15 November 2005 GST/HST Interpretation 65036 - Application of the GST/HST to Payments Made to Reimburse the Salary and Benefits of a Participant by a Host Organization to a Sponsor Organization

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 letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments made by XXXXX to reimburse the salary and benefits of an individual working at XXXXX under the XXXXX Assignment XXXXX Program.

The XXXXX Program involves the loan for fixed terms of XXXXX personnel between XXXXX and XXXXX government, industry and academia.

You have informed us that pursuant to the terms of an agreement XXXXX (Participant), an employee of XXXXX (Sponsor Organization) will be working at XXXXX (Host Organization).

The term of the agreement is from XXXXX until XXXXX but the term can be extended or shortened.

The Host Organization will reimburse the Sponsor Organization $XXXXX per month in respect of the Participant's salary and benefits.

Ruling Requested

You would like to know whether the reimbursement of salary and benefits by the Host Organization to the Sponsor Organization in respect of the work done by the Participant is subject to the GST/HST.

The ruling requested is dependent on whether or not an employee/employer relationship exists between the Participant and the Host Organization. As our directorate does not make these determinations we cannot provide a ruling but will provide you with the following interpretation.

Interpretation Given

Section 165 of the Excise Tax Act (ETA) requires that every recipient of a taxable supply (other than a zero-rated supply) made in Canada pay GST at 7% or HST at 15% on the value of the consideration for that supply. Pursuant to subsection 123(1) of the ETA the definition of "supply", in part, means "... the provision of property or service in an manner ..." and "service" is defined to mean anything other than property, money or "anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person". Therefore, for GST/HST purposes, work performed by an employee for their employer is not a supply. Accordingly, GST/HST will not apply to the salary and benefits paid by an employer to its employee.

Based on the above, if the Participant, working under the terms of the agreement, becomes an employee of the Host Organization the reimbursement payment will not be subject to the GST/HST. However, if it is determined that the Participant is not an employee of the Host Organization, the reimbursement will be consideration for a taxable supply of services made by the Sponsor Organization to the Host Organization. In this case, the reimbursement payment will be subject to the GST/HST.

With respect to determining whether or not an individual is an employee of a particular employer, the Canada Revenue Agency's policy is that the determination of employee/employer relationships is the same for GST/HST and income tax purposes. The CRA's CPP/EI Rulings Unit makes these determinations. To request a ruling you should complete the enclosed form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act, and send it to:

XXXXX
XXXXX
XXXXX
XXXXX

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-0370.

Yours truly,

Brent Fleming
Government Sectors Unit
PSBs and Governments Division
Excise and GST/HST Rulings Directorate

2005/10/12 — RITS 49332 — Tax Status of Supplies Made by [a Municipality]