9 September 1997 GST/HST Interpretation HQR 041 - Maintenance Charges for Railway Crossing Signals

                                                                        September 9, 1997

Dear XXXXX

Thank you for your letter of June 25, 1996 on behalf of the XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments made by municipalities to railway companies for the maintenance of railway crossings.

Our understanding of the facts and the purpose of the payments is as follows.

Statement of Facts

1. When improvements, such as the installation of automatic warning devices, are required in the interest of public safety, at a crossing of a public roadway and a railway, a joint meeting is held between Transport Canada, the railway company and the municipality affected.

2. Once agreement on the type of work required is reached, the railway company is requested to submit an application to Transport Canada for a grant in respect of the proposed railway work pursuant to section 12 of the Railway Safety Act (the RSA), an Act to ensure the safe operations of railways.

3. In accordance with the project agreement, Transport Canada contributes 80% of the construction costs of the project. The railway company's commitment is conditional upon the municipal contribution of 12.5% of the construction cost and 50% of the cost of future maintenance.

4. Under subsection 16(1) of the RSA, either party in respect of a proposed railway crossing, the municipality or the railway company, may ask the National Transportation Agency to determine the apportionment of maintenance costs where the parties cannot agree on the apportionment of these costs.

5. Where a request for determination of the allocation of maintenance costs is referred to the Agency, the Agency under subsection 16(4) of the RSA shall determine the allocation of the costs.

6. The property which is improved or maintained either belongs to the railway company or is property for which the company has a right of way.

7. Transport Canada and the municipality are billed their proportionate share of the costs.

8. The municipal contribution is made in accordance with the National Transportation Agency's policy relative to public safety.

9. On September 23, 1992, the Department provided an interpretation to XXXXX indicating that the funds provided by the municipality toward the cost of construction for safety improvements at railway crossings are not consideration for a supply and therefore GST does not apply to those payments.

10. In its letter of XXXXX the Department clarified that the municipality's 50% contribution to future maintenance costs is also not consideration for a supply in so far as it relates to the specific project originally undertaken under the RSA.

Ruling Requested

Payment made by a municipality to a railway company for 100% of the maintenance of a railway crossing is a grant made in the public interest.

Ruling Given

Based on the facts set out above, we rule that the payment made by a municipality to a railway company for maintenance of a railway crossing, regardless of the percentage, is considered to be made in the public interest and is therefore a grant.

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 Mr. Owen Newell, Policy Officer, Municipalities, at (613) 954-4280.

Yours truly,

J. A. Venne
Director
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

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