GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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File: 11849-6/
XXXXX November 25, 1997
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Subject:
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GST/HST APPLICATION RULING
Supply Made to the Provincial Government
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Dear XXXXX
Thank you for your letter of September 26, 1996 with attachments concerning the application of the Goods and Services Tax (GST) to the transaction described below.
Our understanding of the facts is as follows.
Statement of Facts
XXXXX is a highway that is vested in the city of XXXXX and has been designated as a connecting link. Although we do not have a copy of the entire connecting link agreement, we have a copy of XXXXX of that agreement which refers to XXXXX as being designated as a connecting link.
2. The reconstruction of XXXXX commenced in XXXXX under the provisions of the XXXXX provides for the construction costs of some municipal roads that play an integral part in the provincial highway system to be shared XXXXX percent provincial and XXXXX percent municipal.
3. In the case in question, the last portion of the XXXXX serves little or no municipal purpose, therefore, special funding for the last phase of the construction project was requested by the City and accepted by the XXXXX The special funding provides for the province to pay XXXXX percent of the cost of construction for a specified portion of XXXXX
4. In order to be able to provide the special funding, a working agreement (Agreement) was proposed by the XXXXX A City Council resolution was passed stating that the City accepts all the terms of the Agreement.
5. One of the terms of the Agreement is that the XXXXX will temporarily assume the specified portion of the XXXXX right-of-way for the duration of construction as provided for under section xx of the XXXXX Subsection XXXXX states: "Where the Minister desires to acquire an existing highway, he or she shall register in the proper land registry office, (a) a plan of the highway to be known as and marked "Assumption Plan/Plan d'appropriation" ... and thereupon the highway vests in the Crown and the Minister forthwith shall give notice in writing of such vesting to any municipality concerned." Subsection XXXXX states: "The Minister, before registering an "Assumption Plan", may register in the proper land registry office, a preliminary plan of the highway to be known as and marked "Preliminary Assumption Plan/Plan préliminaire d'appropriation", and such Preliminary Assumption Plan when registered has the same force and effect as an Assumption Plan registered under subsection (1). ...".
A Preliminary Assumption Plan for the specified portion of the XXXXX was formally registered by the XXXXX in March 1994.
6. Under subsection XXXXX of the same act, the assumed right-of-way will be transferred back to the City upon substantial completion of the contract and acceptance of the work by the City. Subsection XXXXX states: "The Lieutenant Governor in Council may direct the transfer of any part of the King's Highway or any part of any other highway that is under the jurisdiction and control of the Ministry to any municipality in which it is situate and, (a) it vests in and is under the jurisdiction and control of the municipality on and after the day named by the Lieutenant Governor in Council; (b) it shall for all purposes be deemed to be part of the road system of the municipality ...".
7. Other terms of the Agreement include:
• Costs, if any, for consulting with an XXXXX land surveyor's firm to facilitate the assumption and subsequent transfer will be borne by the City.
• The City will deal with all claims for lands taken and acquired, for property damage or injurious affection to land or property arising out of or in conjunction with construction of the work and will save harmless the Crown in respect of such claims.
• The City will continue to act as the road authority as defined in Section 1 of the XXXXX As such, the City will continue to administer its responsibilities including those for zoning, corridor control and maintenance. Subsidizable maintenance costs will be funded according to normal ministry municipal roads policy.
• The City or the City's contractor, as may be appropriate, will be recognized as the Constructor pursuant to the XXXXX for the duration of the work. The XXXXX will be recognized as the third party, to the construction agreement between the City and its chosen contractor.
• The City will continue to be responsible for all aspects normally associated with a standard connecting link contract. For payment purposes, the City will keep and provide separate construction documentation for the portion constructed under the connecting link agreement and the portion for which special funding is being provided. All extra costs during construction must be approved by the XXXXX of the items normally funded under the XXXXX This includes the amount charged by the City's contractor, the amount paid for other services and materials required to supply the project, and the cost of some of the services provided by the City. For example, the City billed the province for services performed by the City's Legal, Public Works and Engineering Departments in connection with the construction of the road.
8. The total amount paid by the XXXXX to the City for the construction of the specified portion of XXXXX exceeds the direct cost, as defined in the Excise Tax Act (ETA), of the construction services.
9. Construction work on the specified portion of the XXXXX was performed through XXXXX to the City for construction on the specified portion of XXXXX subject to GST?
Ruling Given
Based on the facts set out above and our understanding that the specified portion of the XXXXX is owned by the province during its construction, we rule that the payment by the XXXXX to the City is consideration for a supply of construction services on the portion of the road assumed by the XXXXX As the consideration exceeds the direct cost of the supply, the supply is not exempt under section 6 of Part VI of Schedule V to the ETA. Moreover, the City does not charge GST to the XXXXX because it is a provincial government.
The City is entitled to claim Input Tax Credits to the extent its costs relate to the supply of taxable services to the province.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9589.
Yours truly,
Béatrice Mulinda
Governments Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
Legislative References: 122, 123(1) - Direct Cost, Section 6 of Part VI of Schedule V
NCS Subject Code(s): XXXXX
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