11848-7(RCMP)
11846-3(LFR)
XXXXX August 17, 1995
Dear XXXXX
This is in response to XXXXX memorandum of July 21, 1994 (with attachments) in which she requested our opinion regarding the status of payments made by the Province of XXXXX to the City of XXXXX for its use in the operation of the XXXXX . XXXXX also requested our opinion with respect to payments made by XXXXX to the individual filling the position of XXXXX of the XXXXX .
For purposes of funding a police-based victim assistance services program, Her Majesty the Queen in the Right of the Province of XXXXX represented by the Attorney General XXXXX and XXXXX entered into an agreement. According to the agreement, XXXXX agreed to carry out the services described in Schedule "A" to the agreement. In her letter, XXXXX indicated that it is your district's belief that the payments made by XXXXX to XXXXX under this agreement are not consideration for a supply as there is no direct link between the payments made and any supply.
As a result of its agreement with XXXXX entered into an agreement with an individual, XXXXX Under this agreement, XXXXX agrees to carry out the services described in Schedule "A" to that agreement. The services required of XXXXX are the same of those required of XXXXX under its agreement with XXXXX In her letter, XXXXX has questioned whether the agreement entered into by XXXXX with XXXXX is to contract out XXXXX contractual obligations to XXXXX thereby forming a direct link between the payments made by XXXXX to XXXXX XXXXX cited example III (page 9) of TIB-067 as being the cause of her query since it provides that a municipality would be viewed as receiving a direct benefit where it contracts out for services it would otherwise be required to provide. She also expressed concern as to whether this same concept should apply to training services carried out by individuals or organizations on behalf of Human Resources Development Canada (HRDC).
Prior to addressing the status of payments made by XXXXX to XXXXX and by XXXXX to XXXXX under their respective agreements, I would first like to address the example taken from TIB-067 and cited in XXXXX letter. I would also like to mention that it is our intent to rewrite TIB-067 in order to provide a more comprehensive tool in establishing the status of transfer payments. We are aware that some of the examples used in TIB-067, although based upon actual cases, are incomplete and may lead to a determination that is contrary to the intent of the transfer payment policy.
We share XXXXX concern that using example III of TIB-067 could suggest that payments made by HRDC for training services are consideration for a supply since it is within HRDC's mandate to develop and apply a framework of policies and programs necessary for the efficient functioning of the Canadian labour market. However, it was not the Department of Finance's intended approach to subject to tax transfer payments made for the benefit of the general public. For this reason we plan to replace or revise examples given in TIB-067 so as clarify what does and what does not constitute contracting out for purposes of the grants and subsidies policy.
Based upon the information submitted by XXXXX together with that provided by XXXXX on March 10, 1995 the following has been prepared in response to XXXXX enquiry regarding payments made by XXXXX to XXXXX and by XXXXX to XXXXX under their agreements.
AGREEMENT - XXXXX
Statement of Facts
1. An agreement (Agreement I) was entered into between XXXXX and XXXXX , as Project Director. Agreement I covers the period commencing April 1, 1994 to March 31, 1997.
2. The preamble to Agreement I states that "the Province and the Project Director wish to jointly fund a program of police-based victim assistance services ... And whereas the Project Director has agreed to be responsible for the provision of these services ..."
3. Article 1 of Agreement I states that "The Province retains the Project Director to provide the services ... described in Schedule "A" ..."
4. Article 1 of Schedule "A" to Agreement I states that "The Project Director will be responsible for the establishment and for the administration of the Program which will provide the Services to victims of crime in the area of:
XXXXX Area".
5. Article 2 of Schedule "A" to Agreement I describes the services that will be provided to victims of crime under the Program. These services include, for example, the provision of information; referrals; assistance in completing forms such as victim impact statements; accompaniment of police to assist with death and accident notification and the prevention of re-victimization.
6. Article 4 of Schedule "A" to Agreement I states that "In delivering the Program Services, the Project Director will ensure that ... (iii) the Program Services will be delivered by a paid Program Coordinator ... who is assisted by trained volunteers ..."
