1 July 1997 GST/HST Interpretation RITS00476 - GST Status of Supplies by Water Haulers

This is in response to your request of December 11, 1996, in which you requested clarification of the application of the GST to certain fact scenarios involving supplies by water haulers.

Auditors from your office have uncovered situations where water haulers characterize their supplies as other than a supply of water resulting in the supply being GST taxable. The water haulers have then been taking full Input Tax Credits (ITC's) in these situations. You would like our position on the GST treatment in these situations.

Statement of Facts

1) Water haulers haul water (potable or otherwise) by vehicle to a destination of the client's choice.

2) In your letter you discussed four water hauler scenarios which can be described as follows:

Scenario No. 1: A water hauler bills clients an hourly rate incorporating an amount for the vehicle and labour plus an amount for additional expenses such as for the driver's room and board where applicable.

Scenario No 2: The water hauler delivers water and invoices the client based upon the number of loads of water delivered.

Scenario No. 3: The water hauler delivers water and invoices the client for the number of kilolitres of water delivered.

Scenario No. 4: The client is billed a flat rate for having the water truck available on a standby basis. For example at a road construction site water haulers are on call to water down the site to keep dust down. The hauler waits until authorized and then distributes the water.

3) In some situations a permit may be required to extract water from a public source. The permit may be purchased by the water hauler or the client.

Questions

1) You would like confirmation of the GST treatment in the above scenarios.

2) You would like to confirm the GST treatment in situations involving the requirement or lack of requirement to obtain permits to extract the water from a public source:

i) where permits are obtained by the water hauler's customer or by the water hauler himself, and,

ii) where no permits are required to obtain the water.

Under these two scenarios how would the supply be characterized?

3) If the permits for the water are in fact obtained by the client, is the client (e.g. a road contractor) then considered to be engaged in making an exempt supply of water if he in turn itemizes a charge for water to his client (e.g. a municipality)?

Answers

Section 23 of Part VI of Schedule V to the Excise Tax Act (ETA) as amended by Bill C-70 exempts the supply of unbottled (or bulk) water including the supply of the delivery service. As per the Department of Finance Explanatory Notes for Bill C-70, the amendment was effective for supplies for which all of the consideration becomes due after April 23, 1996. The previous version of the provision was administered in the same manner as the amended version. The amendment was merely to provide greater clarity. Therefore the following comments apply for both versions of the provision.

Based on the facts provided, scenarios 1, 2, and 3 discussed above are all considered to be exempt supplies of unbottled water under section 23. The method of invoicing does not change the nature of the supply. This holds for all situations where the supplier merely delivers water to a destination of the client's choosing. Situations which involve more than a mere delivery service being supplied with the water as discussed below.

Where the supplier is providing more than merely water and the delivery service, such as a service of watering down a construction site to decrease airborne dust, the supply is considered to be outside of the scope of the section 23 exemption and therefore taxable at 7%. Examples of similar taxable supplies taken from your sample invoices include "standby for acid dump in pond" and "streetwashing".

Some other sample invoices referenced delivering water to fires. Where the supply includes more than just water and delivery, such as assistance in the application of the water to the fires, the supply is also taxable. The simple delivery of water (where the water hauler has title to the water) to the fire site remains exempt under section 23.

Permits

Where the source of the water is a public resource such as a stream, river or body of water and the supplier acquires the water without payment of consideration this does not alter the fact that the recipient received a supply of water from the water hauler. The fact that the water hauler paid no consideration for the water does not change the fact that the water hauler is supplying unbottled water under section 23.

Where permits to extract water are required and the water hauler acquires the permit in his own name the supply is considered to be one of unbottled water under section 23.

Where permits to extract water are required and the client acquires the permit in his own name (instead of the water hauler acquiring the permit) the water hauler is considered to be making a supply of a delivery or transportation service subject to the GST at 7%.

You have also asked about other situations where permits are acquired by the water hauler's client, a road contractor. (As discussed above, in this situation the client has title to the water.) Where the road contractor invoices his client (e.g. a municipality) an amount for water, the amount does not represent an exempt supply of water made to the municipality. Rather, the water is an input to the supply of construction services made by the contractor to the municipality. The consideration for the supply of construction services is subject to the GST at 7%. Therefore the amount invoiced by the contractor to the municipality as consideration in respect of the supply of water is in fact an amount in respect of construction services and is subject to the GST at 7%.

I hope this answers all of your questions. Should you wish to discuss any of this further, please contact me at (613) 952-9590 or Owen Newell at (613) 954-4280.

Ken Syer
Senior Rulings Officer
GST Rulings and Interpretations
Policy and Legislation Branch