16 July 2007 GST/HST Interpretation 91405 - Section 156(1) Election: Change of Legal Name

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 fax XXXXX, the web link forwarded XXXXX and information received during our conversation XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a proposed sales tax under the XXXXX.

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

We understand from the information reviewed that the Province XXXXX, through XXXXX (the "Act"), would allow XXXXX (the "City") to impose a direct tax, via a by-law, upon satisfying certain criteria. The City is considering imposing a direct ad valorem sales tax on the sale of XXXXX products by the XXXXX to consumers within the City boundary. The proposed sales tax is anticipated to be a rate of up to XXXXX%.

The City, pursuant to XXXXX the Act, may impose a direct tax upon satisfying the criteria under XXXXX the Act and any prescribed conditions. XXXXX.

XXXXX the Act prohibits the City from imposing various taxes including a sales tax applicable to the acquisition or purchase of any tangible personal property, any service or any intangible property. However, a sales tax imposed by the City in specific circumstances is permitted XXXXX. XXXXX:

XXXXXX.

Interpretation Requested

You would like to know:

1. If the proposed sales tax imposed by the City under the authority of the XXXXX Act would meet the requirements of paragraph 3(b) of the Taxes, Duties and Fees (GST/HST) Regulations (the "Regulations") and, therefore, would not be part of the consideration on which GST would be calculated.

2. What effect, if any, the proposed sales tax would have on the sales taxes imposed under the XXXXX.

Interpretation Given

Paragraphs 154(2)(b) and 154(2)(c) of the ETA state that the consideration for a supply of property or a service includes

(b) any provincial levy that is payable by the recipient, or payable or collectible by the supplier, in respect of that supply or in respect of the consumption or use of the property or service, other than a prescribed provincial levy that is payable by the recipient; and

(c) any other amount that is collectible by the supplier under an Act of the legislature of a province and that is equal to, or is collectible on account of or in lieu of, a provincial levy, except where the amount is payable by the recipient and the provincial levy is a prescribed provincial levy.

Pursuant to subsection 154(1), a "provincial levy" is defined as "a tax, duty or fee imposed under an Act of the legislature of a province in respect of the supply, consumption or use of property or a service."

Pursuant to paragraph 3(b) of the Regulations, a tax is prescribed under the Regulations for purposes of section 154 if it is imposed under an Act listed in the definition of "general sales tax rate" in subsection 2(1) of the Regulations, where it is in respect of property or a service, and

(i) the tax is calculated as a percentage of the value or price of the property or service,

(ii) the tax is payable by the recipient of a supply of the property or service,

(iii) the tax is not included in the value or price of the property or service for purposes of calculating any other tax under that Act in respect of that property or service, and

(iv) the total of the rates of all taxes that are imposed under that Act in respect of the property or service and calculated as a percentage of the value or price of the property or service does not exceed the specified tax rate of the province.

XXXXX.

The "specified tax rate" of a province, referred to in (iv) above, is also defined in subsection 2(1) of the Regulations. It is defined as "the rate that is the greater of (a) 12%, and (b) the general sales tax rate of the province plus 4%". The specified tax rate for XXXXX is XXXXX%.

Accordingly, a tax imposed by an Act listed in subsection 2(1) of the Regulations in respect of property or a service is prescribed for purposes of section 154 where it meets all the requirements under paragraph 3(b) of the Regulations. Pursuant to section 154 a prescribed provincial levy is not included in the consideration for a supply of property or a service, and therefore is not subject to GST/HST. A prescribed provincial levy, in the case of XXXXX, is not included in the consideration for a supply of property or a service and therefore not subject to GST where the following conditions are met:

a) the tax is in respect of property or a service and imposed under the XXXXX, an Act that is listed in subsection 2(1) of the Regulations,

b) the tax is calculated as a percentage of the value or price of the property or service,

c) the tax is payable by the recipient of a supply of the property or service,

d) the tax is not included in the value or price of the property or service for purposes of calculating any other tax under the XXXXX in respect of the property or service, and

e) the total of the rates of all taxes imposed under the XXXXX in respect of the property or service and calculated as a percentage of the value or price of the property or service does not exceed the specified tax rate that is XXXXX%.

Where all the requirements of paragraph 3(b) of the Regulations are met, the provincial levy would be prescribed for purposes of section 154. By virtue of paragraph 154(2)(b), a prescribed provincial levy payable by the recipient would not be included in the consideration for the supply of property or a service.

With respect to the proposed sales tax imposed by the City, the proposed tax would not meet the requirements of paragraph 3(b) of the Regulations. The City would impose the proposed tax via a by-law under the authority of the XXXXX Act. The proposed tax would not be imposed under the XXXXX. Accordingly, the proposed tax would not be a tax imposed under an Act listed in the definition of "general sales tax rate" in subsection 2(1) of the Regulations.

Furthermore, the Act is not an Act specifically listed in paragraph 3(c), but if a request were to be made to have the Act listed therein, the result would be similar. Here is our analysis.

Pursuant to paragraph 3(c) of the Regulations, a tax is prescribed under the Regulations for purposes of section 154 if it is a tax in respect of personal property or a service imposed by or under specified Acts listed therein. There are no specified Acts for XXXXX in this paragraph. In the case of XXXXX, the following conditions also would need to be met:

(i) the tax is calculated as a percentage of the value or price of the property or service,

(ii) the tax is payable by the recipient of a supply of the property or service,

(iii) no tax in respect of the property or service is imposed under the XXXXX, an Act that is listed in subsection 2(1) of the Regulations, and

(iv) the total of the rates of all taxes, each of which is imposed by or under an Act of the legislature of a province in respect of the property or service, calculated as a percentage of the value or price of the property or service, and payable by the recipient of a supply of the property or service, does not exceed the XXXXX% specified tax rate.

As you know, XXXXX products are subject to a XXXXX% or XXXXX% retail sales tax, depending on the conditions of sale, imposed under XXXXX. Consequently, the third condition that no tax be imposed under the XXXXX is not satisfied. If the Act were to be listed in paragraph 3(c) of the Regulations, the proposed tax still would not meet all of the conditions of paragraph 3(c).

Therefore, GST would be applicable on the proposed tax that may be implemented under the XXXXX Act in respect of XXXXX. In response to your queries:

1. The proposed tax would not be a prescribed provincial levy and would be included in the consideration for a supply of property or a service in determining the value upon which GST applies and is calculated.

2. The proposed tax, from a GST perspective, would have no effect on the prescribed provincial levies currently imposed under the 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, Excise and GST/HST Rulings and Interpretations Service, 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 613-952-8811 or Ken Syer, Manager, Specialty Tax Unit at 613-352-9219.

Yours truly,

Wm. J. Parker
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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