Dear XXXXX
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST) to the funding of transit services.
You have requested information regarding the application of GST to the:
1. payment of funds by the provincial government to a transit service provider,
2. payment of funds by the provincial government to an intermediary and subsequent payments made by the intermediary to a transit provider for provision of a handicapped transit service, and
3. payments made by an intermediary to a municipality for transit services.
The following is a general explanation of the way in which the Transfer Payment Policy as set out in Technical Information Bulletin B-067 and the Extension of the Transfer Payment Policy found in policy P-061 may apply to the funding of transit services as described in your letter of January 31, 1996. As we do not have the agreements in question we are unable to provide you with a more comprehensive response.
In order to analyze a transaction under the transfer payment policy, it is necessary to examine the agreement between the parties, the conduct of the parties and the objectives or policy statements of the grantor. In addition, the legislation, by-laws and any applicable regulation under which the payment is made should be examined, along with the payment documents, reports and any other applicable documentation.
As you have demonstrated a good understanding of the policies in question, we will not discuss the general operation of the policies, but will deal only with a general discussion of how the policies may apply to the funding of transit services.
Whether or not the funding provided under any of the scenarios you have described is consideration for a supply will depend on several factors.
First it must be determined whether the grantor itself is providing (or is required to provide) the transit service it is funding and is therefore purchasing that service from the grantee (contracting out). The payment would then be consideration for a supply. Indications of who is providing the service are found by examining documentation evidencing the transaction such as the tickets and schedules issued for the services, and by looking at any other pertinent information such as who sets the fare for the service and to whom the fares belong.
Secondly, if a supply or supplies are provided by the grantee as a result of the funding, it must be determined whether or not the supplies are provided for accountability purposes only (e.g. financial and status reports). If this is the case, the payment will not generally be consideration for a supply.
It is only when a supply (other than a supply for accountability purposes) is provided by the grantee to the grantor or a third party that we continue with the analysis.
Finally, if supplies are provided by the grantee for other than accountability purposes, we must determine whether there is a direct link between the payment and those supplies (for purposes of this explanation we will assume a single supply of a transit service).
The existence of a direct link is essentially based on the following two questions:
(1) Who receives the supply?
If the beneficiary or actual users of the service are members of the general public, it is likely that no direct link exists between the payment and the supply of transit services. If, on the other hand the service is for the use of the grantor, then it is likely a direct link exists between the payment and the service.
(2) Why is the payment made?
If the payment is made for a public purpose, it is an indication that no direct link exists between the payment and the service provided. On the other hand, if the payment is made for a purchase purpose, it is an indication that a direct link exists between the payment and the service.
In determining why a payment is made we look at the following factors:
(1) The nature of the grantor
If the grantor is a public sector body it is more likely that the payment is made for a public purpose. If the payment is made by a private sector organization it is more likely that the payment is made for a purchase purpose.
(2) The mandate of the grantor
If the mandate of the grantor is to oversee programs for the public good, it is an indication of a public purpose. If the mandate of the organization is to make money, it is an indication of a purchase purpose.
(3) The purpose of the payment
If the purpose of the payment is to fund a specific transaction, project or program for the benefit of a segment of the general public, it is an indication of a public purpose. If the purpose of the payment is to buy something for the use of the grantor, it is an indication of a purchase purpose.
The questions addressed above must be also be considered when looking at a payment made by an intermediary i.e. does the intermediary make the supply; is the supply provided to the intermediary or the general public; is the payment made for a public or purchase purpose?
Should you have any further questions or require clarification on the above or any other Excise/GST matter, please do not hesitate to contact me at (613)954-7947 or Donna Harding, A/Manager, Governments Unit at (613) 954-3551.
Yours truly,
Darlene Wladyka
Senior Rulings Officer
GST Rulings and Interpretations
| c.c.: |
J.A. Venne
D. Harding
XXXXX |
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