Dear sir:
This is in response to your memo of September 19, 1995, concerning the GST status of supplies of real property made by municipalities operating airports.
Facts
On the basis of the letter to you from the XXXXX dated August 23, 1995, and your telephone discussion of October 24, 1995, with Mr. Don Dawson, it is understood that the facts are as follows.
1. XXXXX requested an interpretation of the application of GST to supplies made by the municipality at its airport. It is understood that the airport is part of the municipality, and not a separate person.
2. The XXXXX provides management services to XXXXX in respect of the airport.
3. The airport sells fuel, rents land for the purpose of growing crops, rents private hangars and rents parking spaces for aircraft.
4. On August 14, 1995, you provided an interpretation that outlined the tax status of various activities of the municipality at its airport. On September 18, 1995, you sent a second letter, expanding on your previous comments. A copy of these interpretations were enclosed with your memo.
Question
XXXXX asked whether the ETA could be amended to tax supplies of real property made by a municipality at an airport.
Response
If a municipality wishes to make supplies of real property taxable that would otherwise be exempted by section 25 of Part VI of Schedule V to the ETA, it can choose to make a section 211 election in respect of the real property. However, if it does so, its eligibility for input tax credits will be governed by the usual provisions for real property, rather than the special rules for public sector bodies. Therefore, the municipality will have to allocate its inputs to allow for the percentage that is used in making exempt supplies.
You suggested that we should consider amending section 25 of Part VI, because XXXXX wishes to have all of its supplies of real property made at an airport taxable, without filing a section 211 election. However, some municipalities may wish to have supplies of real property made at airports tax exempt pursuant to section 25, particularly if most persons who rent space from them are not registrants or are engaged in making exempt supplies. In any case, we see no reason to treat municipalities any differently than any other type of public service body that operates an airport. If a municipality wishes to have supplies made taxable that would otherwise be exempted by section 25, it would have to file a section 211 election, and this will impact on its input tax credits if it is using the real property to make other supplies that are tax exempt.
In your letter of September 18, 1995, to the municipality, you stated that, if over 50% of the airport operations' use of real property (not including real property supplies) is in commercial activities, any supply of real property would be taxable at the rate of seven percent. You also stated that supplies of real property made by a municipality will always be taxable if the supplies are excluded from the exempting provisions of section 25 by reason of paragraph 25(d).
Paragraph 25(d) states that section 25 does not apply where, immediately before the supply is made, the property was used primarily in commercial activities of the body. The use of the property primarily in commercial activity would include the taxable supply of real property, other than the supply at issue. However, where paragraph 25(d) does apply, it only excludes supplies of real property from the exempting provisions of section 25. The supplies may be exempted by some other provision of the ETA, such as those in Part I of Schedule V.
Your letter also stated that paragraph 20(l) of Part VI specifically excludes certain supplies from exemption from GST, so that the supplies are taxable. In fact, paragraph 20(l) merely excludes certain supplies from the exempting provisions of section 20. Your comment could create an incorrect impression, even though you mention later in the same paragraph that such a supply may be exempt pursuant to some other section of the ETA, which is correct.
You may wish to clarify your letter in light of these comments.
If you require any further information concerning this matter, please contact Mr. Don Dawson at (613) 952-9211.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
File #11950-1
Ref. s. 207
Document #1466
Email this Content