File: 11895-5(on)
c.n. 463(REG)
Sch. V/VI/20(c)
XXXXX March 30, 1995
I refer to your letter of January 14, 1994 addressed to Mr. Neil Minken requesting assistance on the implications of the goods and services tax (GST) under the Excise Tax Act (the Act) to services supplied by a municipality to a developer. I apologize for the delay in replying to your letter.
In your letter, reference was made to your December 14, 1992 letter addressed to the XXXXX Regional Office requesting assistance on the subject matter, and XXXXX reply of February 3, 1993. Copies of these letters were attached. At issue are supplies of services by a municipality to developers requesting official plan amendments, zoning changes, and to a smaller degree, requests for severances and minor variances. Attached with your incoming request was a sample "Application for Zone Change" from the XXXXX
On November 30, 1994 Mr. Owen Newell contacted the Treasurer of XXXXX In his discussion with XXXXX was advised of the procedures followed by XXXXX when applications are received for rezoning, amendments to official plans, and variances.
Facts:
1. A developer has applied for an official plan amendment or a request for zoning changes within the municipality. An official plan, as defined in section 1 of the XXXXX Planning Act, means a document approved by the Minister, containing objectives and policies established primarily to provide guidance for the physical development of a municipality or a part thereof or an area that is without municipal organization, while having regard to relevant social, economic and environmental matters.
Developers pursuing a Plan of Subdivision require an official plan amendment. The plan is a request for permission by the developer to subdivide land through a registered plan of subdivision. The plan approval ensures that the land is suitable for its proposed use, the proposal conforms to the Official Plan within the municipality and that municipal services will be available. Approval of the plan gives the applicant the right to convey land which is otherwise prohibited under the Planning Act.
2. The application for an official plan amendment acknowledges that a deposit is required to be paid by the developer to the municipality to offset costs which are incurred by the municipality in processing the application.
3. Official plan amendments require the passage of a by-law by the municipality pursuant to subsection 17(6) of the Ontario Planning Act. Passage of the by-law requires acceptance of planning and engineering reports by municipal council. Once the by-law is passed, the application for official plan amendment is approved following payment of all fees and third party costs by the developer.
A copy of the by-law, the statement of resolution and notice of passing are issued to the applicant for an official plan amendment. Pursuant to subsection 34(22) of the Planning Act, once the twenty day appeal period expires and no appeal has been lodged against the by-law, an affidavit or declaration of the municipal clerk is issued to the applicant.
4. Requests for zoning changes require the passage of a by-law by the municipality pursuant to subsection 34(1) of the Ontario Planning Act. Passage of the by-law requires acceptance of planning and engineering reports by municipal council. The zoning by-law amendment process is similar to that involving the official plan amendment. The zoning by-law sets out detailed current permitted land use and standards. As an example, an applicant may be seeking the right to use a site for a specific list of permitted commercial uses and zoning standards whereas the zoning by-law may only permit single family dwellings.
5. The application for a zoning change acknowledges that a deposit is required to be paid by the developer to the municipality to offset costs which are incurred by the municipality in processing the application. Similar to applications for an official plan amendment, the municipality issues an affidavit or declaration to the applicant once the by-law for a zoning change has been passed by council.
6. Smaller municipalities do not have a permanent staff of planners and engineers to conduct planning and engineering services, such as density and hydrological studies, and to compile reports for consideration by municipal council. Therefore, lawyers and professional engineers are contracted by the municipalities to perform these services when an application for an official plan amendment or zoning change requires processing. The lawyers, engineers, etc. bill the municipality for their services. The name of the developer is referred to on the invoices.
7. The municipality pays the lawyer, engineer, etc. The municipality is liable for payment of the invoice.
8. The costs of the contract planning services and engineering services are deducted from the deposit. In addition, the municipality's administrative costs for processing the application are recovered through an administration fee deducted from the deposit. Any funds remaining from the deposit are refunded to the developer.
9. In some situations, the expenses relating to the lawyer or engineer do not appear on the financial statements of the municipality.
10. The plan is approved by the municipality following passage of by-laws amending the Official Plan and those relating to zoning, and the payment of development fees. Once approved, the developer applies for building permits from the municipality for which building permit fees are charged by the municipality.
The following questions were submitted for our response:
1. What is the nature of the supply between the municipality and the developer where the municipality receives a reimbursement for costs incurred to investigate applications for official plan amendments or zoning amendments?
2. Is the supply between the municipality and the developer exempt?
Response:
1. The municipality, as part of the process of processing the application for amendment to official planning or rezoning, arranges for by-laws to be passed by the municipality. In arranging for the passage of by-laws, the municipality incurs third party costs for which it seeks recovery from the developers. The recovery of the third party expenses is in addition to the application fee. It is our opinion that the municipality is supplying a service to developers and in the course of the service, the municipality incurs third party costs. There is no indication that the municipality is acting as an agent of the developer when it acquires contract services. The engineering and legal services were supplied to the municipality at the request of the municipality. The municipality requests these services to comply with sections 17 and 34 of the Planning Act of XXXXX Pursuant to section 178 of the Act, where the municipality is reimbursed by the developer for an expense incurred while making a supply of a service to the developer, the reimbursement is deemed to be part of the consideration for the supply of the service except to the extent that the expense was incurred by the person as an agent of the recipient. As stated above, the municipality is not an agent of the developer, therefore the supply of the third party services shall be deemed to be part of the consideration for the service.
In those situations where the municipality does not use the contract services in its supply of engineering and legal services to developers, but utilizes municipal engineers and planners, the municipality itself is making supplies of services to developers.
2. Paragraph 20(c) of Part VI of Schedule V to the Act provides for an exempt supply of a licence, permit, quota or similar right (other than such a right supplied in respect of the importation of alcoholic beverages), and the supply of any service in respect of an application for such a right. As stated above, a developer requesting a Plan of Subdivision, is required to apply for an amendment to an official plan and zoning, both of which require approval by the municipality by means of amending by-laws. The municipality's processing of the developer's request for amendments to an official plan or zoning by-laws is an exempt service in respect of the application for the Plan of Subdivision and subsequent building permits pursuant to paragraph 20(c) of Part VI of Schedule V to the Act.
In addition to charging a fee for processing the amendments to cover the administrative costs of the municipality, third party expenses (i.e. planning and engineering services) are charged to the developer. As stated in the response to question 1, pursuant to section 178, the third party expenses incurred by the municipality, are deemed to be part of the consideration for the exempt supply of the service of processing the application. Therefore, the contracted services for which reimbursement is sought, are exempt.
In those situations where the application for a change in official plan or rezoning is not approved by Council, the services supplied by the municipality in respect of the application for the changes are charged to the developer as an exempt supply under paragraph 20(c) of Part VI of Schedule V.
The municipality is entitled to the municipal rebate of 57.14% for the GST incurred on the contracted engineer and planning services. In addition, the municipality is entitled to claim the municipal rebate for GST incurred on its administrative costs related to the supply of the permit.
Regardless of the accounting treatment used by the municipality to charge the developer for the supply of the services in respect of the application, the supply of the services is an exempt supply under paragraph 20(c) of Part VI of Schedule V.
Should you have any questions, please contac x Ms. Joanne Houlahan, Manager, MUSH, Non-Profit Organizations and Charities at (613) 954-7945 or Mr. Owen Newell, Policy Officer, Municipalities at (613) 954-4280.
J.A. Venne
Director
Tax Policy - Special Sectors
GST Policy and Legislation
c.c.: J. Houlahan
O. Newell
N. Minken
Email this Content