4 November 1996 GST/HST Interpretation 11895-5[4] - Municipal Status Request - Division

Dear XXXXX

I refer to your letter of August 12, 1996, in which you requested that the XXXXX, a division of the XXXXX, be designated as a municipality pursuant to section 259 of the Excise Tax Act (the Act) for the purposes of claiming the municipal rebate. Based on the information submitted, an application ruling has been provided.

Statement of Facts

1. As explained in your letter, XXXXX (the Province) whose primary activity is the supply of XXXXX to the residents of the Province. XXXXX is a registrant collecting GST on its taxable supplies XXXXX XXXXX incurs GST on its inputs used to make taxable supplies. As a registrant, XXXXX claims input tax credits (ITC's).

2. XXXXX through the Division, has been granted the legislative authority to provide permit and inspection services for XXXXX installations within the Province. Most of the revenue collected by the Division relates to the issuance of permits; however, revenue is also generated from inspection services supplied by the division. Most inspections are made on a test basis for no consideration.

3. XXXXX is currently allocating the GST paid on inputs used directly by the Division between permit and inspection services. ITC's are claimed for GST incurred on inputs in respect of the inspection services whereas the GST incurred in respect of the permits is absorbed by XXXXX since no relief is available in the form of rebates.

4. The permit and inspection services are supplied by XXXXX pursuant to XXXXX[.]

Application Ruling Requested

The XXXXX can be designated as a municipality, pursuant to section 259 of the Act, for the purposes of claiming the municipal rebate under subsection 259(4).

Application Ruling Provided

Under subsection 259(1) of the Act, a municipality is defined to include a person designated by the Minister for the purposes of section 259 to be a municipality but only in respect of activities specified in the designation that involve the making of supplies of exempt municipal services. Although the supply of permits, and under certain circumstances as explained below, the inspection services made by XXXXX are exempt supplies, in order to designate a person as a municipality for the purposes of claiming the rebate under subsection 259(4), the person must be making exempt supplies of municipal services.

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 a right in respect of the importation of alcoholic beverages) and the supply of any service in respect of an application for such a right when supplied by a government, a municipality, a board, a commission or other body established by a government or municipality. The supply of a permit made by XXXXX would, therefore, qualify as an exempt supply under paragraph 20(c).

The supply of the inspection service is a taxable supply pursuant to paragraph 146(a) of the Act where a separate fee for the inspection service is charged by the supplier. However, in those situations where the inspection service is invoiced as part of the supply of the permit, the service will be exempt. Under section 10 of Part VI of Schedule V to the Act, the supply of the inspection services for no consideration by a public sector body is exempt.

XXXXX if an agency of XXXXX, would be a public sector body.

The supply of XXXXX permits and the inspection services are made by XXXXX pursuant to provincial legislation. The supply of these permits and inspection services authorized under provincial legislation has not been delegated to the municipal government level. Our review indicates that the supply of XXXXX permits is a function of the provincial governments and not municipalities. On this basis, we do not consider this supply to be a municipal service for GST purposes. Since XXXXX is not making exempt supplies of municipal services, it is therefore, not eligible for designation as a municipality under subsection 259(1) of the Act.

This ruling is subject to the general limitations and qualifications outlined in the GST Memorandum Series Section 1.4. We are bound by this ruling provided that none of the above issues are presently under audit, objection or appeal, there are no relevant changes in the future to Excise Tax Act, and provided that you have fully described all necessary facts and transactions for which you requested a ruling.

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
GST Rulings and Interpretations