excise Tax Act (ETA), in particular, the direct cost provision in Schedule V, Part VI, section 6 of the ETA.
Rulings Given
1) Based on the information provided, the City is making taxable supplies to XXXXX under the funding programs described above. The City is also incurring expenses on its own behalf in acquiring and making improvements to City property.
Under the agreements entered into between these parties, the City has supplied XXXXX with taxable construction, reconstruction and rehabilitation services in respect of provincial roadways. Inputs to these services include activities related to the planning, design and execution of the various projects carried on by the City under the Programs listed above.
However, the portion of provincial funding that is directed for use by the City in acquiring or improving City property XXXXX is not consideration for supplies made to XXXXX but rather, is used by the City in acquiring goods and services for its own purposes.
To the extent that the City provides services to XXXXX of repair and maintenance on provincial roadways, it is making exempt supplies under paragraph 21.1(d) of Part VI of Schedule V to the ETA.
This exemption applies to supplies of repair and maintenance on provincial roadways made by the City to XXXXX for which consideration became due after 1996 or was paid after 1996 without having become due. Supplies of repair or maintenance services provided by the City to XXXXX on provincial roads before the effective date of this exemption were subject to the GST.
2) The City is entitled to claim full input tax credits in respect of the GST paid on inputs for taxable road construction and related engineering/studies services provided to XXXXX, subject to the requirements of section 169 of the ETA.
3) Road construction and related engineering/studies services supplied by the City to XXXXX under these various funding programs are not exempt supplies under section 6 of Part VI of Schedule V or any other sections of this Part.
Explanation
In order to be eligible to claim an input tax credit, the City must meet the conditions set out in sections 169 and 141.01 of the ETA.
Section 169 provides that an entitlement to an input tax credit is only available where the property or service on which the GST is paid is consumed, used or supplied in the course of a commercial activity.
Subsections 141.01(2) and (3) provide that where a person acquires, uses or consumes property or a service, that acquisition, use or consumption is deemed to be in the course of commercial activities of the person to the extent that the acquisition, use or consumption is for the purpose of making taxable supplies for consideration.
Subsections 141.01(2) and (3) provide that where a person acquires, uses or consumes property or a service, that acquisition, use or consumption is deemed to be otherwise than in the course of commercial activities of the person to the extent that the acquisition, use or consumption is for the purpose of making supplies that are not taxable supplies made for consideration or for a purpose other than the making of supplies.
We understand that XXXXX and the City hold title to, and are responsible for, different aspects of the transportation infrastructure system. Construction of, and improvements made to this system result in benefits to both XXXXX and the City.
XXXXX
XXXXX
Based on the information provided and taking into account the scope of the activities carried on by the City under the terms of the agreements listed above, it is our view that the City has provided construction services to XXXXX.
In providing construction services under these agreements, the City acquires goods and services and contributes its own staff, facilities and property. As it has not simply acquired services of road construction, engineering/studies or other services for the purpose of resupplying them to XXXXX, these services fall outside the exemption provided in section 6 of Part VI of Schedule V.
As you may be aware, Royal Assent was given on May 13, 2004 to Bill C-30, which introduced a number of amendments to the ETA. As a result, the exemption in section 6 of Part VI of Schedule V now excludes supplies by municipalities. This amendment applies to supplies for which consideration becomes due after March 9, 2004, or for which consideration is paid after March 9, 2004, without having become due. The amendment does not apply to a supply made under a written agreement entered into before March 10, 2004.
As no other exemptions in Part VI of Schedule V to the ETA apply to construction services provided by the City to XXXXX, these supplies are taxable.
Pursuant to section 125 of the Constitution Act, 1867, GST is not collectible from XXXXX on the consideration for taxable supplies provided to it by the City. The City is entitled to claim input tax credits for the tax paid on purchases related to these taxable supplies, where all the requirements of section 169 are met.
To the extent that the City provides services to XXXXX of repairing or maintaining roads, streets, sidewalks or similar or adjacent property, these supplies will be exempted by paragraph 21.1(d) of Part VI of Schedule V to the ETA. As mentioned above, this exemption only applies to supplies of services for which consideration became due after 1996 or that was paid after 1996 without having become due.
While the City is not entitled to claim input tax credits for the tax paid on purchases incurred in the course of making exempt supplies, it will be entitled to claim a municipal rebate under subsection 259(3).
Based on the facts provided, XXXXX has also provided funding to the City that is not consideration for taxable or exempt supplies made by the City to XXXXX.
Certain projects undertaken with provincial funding clearly confer a direct benefit on the City and its residents. XXXXX.
While both XXXXX and the City benefit from an efficient, high standard inter-provincial highway network that enables the effective movement of goods and people XXXXX, some of the amounts transferred from XXXXX under these funding programs have been provided so that the City may acquire or make improvements to its own property. These payments are considered to have been made in the public interest for the direct benefit of the City and its residents.
The City is not making taxable supplies to XXXXX in the course of a commercial activity when it acquires or makes improvements to its own property. Accordingly, it is not entitled to claim input tax credits for the tax paid in respect of these acquisitions or improvements, but it may recover its non-creditable tax charged by claiming the public service body rebate provided for municipalities under subsection 259(3) of the ETA.
Under the recently passed amendments to the ETA, municipalities are now entitled to apply for a 100% public service body rebate of the GST and the federal portion of the HST. This new rebate rate applies to claim periods that end on or after February 1, 2004, to tax that became payable on or after February 1, 2004 and to amounts deemed to have been paid on or after that date.
These rulings are 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 these rulings 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 transactions for which you requested rulings.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590 or Tim Krawchuk, Manager, Municipalities and Health Care Services Unit at (613) 941-3268.
Yours truly,
Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
| c.c.: |
T. Krawchuk
E. Bonnah
XXXXX
Chron File |
| Legislative References: |
s. 141.01, s. 169, subsection 259(3), section 6 of Part VI of Schedule V, paragraph 21.1(d) of Part VI of Schedule V |
| NCS Subject Code(s): |
R-11890-1, 11895-1 |
2004/05/26 — RITS 36728 — Partnerships
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