7. Article 3.(a) of Agreement I indicates that XXXXX will contribute XXXXX ( XXXXX per provincial fiscal year) towards the cost of the services to be carried out. Article 3.(c) of the Agreement states that XXXXX will contribute a minimum of XXXXX per fiscal year. Article 3.(f) states that the payments will be made by XXXXX to XXXXX with Crown funds.
8. Article 5 of Agreement I states that the "Project Director is an independent contractor and is not the servant, employee, or agent of the Province."
9. Article 7 of Agreement I provides that XXXXX will submit to XXXXX a descriptive report of the services carried out under the Agreement; financial statements and monthly summary of statistics.
10. Article 16 of Agreement I states that the "Province will purchase and maintain Comprehensive General Liability Insurance ... against bodily injury and property damage arising out of the Project Director's performance of the Services on behalf of the Province as outlined in this Agreement."
11. Article 24 of Agreement I states that the "Schedules to this Agreement are an integral part of this Agreement..."
AGREEMENT - XXXXX
12. An agreement (Agreement II) was entered into between XXXXX and XXXXX , as XXXXX to cover the period from October 25, 1993 to April 30, 1994.
13. Under article 5 of Agreement II, XXXXX agrees to pay XXXXX an amount of $39,000 gross per annum beginning October 25, 1993.
14. Article 15 of Agreement II states that "the payment of money by the City to the XXXXX pursuant to this agreement is subject to the City obtaining funding under the terms and conditions of the XXXXX
15. Other than some minor changes in wording, the description of the services required of XXXXX , as set out in Schedule "A" to Agreement II, are identical to those described in Schedule "A" to Agreement I.
16. Effective June 1994, XXXXX became an employee of XXXXX . It is understood from the information provided, that XXXXX was hired by XXXXX to occupy its position of XXXXX In accordance with the job description for the XXXXX is responsible for the development and coordination of the XXXXX to service the XXXXX area.
OPINION REQUESTED
1. Are the payments made by XXXXX to XXXXX under Agreement I consideration for a supply?
2. Are the payments made by XXXXX to XXXXX under Agreement II covering the period October 25, 1993 to April 1994 consideration for a supply?
OPINION GIVEN
1. It is our opinion that the payments made by XXXXX to XXXXX under Agreement I are not consideration for a supply as there is no direct link between the payments made and the activities carried out under Agreement I in respect of the XXXXX or any other supply that may take place as a result of the agreement.
2. It is our opinion that the payments made by XXXXX to XXXXX under Agreement II for the period covering October 25, 1993 to April 30, 1994 are consideration for a taxable supply of services, as XXXXX, to XXXXX
Analysis
Agreement - XXXXX and XXXXX
It is our opinion that the payments made by XXXXX to XXXXX under Agreement I are not consideration for a supply and therefore GST does not apply to those payments.
Pursuant to section 165 of the Excise Tax Act (ETA), every recipient of a taxable supply, other than a zero-rated supply, is required to pay tax in respect of the supply equal to 7% of the value of the consideration for the supply.
As such, it must be established whether the payments made are consideration for any supply which may be provided under Agreement I.
Although a supply of services does take place, the payments made under Agreement I are not consideration for GST purposes as there is no direct link between the payments made and the services or any other supply which may be provided under the agreement.
The activities described under Agreement I and carried out under the XXXXX are not supplied to XXXXX for its own use and benefit. The benefits arising from these activities rest with unspecified third parties, particularly those groups and individuals who are victims of crime in the XXXXX area.
The services carried out pursuant to Agreement I are supplied for a public purpose. Under article 1 of Agreement I, XXXXX retains XXXXX to provide the services described in Schedule "A" to Agreement I. Article 1 of Schedule "A" to Agreement I states that the "Project Director will be responsible for the establishment and for the administration of the Program which will provide the Services to victims of crime in the area of:
XXXXX .
Article 2 of Schedule "A" to Agreement I states that the "Program will provide the following Services to victims of crime in an emotionally supportive manner:
(i) information, both case-specific and about the justice system in general; referral; assistance in filling out the forms such as Criminal Injury Compensation applications or victim impact statements; liaison with Crown; court familiarization; and court accompaniment; attendance at crisis incidents only with a member present;
(ii) accompaniment of police to assist with death and accident notification;
(iii) prevention of re-victimization, including home security checks, to the extent that this service assists victims ..."
