11895-6(on)
c.n. 121(REG)
Sch. V/VI/24
I refer to the memorandum dated April 21, 1994, the facsimile transmission and E-mail dated April 11, 1995 from XXXXX of your office. In his memorandum XXXXX requested our assistance in a case involving the supply of contract services to the XXXXX[.]
Statement of Facts
1. As a result of a study carried out by v operated transportation services for the physically handicapped XXXXX for a two-year demonstration period commencing June 28, 1977.
2. In May 1979, the Committee XXXXX recommended that XXXXX continue to operate as a permanent segment of the overall public transit service provided to citizens of XXXXX with a gradual expansion of fleet and level of service to meet increasing demands. XXXXX city council moved that the XXXXX service be expanded by four vehicles.
3. XXXXX maintains their own fleet of buses for the provision of transportation services to handicapped individuals. In addition, they also continue to operate the XXXXX service they commenced June 28, 1977.
4. A Tender Call XXXXX was made by XXXXX XXXXX states that 'The Work to be done under this Contract shall consist of the provision of transportation services to supplement XXXXX service for ambulatory handicapped persons and some wheelchair bound persons who can transfer without assistance. The major items of Work for this Contract are as follows:
Provision of transportation services on an hourly rate basis.
Provision of transportation services on a flat rate per trip basis.
Final receipt of bids in respect of this Tender Call were due to v by May 14, 1991.
5. A bid was submitted by XXXXX for the provision of transportation services to handicapped individuals.
6. On June 5, 1991, an agreement (Agreement) valued at XXXXX was entered into between XXXXX[.]
7. The preamble to the Agreement states that the "Contractor will, at its own costs, charges and expenses in all respects, perform services for the City, and supply equipment and materials relative thereto (if so specified elsewhere in this contract) with respect to the provision of transportation services for handicapped persons, for a three (3) year period commencing July 1, 1991 and ending June 30, 1994, as specified, in accordance with specification XXXXX[.]
8. XXXXX of the Agreement states that the "Contract Administrator shall be the City's representative throughout the duration of the Contract and shall have authority to act on behalf of the City ..."[.] XXXXX is identified in the Supplemental Conditions (SC) to the Agreement as the Contract Administrator.
9. XXXXX the Agreement states that "The City and the Contractor acknowledge and agree that the Contractor is an independent contractor and neither the Contractor, nor any officer, servant or agent of the Contractor, shall be deemed to be an employee, agent, representative or servant of the City."
10. XXXXX the Agreement states that the contract price will be paid to the Contractor by the City in the manner and on the terms set out in the SC.
11. XXXXX outlines the service specifications for work to be carried out under the contract. XXXXX refers to the scheduling of the service to be provided. XXXXX states that "All trip requests will be received and scheduled by the City."
12. XXXXX refers to the fares to be collected in respect of the transportation service. XXXXX states that "The Contractor shall collect fares from passengers in the form of: exact cash payment in the amount specified by the Contract Administrator; or a transit ticket in the amount and form specified by the Contract Administrator and sold to passengers by the City."
XXXXX states that "The fares are the property of the City and are not payment to the Contractor in addition to the unit prices." A "Transit" ticket is a non-refundable ticket issued by XXXXX that is good for a single trip. XXXXX appear on the ticket.
13. XXXXX indicates that work under the contract will be measured on a unit basis (i.e. hourly rate and flat rate service) and that the Contractor will submit a monthly invoice indicating the total number of vehicle hours provided during the month and the total number of passenger trips and no-shows provided in the month. Payment is made 30 days following the receipt of the invoice.
13. XXXXX of the Agreement state that "In general, the service specifications for Work under this contract are the same service operated by XXXXX. All trips under this contract shall start from and end at locations within the City of XXXXX that are served by XXXXX, that is, those areas of the City served by the regular Transit System."
14. XXXXX states that "Each vehicle shall be identified with a sign provided by the City while performing work under this contract."
