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XXXXX
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Case: HQR0000571
XXXXX R 11890-01, 11895-04, 11665-04
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April 23, 1997
Dear XXXXX
Thank you for your letter of February 14, 1997 concerning the application of the Goods and Services Tax (GST) to the transactions described below.
Our understanding of the facts, the transactions and the purpose of the transactions is as follows:
Statement of Facts
1. XXXXX is a municipality in the province of XXXXX
2. XXXXX has responsibility for the removal of snow from public roads (other than provincial highways) within its boundaries.
3. XXXXX does not own sufficient equipment to allow it to clear snow from all of the roads within its area of responsibility using its own equipment.
4. In order to fulfill its snow removal responsibilities, XXXXX enters into written snow removal agreements with individuals (owner/operators) and snow-plough clubs(clubs) whereby the owner/operators or clubs agree to use ploughing equipment and drivers supplied by them to plough XXXXX municipal roads.
5. The snow removal agreements provide for payment of XXXXX per hour to the club or owner/operator for every hour that a snow-plough and driver is ploughing XXXXX municipal roads.
6. Some of the owner/operators are farmers who have a Goods and Services Tax (GST) registration number. None of the clubs has a GST registration number.
7. The owner/operators and clubs have not charged nor has XXXXX paid GST with respect to the consideration paid by XXXXX for the snow ploughing services.
8. The owner/operators and clubs are not employees of XXXXX
TRANSACTIONS
Payment of XXXXX per hour by XXXXX to owner/operators or clubs as consideration for the ploughing of XXXXX municipal roads using vehicles and drivers provided by the owner/operators or clubs.
PURPOSE OF THE TRANSACTIONS
To allow XXXXX to obtain the snow ploughing services which it requires in order to fulfill its responsibility for ploughing of public roads.
Ruling Given
Based on the facts set out above, we rule that:
1. Snow ploughing services provided to XXXXX by clubs and owner/operators in the course of a commercial activity are taxable supplies. Clubs and owner/operators who are registered or are required to be registered for GST purposes are required to collect from XXXXX and XXXXX is required to pay, GST equal to 7% of the value of the consideration for the supply of the snow ploughing services.
This ruling is subject to the general limitations and qualifications outlined in the GST Memoranda Series (1.4). 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, and that you have fully described all necessary facts and transactions for which you requested a ruling.
Explanation
This explanation does not form part of the above ruling and the interpretations provided are not binding on the Department with respect to any particular fact situation.
Subsection 165(1) of the Excise Tax Act (ETA) requires XXXXX to pay GST on the consideration for taxable supplies of snow-ploughing services unless the supplies are relieved from GST by another provision of the ETA or other applicable legislation. A snow-ploughing service is a taxable supply when it is provided in the course of a commercial activity of a person. GST does not have to be paid on the consideration for a snow-ploughing service provided by a person who is not and is not required to be registered for GST purposes at the time when the consideration becomes payable or is paid without having become payable.
A snow-ploughing service is a commercial activity of a person if it is carried on in the course of a business or an adventure or concern in the nature of trade of that person unless the snow-ploughing service is an exempt supply. In the case of individuals or partnerships consisting entirely of individuals, a snow-ploughing service is not a commercial activity if it is carried on by the individual or partnership without a reasonable expectation of profit. A club is considered to be a person for GST purposes separate from the individuals who are members of the club. Therefore, a business or adventure or concern in the nature of trade carried on by a club will not be excluded from being a commercial activity because the activity is carried on without a reasonable expectation of profit.
A snow-ploughing service provided by or on behalf of a municipality to owners or occupants of real property situated in a particular geographic area where the owners or occupants have no option but to receive the service is an exempt supply by reason of the definition of exempt supply in subsection 123(1) of the ETA and section 21 of Part VI of Schedule V to the ETA which reads in part as follows:
21 A supply of a municipal service made by or on behalf of a government or municipality to owners or occupants of real property situated in a particular geographic area where the owners or occupants have no option but to receive the service ...
Where a municipal service is performed by a third party under contract with the municipality, the supply will be exempt under section 21 if billed by the contractor to the property owner or occupant, but taxable if billed to the municipality.
For supplies when consideration becomes due or is paid without having become due after December 31, 1996 a snow-ploughing service provided by a municipality is also an exempt supply by reason of the definition of exempt supply in subsection 123(1) of the ETA and paragraph 21.1(b) of Part VI of Schedule V to the ETA which read as follows:
123(1) "exempt supply" means a supply included in Schedule V
Schedule V Part VI
21.1 A supply made by a municipality or a board, commission or other body established by a municipality of a service of ...
(b) removing snow ice or water.
A snow-ploughing service provided by a municipality is an exempt supply and therefore not a commercial activity. Neither Section 21 nor paragraph 21.1 (b) of Part VI of Schedule V exempts a snow-ploughing service provided to a municipality. The definition of "recipient" in subsection 123(1) of the ETA provides in part that:
123(1) "recipient" of a supply of property or a service means
(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration ...
and a reference to a person to whom a supply is made shall be read as a reference to the recipient of the supply.