The payments made by XXXXX to XXXXX are made in the interest of the general public. They are made to support a program of police-based victim assistance services. The payments are not made by XXXXX to purchase these activities for its own use or benefit. XXXXX purpose in making the payments, as indicated in the preamble to Agreement I, is to "jointly fund a program of police-based victim assistance services."
Article 7.(a) of Agreement I states that on or about April 30 of each fiscal year, XXXXX is required to submit a descriptive report of the services carried out and a financial statement for the immediately preceding 12 month period. Article 7.(b) of Agreement I indicates that XXXXX is required to submit monthly summary statistics to XXXXX However, these reports are monitoring and control mechanisms employed by XXXXX to assure that XXXXX is accountable for the payments made and are not the purpose for which the payments are made.
As there is no direct link between the payments and any supply which may be carried out as a result of Agreement I, it is our opinion that payments made by XXXXX to XXXXX under Agreement I covering the period April 1, 1994 to March 31, 1997 are not consideration and GST does not apply the payments.
Agreement - XXXXX
It is our opinion that the payments made by XXXXX to XXXXX under Agreement II covering the period October 25, 1993 to April 30, 1994 are consideration for a supply as there is a direct link between the payments made and the supply of services, as XXXXX of the XXXXX , to XXXXX .
It is clear under Agreement I, that the payments made by XXXXX to XXXXX are not consideration for a supply since neither XXXXX or a specified third party benefit as a result of the payments made by XXXXX The payments are made by XXXXX to XXXXX for the benefit of the general public, particularly those groups and individuals who are victims of crime.
The "Extension of Transfer Payment Policy" dated May 25, 1993 states that "Transfer payments which are viewed as 'not consideration' should maintain that status regardless of the number of intermediaries through which the payment passes, as long as no direct link can be made between the payment and a supply to a grantor or the intermediary. Therefore, activities of 'program' and 'fund' administration provided to grantors and/or intermediaries are not viewed as separate supplies in the transaction; nor are they seen as the primary supply for which the payment is made ..."
Accordingly, if the payments made by XXXXX to XXXXX are not directly linked to a supply (other than program or fund administration), XXXXX would be an intermediary for purposes of the "Extension of Transfer Payment Policy" and the payments would not be consideration for a supply.
However, XXXXX does not simply administer the program or the funds as required under the "Extension of Transfer Payment Policy". XXXXX purchases the services of XXXXX and resupplies those services to victims of crime in the XXXXX area.
There are many indicators which support our view that it is XXXXX which is providing the services to victims of crime and not XXXXX[.] For example, persons in need of the services offered under the XXXXX are referred to the Program by the XXXXX they are not referred to the Program by XXXXX. In addition, the agreement to provide these services to victims of crime is between the victims and the XXXXX. The agreement is not between the victims and XXXXX.
In other words, the payments made by XXXXX to XXXXX are for a purchase purpose thereby forming a direct link between the payments made by XXXXX to XXXXX and the services she supplies to XXXXX.
Even though the services carried out by XXXXX pursuant to Agreement II benefit the general public, the payments made by XXXXX to XXXXX are to contract out for services that XXXXX would otherwise have to provide.
The following indicators confirm that the payments made by XXXXX to XXXXX are to contract out for the supply of her services and that the services carried out in respect of the XXXXX are supplied by XXXXX and not XXXXX to victims of crime.
Purpose of Payments
XXXXX purpose in making the original payments to XXXXX was clearly for the benefit of the public. Under Agreement I, XXXXX provides financial assistance to XXXXX in the interest of the public, that being the establishment and administration a program of police-based victim assistance services.
However, XXXXX does not enter into Agreement II for the same purpose. XXXXX enters into Agreement II to acquire the services of XXXXX[.] The payments made to XXXXX by XXXXX under Agreement II is to contract out XXXXX obligations to XXXXX that is the performance of the services required of it under Agreement I.
Although XXXXX does have a public purpose in establishing an XXXXX, it contracts out in order to provide this service to the community. XXXXX enters into Agreement II in order to purchase the services of XXXXX for this purpose.
