6 October 2006 GST/HST Ruling 77396 - Application of GST/HST to Supplies of XXXXX

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 amounts XXXXX invoices the pension plan trust for the gross remuneration XXXXX pays to employees who are under the control and direction of the trust.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

We understand the following from the letter you submitted including information pertaining to job descriptions, the XXXXX:

1. XXXXX established the XXXXX (the "plan") in XXXXX.

2. The plan is a single employer plan and is subject to the Pension Benefits Standards Act, 1985, and related regulations.

3. The plan is funded through a trust created pursuant to the Trust Deed between the XXXXX.

4. The XXXXX administers the plan and trust.

5. XXXXX

XXXXX.

6. XXXXX.

7. XXXXX pays salaries to employees that are classified as "other assistants and officers" in XXXXX stated above. By virtue of XXXXX paying their salaries, these employees are members of the plan and are also covered by benefit plans that are available to all XXXXX employees. XXXXX makes remittances, issues T4 slips, and performs all payroll functions relating to these employees.

8. XXXXX invoices the trust on a monthly basis the gross amount of remuneration XXXXX has paid to the employees classified as "other assistants and officers", and charges and remits GST/HST on the amount because it is XXXXX understanding that there is a re-supply of services from XXXXX to the trust.

9. These employees do not perform any duties for or on behalf of XXXXX. The trust controls and directs them, is able to terminate their employment and is legally liable for all termination payments required to be made.

Interpretation Requested

You would like to know if there is a taxable supply by XXXXX to the trust where XXXXX invoices the trust for the salaries and benefits XXXXX has paid to the employees that are "other assistants and officers" under the above circumstances.

It is your position that there is no taxable supply by XXXXX to the trust by virtue of the decision in Key Property Management Corporation v. The Queen (Tax Court of Canada, March 12, 2004), and two GST/HST application rulings issued by the Canada Revenue Agency XXXXX.

You summarized that in the court case in question, the Owner Corporations were the employers of the superintendents although Key paid the salaries of the superintendents, and therefore the fees paid by the Owner Corporations to Key were not subject to GST.

With respect to the two application rulings, you summarized that in both cases the seconded employee continued to receive salary and employment benefits from the previous employer and that it was ruled that the seconding organization was not required to pay GST/HST on the reimbursements paid to the other party.

In light of the court case and the two application rulings discussed above, XXXXX contends that the true employer is the trust on the basis the trust directs and controls the "other assistants and officers", is able to terminate their employment and is liable for termination payments required to be paid. XXXXX is acting as agent of the trust when it pays salaries to the employees and as such XXXXX is not making a taxable supply to the trust. The trust is an entity separate and distinct from XXXXX and is able to contract on its own behalf.

Interpretation Given

It is the position of the Canada Revenue Agency that employment status for GST/HST purposes is the same as for income tax purposes, and whether an employer-employee relationship exists between any two parties is a question of fact and is determined by CPP/EI Rulings based on the facts of a particular situation. The Excise and GST/HST Rulings Directorate does not determine employer/employee relationships.

In regards to the application rulings discussed above, these rulings pertain to specific fact situations involving secondments to the federal government. We determined in certain cases that in secondments to the federal government, the employee was an employee of their home organization and also the host organization, the federal government. Therefore, the reimbursement paid by the federal government (the host organization) to the home organization was not subject to GST/HST. It is important to note that this position is in reference to specific secondments to the federal government, and as such is limited to those cases only and does not apply in any other situation.

We understand from the information provided that XXXXX is remitting source deductions, issuing T4's, and performing all payroll functions relating to the employees that are classified as "other assistants and officers". It would appear XXXXX is the employer of these employees for purposes of the ITA.

If the XXXXX is in fact the employer, it is not paying salaries to employees on behalf of the trust, and would be considered to be making a taxable supply of employee services to the trust. The payment the trust makes to XXXXX in respect of the employees would be the consideration payable for the supply and would be subject to GST/HST.

Should you wish a ruling on whether XXXXX or the trust is the employer in the situation at hand, you can request a ruling from CPP/EI Rulings, Revenue Collections Division of your local tax services office. If it is ruled that the trust is the employer then we agree with your view that XXXXX will be considered to be paying salaries on behalf of the trust and the reimbursement paid by the trust to XXXXX will not be consideration for a supply made by XXXXX to the trust, and will not be subject to GST/HST.

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) 952-9213.

Yours truly,

Susan Kissner
Industry Sector Specialist
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2006/09/28 — RITS 78322 — Determination of Whether a Separate Supply Occurs upon the Exercise of a Lease Renewal Clause