The snow removal agreements are agreements for the supply of snow-ploughing services and XXXXX is the person obliged to pay consideration under the agreements. Therefore, XXXXX is the recipient of the supply of snow-ploughing services under the snow-removal agreements and the snow-ploughing services are considered as having been supplied to XXXXX by the owner/operators and clubs.
Subsection 221(1) of the ETA requires the person making a taxable supply of snow-ploughing services to collect GST if the person is a registrant for GST purposes at the time when the consideration for the supply of the snow-ploughing services becomes payable or is paid without having become payable. A person is a registrant if they are either registered for GST purposes or are required to be registered.
Generally persons are required to register for the GST if:
• they are providing taxable goods or services in Canada; and
• their total worldwide taxable revenues, including the taxable revenues of all associates, in the past four consecutive calendar quarters are more than $30,000 (this includes revenues from zero-rated goods and services and excludes revenues from supplies of capital property).
A person who should be registered for GST purposes but is not in fact registered is still subject to the requirement to collect GST for those supplies where GST is required to be collected by the supplier. A person who is not required to be registered for GST but voluntarily chooses to do so is also subject to the requirement to collect GST. As noted above taxable supplies include supplies of zero-rated products (such as many forms of agricultural product.)
Subsection 223(2) of the ETA and the "Input Tax Credit Information Regulations" made pursuant to that subsection require a supplier to provide the supplier's GST registration number to a recipient of a taxable supply if the recipient requests the number and requires it for the purposes of claiming an input tax credit or rebate of GST. However, when a taxable supply is made by a GST registrant and the supplier is required to collect the tax, the liability of the recipient of the taxable supply does not depend on whether or not the supplier provides a registration number. Thus, the recipient is obliged to pay the GST and the supplier must collect and account for the GST at the time payment is made or becomes due irrespective of the fact that no registration number is given.
When a recipient is liable to pay tax in respect of a taxable supply made by a GST registrant and the supplier is obliged to collect that tax, the recipient's liability is not discharged by the fact that the supplier has failed to collect the tax. However, Revenue Canada will normally recover any outstanding GST from the supplier, as the latter is liable to remit the tax even if it was not charged. Although the recipient remains liable for the GST, Revenue Canada will not generally collect the tax or applicable penalty and interest from the recipient. The recipient's obligation to pay tax to Her Majesty in right of Canada on a taxable supply will technically not be extinguished until the GST is actually paid. However, pursuant to subsection 221(1) of the Excise Tax Act (ETA), it is the obligation of the supplier as the agent of Her Majesty to charge and collect the tax on that taxable supply. There is no provision in the ETA which requires a person to self-assess the tax when a supplier who is obliged to charge and collect GST fails to do so.
Section 224 of the ETA gives a supplier a right to bring an action in a court of competent jurisdiction against the recipient of a taxable supply for the GST which is required to be paid by the recipient and collected and remitted by the supplier as if it were a debt owing by the recipient to the supplier. In order to be able to bring an action under section 224 the supplier must satisfy the following requirements:
1. The supplier has made a taxable supply to the recipient,
2. The supplier is required to collect tax from the recipient in respect of the supply[,]
3. The supplier has disclosed the consideration and the GST in respect of the supply to the recipient as required under subsection 223(1)[,]
4. The supplier has accounted for or remitted the tax payable by the recipient in respect of the supply to the Receiver General but has not collected the tax from the recipient[.]
For the period before April 7, 1997 subsection 223(1) referred to under requirement 3 above reads as follows:
223. (1) Where a registrant makes a taxable supply the registrant shall indicate to the recipient, either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient in respect of the supply,
(a) the consideration paid or payable in respect of the supply in a manner that clearly indicates the amount of the tax; or
(b) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply.
A supplier bringing an action under section 224 of the ETA is also required to comply with the legislation and rules governing conduct of an action for debt (such as limitation periods) in the court in which the action is carried on.
As a municipality, XXXXX may be able to claim a rebate under section 259 of the ETA at the rate of 57.14% of the GST payable for snow-ploughing services used to carry on its GST exempt activity of providing exempt snow-ploughing services, provided that it makes the claim in time and otherwise complies with the requirements for making such a rebate claim. Paragraph 259(5)(b) of the ETA prevents a municipality that is non-registrant from claiming a rebate of GST under section 259 more than four years after the last day of the claim period during which the GST became payable. For periods beginning before 1997 claim periods under section 259 for a person who is a non-registrant are the fiscal quarters of the person.
GST for a service becomes payable on the earlier of the day that the consideration for the service becomes payable or is paid without having become payable. For GST purposes the consideration for the supply of a service is considered to have become payable on the earlier of
1) the day the supplier first issues an invoice for the supply,
2) the date of the invoice,
3) the day the supplier would have, but for an undue delay, issued an invoice for the supply and
4) the day the recipient of the supply is required to pay the consideration to the supplier pursuant to an agreement in writing.
We hope that this information will be of assistance to you. If you have any questions about this letter please do not hesitate to contact Mark Sylvest at (613) 952-8531.
Yours truly,
Mark Sylvest
Rulings and Interpretations Officer
c.c.: K. Syer
c.c.: E. Vermes
c.c.: M. Place
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