23 December 1996 GST/HST Interpretation 11895-5[2] - Information with Respect to Sections 21 and 22 of Part VI of Schedule V to the Excise Tax Act

Dear Sir:

I refer to your letter and our telephone conversation of October 3, 1996, where you indicated that you are engaged in activities of pumping and hauling residential sewage for disposal at municipal sewage treatment facilities. As XXXXX XXXXX, you have requested information with respect to sections 21 and 22 of Part VI of Schedule V to the Excise Tax Act (the Act).

Under section 22 of Part VI of Schedule V, a supply of a service of installing, repairing or maintaining a water distribution, sewerage or drainage system that is for the use of all occupants and owners of real property situated in a particular geographic area is exempt when made by a municipality or by an organization that operates a water distribution, sewerage or drainage system and that has been designated by the Minister to be a municipality for the purposes of this section. However, a supply of a service of repairing or maintaining a part of the system where the recipient is the owner or occupant of a particular parcel of real property situated in the particular geographic area and the part of the system is for the exclusive use of occupants and owners of the particular parcel for which a separate charge is made to the recipient of the supply is taxable.

The April 23, 1996, Notice of Ways and Means Motion proposed an amendment to section 22. Under the present provision (i.e., prior to the proposed amendment), where a separate fee is charged to a property owner or occupant to repair or maintain part of an existing system that is for the sole use of the owner or occupant, the supply is taxable. Under the proposed amendment this exception will be eliminated. Under the amendment, the supply of the service of interrupting the operation of a water distribution, sewerage or drainage system for which the consideration becomes due after 1996, will be exempt.

In order for a person to be designated as a municipality under section 22 and thereby make exempt supplies under this section, the person must operate a sewerage system. Furthermore, the removal of sewage from septic tanks for property owners by septic tank truck operators is not considered to be a service of operating a sewerage system; therefore, section 22 does not apply.

Section 21 of Part VI of Schedule V to the Act exempts a supply of a municipal service made by or on behalf of a municipality in a geographic area to property owners or occupants in the area that have no option but to receive the service. Where the service is provided by a third party on behalf of the municipality, the supply will be exempt if billed to the property owner or occupant, but taxable if billed to the municipality. For example, if a person is engaged in the business of pumping and hauling sewage for occupants or owners of real property in a geographic area where they have no option but to receive the service, the supply of the service is exempt and GST will not apply where the homeowner or occupant is invoiced by the supplier. The person making this exempt supply is not entitled to claim input tax credits, but if designated under section 259 of the Act for the purposes of claiming the municipal rebate, the person will be eligible to claim the rebate for non-creditable tax incurred in making the exempt supply. If a person meets the requirements of section 22 as outlined above, they may apply to be designated as a municipality under sections 22 and 259.

If a service is provided by a private sewerage hauler to occupants or owners of real property in a particular geographic area on an optional basis, however, the supply of the service would be taxable as there is no provision in the Act to exempt it.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memorandum Series Section 1.4, do not bind the Department with respect to a particular situation.

Should you have any questions, please contact Ms. Enikö Vermes, Manager, Municipalities at (613) 954-5127 or the undersigned at (613) 954-4280.

Yours truly,

O.W. Newell, CGA
Policy Officer
Municipalities and Health Care Services
Public Service Bodies and Governments
GST Rulings and Interpretations