28 November 1996 GST/HST Interpretation 11895-1[1] - Application of GST for the Supply of Permits and Inspection Services Performed During Construction

Dear Sir:

I refer to your letter of June 7, 1996 requesting an interpretation of the provisions of the Excise Tax Act (the Act) as they relate to the activities of one of your clients, XXXXX[.]

Statement of Facts

1. XXXXX is a by-law to appoint a chief building official pursuant to XXXXX states that the Council of each municipality is responsible for the enforcement of the XXXXX in the municipality. XXXXX states that each municipality shall appoint a chief building official and such inspectors as are necessary for the enforcement of XXXXX in the areas in which the municipality has jurisdiction.

2. Your client, XXXXX doing business as XXXXX, has been appointed Chief Building Official for XXXXX pursuant to XXXXX has the authority on behalf of XXXXX to exercise all the duties required under XXXXX[.]

3. According to By-Law XXXXX shall exercise all the authority, powers and rights of XXXXX and shall perform all the duties and obligations which are set out in XXXXX[.]

4. According to XXXXX the fees charged by XXXXX shall be in accordance with the schedule of fees forming part of XXXXX[.]

5. XXXXX is responsible for the review of all plans or working drawings submitted with the request for a permit to ensure that they conform with the requirements of the Building Code and the issuance of the permits. The construction also requires an inspection to ensure that it is undertaken in accordance with Building Code. XXXXX is also required to issue a clearance certificate upon completion of the project.

6. XXXXX does not receive direct remuneration from XXXXX but is authorized to retain all permit fees collected as compensation for being the Chief Building Official.

7. XXXXX issues the official building permit in the name of XXXXX and invoices the applicable fees in firm's name.

8. There is no written agreement between XXXXX[.]

Interpretation Requested

The supply of the permits and the services provided by XXXXX, including the services in respect of the application for the permits made by XXXXX and the inspection services performed during the construction, are exempt supplies pursuant to paragraph 20(c) of Part VI of Schedule V to the Act.

Interpretation Provided

The supply of the permits and the services in respect of the application for a permit when made by XXXXX are exempt supplies under paragraph 20(c) of Part VI of Schedule V to the Act. In order for the supply of the permits and the services when provided by XXXXX to be exempt, XXXXX must be an agent of XXXXX and the supplies must be made by XXXXX[.] Whether XXXXX is an agent of XXXXX is a question of fact for which essential qualities are required.

A policy statement on these essential qualities has been developed by the Department.

At law, there are three essential qualities of agency, namely, consent of both the principal and agent , authority of the agent to affect the principal's legal position, and the principal's control of the agent's actions.

With respect to the criteria of consent, an agency relationship exists where a principal authorizes another person to represent him and take certain actions on his behalf. Consequently, in considering whether a relationship of agency is established in any situation, it should be evident that the person acting in the capacity as agent is arranging particular transactions for the principal and that this person is not trading on his or her own account.

The second criteria to consider when determining whether an agency relationship exists is the ability of the agent to affect the legal position of the principal. The most common example of an agent binding the principal is where the agent is authorized to enter into contracts with third parties on behalf of the principal. The principles of law indicate that in a true agency relationship it should be evident that a person acting in the capacity is empowered by the principal to act or enter into contracts on behalf of that principal. Any transactions undertaken by the person in the capacity as agent will be clearly done under the authorization of its principal.

The third criteria is that a principal must exercise a greater degree of control over the actions of an agent than would exist between a person and an independent contractor who has been hired to provide a property or service. The independent contractor must provide the goods and services he has agreed to provide, though how he accomplishes this is limited only by the terms of his contract. The agent acts under the authority granted by the principal. The agent has a duty to account to the principal for his actions. In an agency relationship, it should be clear that the principal has a degree of control over the actions of the agent; the agent would be acting as an extension of the principal and, therefore, would be under the principal's general direction and control.

Assuming XXXXX is an agent of XXXXX the inspection service, if invoiced as part of the supply of the permit made by XXXXX, would be an exempt supply under paragraph 20(c) of Part VI of Schedule V to the Act. However, where a separate fee is charged by XXXXX for the inspection services, pursuant to paragraph 146(a) of the Act, the supply of the service of inspecting property for the purpose of verifying or certifying that the property meets particular standards of quality or is suitable for consumption, issue or supply in a particular manner, is taxable at seven percent.

In the event XXXXX is not acting as an agent of XXXXX the supply of the inspection service would be taxable regardless of whether the service was invoiced as part of the supply of a permit.

In addition to making exempt supplies of permits and services in respect of the application for the permit if an agent of XXXXX is also making a taxable supply of a service to XXXXX in his capacity as the authorized XXXXX. The value of the consideration for the taxable supply of the service is the permit and inspection fees collected and retained by XXXXX will be required to treat the amounts collected from recipients of the permits and inspection services as GST included commissions and remit the GST based on these tax included amounts. In the event XXXXX is not acting as an agent of XXXXX the service which he is supplying to XXXXX is being made for nil consideration for which no GST would be exigible.

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 and Health Care Services at (613) 954-5127 or the undersigned at (613) 954-4280.

Yours truly,

O.W. Newell, CGA
Policy Officer
Municipalities
GST Rulings and Interpretations