15. XXXXX outlines the obligations of XXXXX to obtain a third party liability insurance policy of at least XXXXX dollars, all inclusive and to include XXXXX as an additional insured, with a cross-liability clause. Specifically, it states that the Contractor will, "during the term of the contract, maintain and pay for a third party liability policy, in the amount of at least XXXXX Dollars XXXXX all inclusive, with the City of XXXXX being named an additional named insured, with cross-liability clause ..."[.]
16. XXXXX and not XXXXX determines who will use the services. This is reflected in XXXXX which states that "All trip requests will be received and scheduled by the City. The City will provide the Contractor with each daily schedule ...". In addition, it is XXXXX who receives passenger complaints in respect of the transportation service, not XXXXX[.] Support of this can be found in XXXXX which states that "Complaints from passengers, or any other persons, regarding the service shall be referred to the Customer Services Complaints and Commendation Staff of the Transit Department."
17. Prior to July 1, 1993, XXXXX treated the payments it made in respect of the service carried out by XXXXX as consideration for a taxable supply. XXXXX advised XXXXX that effective July 1, 1993 payments made by XXXXX in respect of these services are not consideration for a supply. XXXXX based its opinion on a GST ruling issued by GST Policy and Legislation to the City of XXXXX regarding funding they provide to taxi companies for purposes of a Special Needs Taxi Service for handicapped persons.
18. XXXXX uses the services of its shareholders to provide a portion of the services it has contracted to supply. The shareholders are compensated for their services based upon the type of service provided. Shareholders are paid XXXXX /hour for regular runs, XXXXX for runs where the passenger requires assistance from the driver, and finally, a rate of XXXXX trip is paid to those operators who provide runs in accessible vans. In the latter case, where an attendant accompanies the passenger, an additional XXXXX is charged by the operator. The shareholders are owners/operators of taxi cabs and have accounts with XXXXX which are credited based on the type and number of runs made that operator. Twice a month a payment is made and at the end of the month, a statement is issued to the shareholder. The shareholders are registered for GST.
Opinions Requested
1) Are the payments made by XXXXX to XXXXX consideration for a supply under the Excise Tax Act (the Act)?
2) Is XXXXX making a supply of a municipal transit service, pursuant to section 24 of Part VI of Schedule V to the Act?
3) Is XXXXX making a supply of a municipal transit service or a public passenger transportation service which qualifies to be designated as a municipal transit service under section 24 of Part VI of Schedule V?
4) Is there a supply from the individual shareholders to XXXXX to carry out the terms of the contract?
Opinions Given
1) It is our opinion that the payments made by XXXXX are consideration for the supply of services. The payment of the monthly contract fee is not a grant under the Act.
2) It is our opinion that XXXXX is supplying a municipal transit service which is exempt pursuant to section 24 of Part VI of Schedule V. XXXXX is contracting with XXXXX in order to expand its services to meet the transportation needs of handicapped individuals within XXXXX[.]
3) As defined in section 1 of Part VI of Schedule V, it is our opinion that XXXXX [i]s not providing a municipal transit service either to the public or to a transit authority. Also, the service does not qualify for designation as a municipal transit service pursuant to section 24 of Part VI of Schedule V.
4) It is our opinion that shareholders of XXXXX are providing a service to XXXXX[.]
Analysis:
1) Section 165 of the Act provides that every recipient of a taxable supply, other than a zero-rated supply, is required to pay tax in respect of that supply equal to 7% of the value of the consideration for the supply.
In order to determine whether the payment made by XXXXX in respect of XXXXX is consideration, it must first be established whether the payment made is in respect of any supply. Under the department's administrative policy concerning the tax treatment of grants and subsidies, a payment made by a grantor is consideration for a supply where there is a "direct link" between the payment made and a supply to the grantor, or to a third party, by the recipient of the transfer payment.
XXXXX purpose in making the payment to XXXXX is to "contract out" services that it would otherwise provide. There is a direct link between the payments made by XXXXX and the services rendered by XXXXX under the Agreement. It is our opinion as will be explained in my response to question 2, that XXXXX supplies transportation services to handicapped individuals residing in XXXXX and not XXXXX[.]