By entering into Agreement II with XXXXX discharges its obligations pursuant to its agreement with XXXXX[.] Under Agreement I, XXXXX agrees and takes on the responsibility of providing the services for which funding is given to it by XXXXX[.] The obligation to perform these services is reflected in the preamble to Agreement I which states that the "Project Director has agreed to be responsible for the provision of these services." (The Project Director is XXXXX[.]
Responsibility to Carry Out Services
Article 1 of Agreement I states that XXXXX "retains the Project Director to provide the services ...described in Schedule "A" ... " Schedule "A" to Agreement I states that the "Project Director will be responsible for the establishment and for the administration of the Program which will provide the Services to victims of crime in the area of:
XXXXX
Under Agreement II, XXXXX retains XXXXX as XXXXX , to provide the services set out in Schedule "A". The services described in Schedule "A" to Agreement II are essentially the same as those described in Schedule "A" to Agreement I. This clearly indicates that it is XXXXX who is responsible for the provision of the services and that it contracts out with XXXXX in order to meet its contractual obligations to XXXXX Disclosure to "Contract Out"
In making the payments to XXXXX is aware that XXXXX will contract out for the provision of services in respect of the XXXXX. Article 4.(iii) of Schedule "A" to Agreement I states that "the Program Services will be delivered by a paid Program Coordinator ... who is assisted by trained volunteers." From this, both parties acknowledge that the services in question will be carried out by a paid individual. This strengthens our position that XXXXX does contract out with XXXXX for the services she renders.
Referrals to the XXXXX
Little advertising, if any, regarding the availability of this program is done through the media (e.g. newspaper; radio; television). Referrals to the XXXXX are made by the XXXXX during the course of providing policing services to XXXXX The XXXXX office is located on XXXXX premises.
Even though the provision of these services under the XXXXX may be viewed by the public as being made by the XXXXX the services offered by XXXXX are paid for by XXXXX in accordance to their contractual agreement. They are not paid for by the XXXXX[.] Although the payment of these costs by XXXXX is not in and of itself a strong indicator that it is XXXXX which is providing the services to victims of crime, it does, in light of the other indicators outlined in this case analysis, provide further support to our view that the supply is being made by XXXXX
Agreement to Provide Services to Victims of Crime
Persons who are victims of crime are referred to the XXXXX by the XXXXX It is the XXXXX who identifies the individuals who will receive the services offered under the XXXXX , not XXXXX . Although XXXXX, as XXXXX and the volunteers working in the XXXXX may carry out the activities of the program, it is XXXXX and not XXXXX who agrees to provide the victimized individual with the services that the XXXXX has identified as being needed by the individual.
Job Description - XXXXX
The job description used by XXXXX to fill the position of XXXXX is based upon the activities described under Agreement I.
An April 14, 1994 letter from the XXXXX to Revenue Canada states that XXXXX was "filling the position of XXXXX. The letter goes on to state that XXXXX is "under contract with the City of XXXXX to provide the service."
The fact that XXXXX specifically created a position for the purpose of providing this service to the public is a clear indication that it is XXXXX who is providing this service to the public. This is further support of our view that XXXXX contracts out for services that it would otherwise be required to provide.
The most apparent indication that the payments made by XXXXX to XXXXX is to contract out its obligations is the fact that XXXXX became an employee of XXXXX effective June 1994.
(Agreement II covers the period October 25, 1993 to April, 1994.) It is understood from the information provided that the position filled by XXXXX is that of the XXXXX .
It is our view that the payments made by XXXXX to XXXXX under Agreement II are consideration for the supply of services and XXXXX is not an intermediary for purposes of the "Extension of Transfer Payment Policy". That is, the payments made by XXXXX to XXXXX are not flow through funding. As the supply of XXXXX services is not designated otherwise, it is taxable at a rate of 7%.
We hope that our comments will be of assistance to you. Should you have any questions in this regard, please call me at (613) 954-3551 or Lynn Renner, Policy Officer, (613) 952-9262.
Yours truly,
Marilyn Viger
Manager
Governmental Sectors and Federal/Provincial Relations
GST Rulings and Interpretations
| c.c.: |
J.A. Venne
L.F. Renner (Doc. 631) |
Email this Content