16 March 1995 GST/HST Interpretation 11849-6 - Tax Status of Payments Made By Municipalities to a Province for Road Maintenance

                                                                        March 16, 1995
File: 11849-6/NS; 11846-3(dh)
Domus: 1890GEN

Dear XXXXX

We are writing in response to your verbal inquiry of February 3, 1995 wherein you asked the tax status of payments being made by municipalities to XXXXX under the XXXXX . The details of the program were provided in a follow-up fax.

Statement of Facts

1) In December 1993, the XXXXX announced its intention to proceed with the implementation of the XXXXX .

2) XXXXX

3) XXXXX

Interpretation Requested

1) What is the tax status of the XXXXX per kilometer fee that XXXXX will pay to XXXXX

2) Does the fact that the level of payment is not affected by the amount of service provided by the province have an impact on the tax status of the payment?

Interpretation Provided

 XXXXX a municipality has the option of accepting the transfer of a road, and the corresponding responsibility to maintain the road, from the province. Or alternatively, the municipality may enter into an agreement with the province whereby the province will continue to perform road maintenance and the municipality will pay a fee of XXXXX per kilometer of road so maintained.

It is the Department's position that where a municipality decides to enter into an agreement under the XXXXX the XXXXX per kilometer fee is consideration for the supply of road maintenance to the municipality by the province. Further, as road maintenance is a service which is neither specifically exempted nor zero-rated, the fee will be subject to 7% GST.

The fact that the level of payment is not affected by the amount of service performed does not have an impact on its tax status. The payment to be made by the municipality under the agreement represents the value of the benefits that they receive by having the province retain responsibility for the road maintenance.

Should you require further information concerning this matter, please contact the undersigned at 613-954-3551 or Donna Harding at 613-952-8531.

M. Viger
Manager - Tax Policy
Governmental Sectors

            M. Viger
Manager- Tax policy
Governmental sectors

            D. Harding
Policy Officer
Domus 1890GEN