2) Several factors indicate that XXXXX supplies transportation services to handicapped individuals. XXXXX logo is displayed on vehicles used by XXXXX in the provision of its transportation services to handicapped individuals, signifying that it is XXXXX who is providing the service and not XXXXX (see fact 14)[.] In addition, it is XXXXX who issues and sells the transit tickets used by handicapped individuals, not XXXXX[.] The tickets are issued in the name of XXXXX not XXXXX (see fact 12) XXXXX is required to obtain third party liability insurance naming XXXXX as the insured. (see fact 15) XXXXX schedules all trip requests and receives customer complaints. (see fact 16)
All of these factors support our view that XXXXX continues to operate its own fleet of XXXXX buses and simply contracts out with XXXXX in order to expand its services to meet the transportation needs of all handicapped individuals residing in the city.
Therefore, it is our opinion that there are two separate supplies being made:
1. The supply to the fare paying public of a public passenger transportation service by XXXXX[.]
2. The supply of a service by XXXXX transit department.
Section 24 of Part VI of Schedule V to the Act provides for an exempt supply of a municipal transit service or a public passenger transportation service designated by the Minister to be a municipal transit service. Municipal transit service is defined in section 1 of Part VI of Schedule V as: a public passenger transportation service (other than a charter service or a service that is part of a tour) that is supplied by a transit authority all or substantially all of whose supplies are of public passenger transportation services provided within a particular municipality and its environs.
Transit authority is defined in section 1 of Part VI of Schedule V as:
(a) a division, department or agency of a government, municipality or school authority, the primary purpose of which is to supply public passenger transportation services, or
(b) a non-profit organization that
(i) receives funding from a government, municipality or school authority to support the supply of public passenger transportation services, or
(ii) is established and operated for the purpose of providing public passenger transportation service to disabled individuals.
As XXXXX qualifies as a transit authority, the supply of a public passenger transportation service by XXXXX will be exempt pursuant to section 24 of Part VI of Schedule V.
3) XXXXX is not providing a municipal transit service as only a transit authority can provide a municipal transit service and XXXXX does not qualify as a transit authority.
With respect to whether XXXXX supplying a public passenger transportation service which qualifies to be designated as a municipal transit service, pursuant to section 24 of Part VI of Schedule V, the intent of section 24 was to exempt only those public passenger transportation services supplied by a transit authority directly to the public and those public passenger transportation services supplied by an organization (a non-transit authority) directly to the public. In this view of the matter, the only exempt supply contemplated by section 24 is a supply made by a person to the fare paying public. As stated above in my response to question 2, XXXXX sets fares (see fact 12), arranges schedules (see fact 16), supplies tickets and receives payment of those fares collected by XXXXX (see fact 12) Therefore, when considering the intent of section 24 in light of the current operating procedures as referenced above, XXXXX does not make a supply of a public passenger transportation service. This supply is actually made by the transit authority, XXXXX[.] Therefore, the supply does not qualify for designation as a municipal transit service.
4) Shareholders who supply their services to XXXXX as a subcontractor are supplying contract services to XXXXX[.] As stated in the statement of facts, the operators are registered for GST. The operators, as registrants, are required to charge GST on the supply of services made to XXXXX[.] Regardless of the terms of the agreement between XXXXX and the shareholders, GST will apply to the supply of the services for which the shareholders receive payment.
In closing , the GST ruling issued by GST Policy and Legislation to the City of XXXXX on October 29, 1992 regarding similar services, will have to be revisited. A review of the facts by the Governmental Sectors Unit pertaining to this particular case, will determine whether an amended ruling is required. Should you have further questions regarding this letter, please contact Ms. Joanne Houlahan, Manager, Public Service Bodies at (613) 954-7945, or Mr. Owen Newell, Policy Officer, Public Service Bodies at (613) 954-4280.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J. Houlahan
N. Minken
O. Newell
M. Viger |
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